Observations & Insight

Bits & Pieces
By John J. Lothian

It was good to see Harlan Ten Pas of McGladrey, LLP at yesterday’s Chicago Cubs game corporate outing for the accounting firm. As was shared in this newsletter in March, Harlan suffered a stroke last fall and has been working hard to rehabilitate himself.

Yesterday was the second time in July I have seen Harlan. He also attended a McGladrey event at the Ravinia, North America’s oldest music festival.

McGladrey had a good turnout for yesterday’s event, which has grown over the years from 30 to 460 people .

Oh, and by the way, McGladrey is rebranding under the name RSM. which they announced in June.

On the way to the Cubs game we took the CTA Brown Line elevated train from the Van Buren stop. Doug shared with me the window that Wikipedia founder Jimmy Wales used to sit in front of and trade Fed Funds 18 years ago as fellow traders at Chicago Options Associates, right next to the Brown Line platform.
When Jimmy Wales offered his MediaWiki software for free, the same stuff that powers Wikipedia, I said “sold,” and used it to build MarketsWiki, MarketsReformWiki and MarketsWikiEducation.com.

In Japan, the opening ceremonies of the World Scout Jamboree were held and this picture was shared by my daughter’s Scoutmaster. It was taken from a drone above the crowd.
We are expecting a smaller crowd than at the jamboree, but don’t forget to sign up your interns and newer employees for our Chicago Summer Intern Education series.

Today is the last day of work for our intern Erik Donelson, who has contributed to MarketsReformWiki for the last 3 months. Erik has been boning up on the European regulations coming into effect as he built up MarketsReformWiki. We wish Erik well in his next endeavor and thank him for his contributions to John Lothian News.

Lead Stories

Ten New CBOE Benchmark Indexes – Risk Management and Yield-enhancing Investment Tools
Matt Moran – CBOE Options Hub
Today CBOE announced in a press release that it has created 10 new options-based strategy performance benchmark indexes that are designed to highlight the long-term utility of options as risk management and yield- enhancing investment tools. CBOE will disseminate intra-day values for the new benchmarks beginning August 3, 2015 at the page www.cboe.com/benchmarks. The new benchmark indexes use popular S&P 500 Index (SPX) Weeklys options to create new versions of two of CBOE’s flagship strategy benchmark indexes — the CBOE S&P 500 BuyWrite Index (BXM) and the CBOE S&P 500 PutWrite (PUT) Index — as well as completely new risk-managed option selling strategies featuring S&P 500 Index (SPX) and CBOE Volatility Index (VIX Index) options.

Commodities Set for Worst Month Since 2011 Amid Oversupply
Ben Sharples and Sharon Cho – Bloomberg
Commodities are set for the biggest monthly loss since 2011 amid a price collapse that drove oil into a bear market and pushed gold to a five-year low.

As gold price falls, miners pick derivatives to protect income
Jan Harvey – Reuters
Gold mining companies are turning increasingly to derivatives to lock in future revenues, as an industry still smarting from losing out on a 12-year bull run gets creative over protecting its income during the metal’s current downturn.

Bets Rise That China’s Yuan Will Fall
Anjani Trivedi and Mia Lamar – WSJ
Bets are rising that China’s currency is headed lower with its stock market, a signal of waning investor confidence in the country’s ability to manage its economic slowdown and market turmoil.
Activity has ramped up in the yuan options market, where investors are taking positions to protect against a potential weakening of the yuan against the U.S. dollar over the next three to six months.

Mexico Said to Start Annual Oil-Hedging Program as Prices Drop
Javier Blas and Grant Smith – Bloomberg
Mexico started its annual program to lock in oil sales for the coming year as a shield against a further drop in prices, three people with direct knowledge said.

Banks Pitch Swaps as Alternative to Buying Stock
Juliet Chung and Katy Burne – WSJ
Banks are nudging certain hedge-fund clients to use derivatives instead of actual stocks when placing some bets, an effort aimed at lessening the impact of new capital rules on the banks’ businesses.

Why summer storms loom for investors
Michael Mackenzie – Financial Times
A summer break for investors looks highly unlikely this year. While many of us are already enjoying or planning some welcome down time away from the shackles of the office, asset prices appear vulnerable in the coming weeks against a backdrop of uncertainty driven by China and the US Federal Reserve.
No matter the recent easing in tension between Greece and its creditors, the big story framing the rest of summer is a timeworn classic, previously seen during the US bond market taper tantrum of 2013 and more spectacularly in 1998.


CBOE Introduces 10 Options-Based Strategy Performance Benchmark Indexes
Press Release – CBOE
The Chicago Board Options Exchange (CBOE) announced that it has created 10 new options-based strategy performance benchmark indexes that are designed to highlight the long-term utility of options as risk management and yield enhancing investment tools. CBOE will disseminate intra-day values for the new benchmarks beginning Monday, August 3, 2015.

Oil’s bear market may challenge Nasdaq’s new energy futures exchange
Lucy Ren – MarketWatch
Experts project robust growth in trading volumes on Nasdaq OMX Group’s new energy derivatives exchange, despite oil prices’ recent moves into bear market territory.

