The Case for Shorter Expirations
Steven M. Sears – Barron’s
For as long as most investors can recall, hedging stocks has been a good way to hand money to derivatives dealers.
The Standard & Poor’s 500 index has advanced like the Marines since March 2009, overcoming obstacles and investor fears. Buying calls and selling puts was the better trade. Meanwhile, stocks haven’t really stopped advancing.
Citadel confirms trading account in China suspended
Nathaniel Taplin – Reuters
Aug 3 Citadel LLC, a U.S.-based hedge fund, confirmed that trading in one of the accounts it manages in China has been restricted by China’s securities regulator, a company representative said on Monday.
U.S. Brokers Face Big Rise in Exchange Fees Thanks to SEC Ruling
David Michaels and Sam Mamudi – Bloomberg
Wall Street brokers are facing a big jump in the fees they pay to stock exchanges for trading data — and have the U.S. Securities and Exchange Commission to blame for it.
In a little-noticed letter issued last week, the SEC said brokers can’t rely on snapshots provided by a single exchange when quoting equity prices to clients. Instead, brokers have to scan the entire market for the best prices, which would require them to fork over millions more to exchanges that sell market data.
Choppy Waters – Weekly Market Outlook
Price Headley – CBOE Options Hub
The bulls managed to get a nice reversal rally going on Tuesday of last week. But, when push came to shove on Friday, the bulls couldn’t follow-through and carry the market meaningfully higher. Though the market finished the week above its key short-term moving averages, it also finished the week pointing in a bearish direction.
Maybe it was just a bad day. Maybe the market will rekindle last week’s jump-started rally early on this week and make a run for new highs. (There’s certainly room and some reason for it do so.) But, as has been the case all year long, there are a lot of maybes, ifs, and buts keeping the market stuck in the mud, creating a very choppy and only partially-predictable environment.
U.S. Stocks Fluctuate Amid Earnings as Commodities Shares Slump
Annelise Alexander – Bloomberg
U.S. stocks fluctuated, after equities posted their best monthly gain in five, amid results from Tyson Foods Inc. and Frontier Communications Corp. while energy shares fell with oil.
Tyson Foods declined 9.5 percent after cutting its earnings forecast as higher cattle prices erode margins. Chevron Corp. sank 3.2 percent as energy companies in the Standard & Poor’s 500 Index lost 1.6 percent. Frontier Communications jumped 9.8 percent after raising its cash flow and capital spending outlooks. Southwest Airlines Co. rose 4.5 percent as oil retreated.
Liquidity Decline in Global Fixed-Income Markets is Here to Stay
Global fixed-income markets are experiencing a significant decline of liquidity. This can impact the ability of professional asset managers to facilitate the purchase or sale of an asset without causing a change in the asset’s price.
While some market watchers find this troubling, Western Asset Management Deputy Chief Investment Officer Michael C. Buchanan considers it a normal evolution of fixed-income markets that can create opportunity for long-term investors.
CLS Bank to expand into FX options settlement in tie-up with LCH Clearnet
The Economic Times
CLS Bank, a key piece of infrastructure of the $5 trillion-a-day global currency market, is planning to settle foreign exchange options trades from next year with the help of multi-asset clearing house LCH.Clearnet.
The Week in Russell 2000 Trading – 7/27 – 7/31
Russell Rhoads – CBOE Options Hub
I was on the road for CBOE and on the other side of the world recently so I missed some of the market action of late. I knew the Russell 2000 (RUT) was lagging, but was honestly surprised to see that the small cap dominated RUT performance for 2015 is basically in line with large cap stocks which is represented by the Russell 1000 (RUI) below. My impression was that China and Greece (storm that has passed – for the moment) were dominating the news. However, the relative performance of RUT to RUI says the domestic business environment may be something to be concerned with over the balance of this year.
CME Group and FTSE Russell to Offer Leading Index Derivatives
Press Release via MarketWatch
CME Group, the world’s leading and most diverse derivatives marketplace, and FTSE Russell, a leading global index provider, announced that they have entered into a licensing agreement establishing CME Group as a global partner for futures, options on futures and OTC cleared products on FTSE Russell.