CBOE and SGX to Launch CBOE Options Institute at SGX
Press Release – CBOE
The Chicago Board Options Exchange (CBOE) today announced it is collaborating with the Singapore Exchange (SGX) to launch the first international extension of the world-renowned CBOE Options Institute. The “CBOE Options Institute at SGX” is expected to launch in the fourth quarter of 2015.

CME Group Inc. Reports Strong Second-Quarter 2015 Financial Results
Press Release – Mondovisione
CME Group Inc. today reported revenues of $820 million and operating income of $495 million for the second quarter of 2015. Net income attributable to CME Group was $265 million and diluted earnings per share were $0.78. Excluding the items noted in the reconciliation, adjusted net income attributable to CME Group would have been $320 million and adjusted diluted earnings per share would have been $0.951.

SGX Delivers Growth With FY2015 Net Profit Of $349 Million
Press Release – Mondovisione
Singapore Exchange (SGX) today announced net profit of $348.6 million, up 9% from the previous year, on revenue of $778.9 million, up 13% from a year earlier. Excluding Energy Market Company Pte Ltd (EMC) revenue of $18.0 million, revenue increased 11%. Earnings per share was 32.6 cents, up from 30.0 cents last year. The Board of Directors has proposed a final dividend of 16.0 cents per share, bringing the total dividend to 28.0 cents per share, unchanged from a year earlier.

Euronext Publishes Second Quarter 2015 Results
Press Release – Euronext
Euronext today announced its results for the second quarter and for the first six months of 2015.

Nasdaq NFX sees first energy options trade
Alice Attwood – Futures & Options World
Global exchange group Nasdaq on Tuesday saw the first options trade on its newly-launched energy exchange, Nasdaq Futures (NFX), since launching last week.
The first options contract on the new exchange was brokered by independent inter-dealer broker OTC Global Holdings’ (OTCGH) firm Ion Energy Group on Tuesday, the company told FOW on Thursday.

Abu Dhabi, Dubai exchanges explore possibility of stock futures
Hadeel Al Sayegh – Reuters
The Abu Dhabi Securities Exchange (ADX) is considering introducing with the Dubai Mercantile Exchange (DME) futures and options contracts for specific Abu Dhabi stocks as well as market index futures, a top DME official said.

Regulation & Enforcement

BATS Files Client Suspension Rule To Expedite Action Against Customers Engaging In Layering and Spoofing
Press Release – BATS
BATS Global Markets (BATS) today filed with the Securities and Exchange Commission the BATS Client Suspension Rule, which would enable the company to take swifter action to prohibit manipulative behavior, such as spoofing and layering, on the BATS Exchanges.

Regulation is creating ‘fractured markets’, says ISDA
Jon Watkins – The Trade News
The leading voice in lobbying for improvements in OTC derivatives reforms has warned against new regulations resulting in fractured rules, markets and liquidity.

Daniel M. Hawke, Chief Of Market Abuse Unit, To Leave SEC After 16 Years Of Service
Press Release – Mondovisione
The Securities and Exchange Commission today announced that Daniel M. Hawke, chief of the Division of Enforcement’s Market Abuse Unit and former Director of the Philadelphia Regional Office, is leaving the agency after 16 years of service. He will step down in August to return to the private sector.

DTCC Testifies In Support Of Legislation, Urges Action To Ensure Financial Services Industry Continues To Deliver Upon G20 Goals
Press Release – Mondovisione
The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today urged legislative and industry action to address three key obstacles that are hindering achievement of the G20 transparency goals set forth by policymakers in the aftermath of the 2008 financial crisis.

Ex-Rabobank Libor Trader Banned in U.K. After U.S. Plea
Suzi Ring – Bloomberg
The U.K. Financial Conduct Authority banned a former Rabobank Groep trader from working in the financial industry following a criminal conviction for fraud in the U.S.


Timing The VIX: A Lesson In Context
Nathan Buehler – Seeking Alpha
In this piece we will try to examine a barometer for the VIX, so to speak.
In the past, many of you have had questions about timing. How do I know when to short the VIX? When should I exit my position? My response to these questions are usually the same; you have to think for yourself. I understand that answer probably isn’t what you are looking for. However, each event in the VIX is different and there isn’t a standard answer to that question.

Is Now a Good Time to Buy CBOE Volatility Index (VIX) Calls?
Adam Warner – Schaeffer’s Research
The CBOE Volatility Index (VIX) got overbought and immediately came back down, and all I got was this lousy T-shirt. What should I do now?

Options Strategy: The Installment Collar
Michael Thomsett – CBOE Options Hub
The collar can be expanded to create a truly creative variety. The traditional collar (own 100 shares, sell 1 covered call, and buy 1 put) can be turned into a long-term protective version:
-buy 100 shares
-sell one very short-term covered call, maximizing annualized income as the result of time decay, picking a strike higher than the cost of your stock
-buy one long-term put (8-10 months)

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