July U.S.-listed options volume spikes to nine-month high
Saqib Iqbal Ahmed – Reuters
Fear of increased volatility in the U.S. stock market and the growing proximity of a Federal Reserve interest rate hike helped boost options trading volume in July, sending it to the highest level since October.
The total volume of trading in U.S.-listed equity and index options looks set to rise to about 387 million contracts in July, up 16 percent over June, according to a Reuters analysis of data from options clearinghouse OCC.
Average daily trading volume in July surged to 17.3 million contracts, the highest since January.
BSE defers launch of multi-legged order entry in derivatives
The Economic TImes
Leading stock exchange BSE has deferred the launch of multi-legged order entry facility in its equity derivatives segment.
It did not give any reason for deferring the launch, which was scheduled for today.
CBOE Q2 results top estimates on higher fees, fines
Tom Polansek – Reuters
CBOE Holdings Inc, operator of the largest U.S. stock options market, reported stronger-than-expected quarterly earnings and revenue on Friday due to increased transaction fees and regulatory fines imposed against customers.
CBOE Set To List VIX ‘Weeklys’ Options Beginning October 8
John D’Antona – Traders Magazine Online News
Options traders can now trade volatility on a weekly expiration basis.
The Chicago Board Options Exchange (CBOE) recently unveiled plans to list options with weekly expirations on the CBOE Volatility Index (VIX Index) beginning Thursday, October 8, 2015.
According to the exchange, offering weekly options now gives investors a full complement of short-term trading and hedging opportunities.
MIAX Options Exchange Announces July 2015 Volume and Market Share Records
Press Release – MIAX
MIAX Options Exchange (MIAX) announced today that it established new monthly volume records for total contracts executed on MIAX and average daily volume (ADV) during July 2015. For the month, over 24.5 million contracts were executed on MIAX, equating to an ADV of over 1.1 million contracts. MIAX’s record monthly ADV represented an 89% increase compared to its July 2014 ADV, while the over 24.5 million contracts executed on MIAX represented a 98% increase from the approximately 12.4 million contracts executed in July 2014.
SPX Version of SPY Hedge from Barron’s
Russell Rhoads – CBOE Options Hub
Over the weekend, there was a discussion of hedging portfolios with options in my favorite column, The Striking Price, which appears every weekend in Barron’s. Steve Sears relayed a reader request to Stephen Solaka who manages money for Belmont Capital out in sunny but dry California. The question was basically, “How do I go about hedging a $1 million portfolio if I am concerned about the equity market over the near term?”
The Less Evil Cousin of the iPath S&P 500 VIX Short-Term Futures ETN (VXX)
Adam Warner – Schaeffer’s Investment Research
Our old friend iPath S&P 500 VIX Short-Term Futures ETN (VXX) hit new all-time lows again on Friday. I know, I know — shocking.
But hey, I’m not here to bury VXX (again). I’m not really here to praise it, either. I’m just going to attempt some objectivity on the subject.
How to Play the Downside as the Fed Hikes Interest Rates
Robert Lang – The Street
I can hear it now from someone reading the title: “A ha! This guy is finally bearish after all this time — I knew he would come around.”
However, that couldn’t be further from the truth. In fact, the bearish label is completely inaccurate. I don’t like labels, because when we describe ourselves as bullish or bearish, that puts us in a specific mindset and unable to be flexible.
Hence, when we change our minds and decisions with changing markets, our tactics are questioned. So what I’m saying is: don’t put me in a box.
July: Tricky by Anyone’s Standards
Meredith Kelley Zidek – CBOE Options Hub
As if the first half of July didn’t provide enough adventure, I set out to bring in a few more dollars during the second half. As usual, I survived some scrapes and scares and ended up with just that: A few more dollars.
Set forth below is my ill-timed scheme to capitalize on what I believed would be persistent volatility aftershocks for the remainder of July. I wrote calls on SVXY at the 94 strike for the July 31st expiration, and the very next day – well, you can see what happened. Two days later, still hoping I’d hang in there long enough to get the glory, I reinforced the same strategical position (read: I made things potentially worse for myself) by writing UVXY puts at the 25 strike also for the July 31st expiration.
Options: Delta Neutral Trades
Michael Thomsett – CBOE Options Hub
A delta neutral trade is one in which a long and short options contain offsetting delta so that the net delta is at zero. Delta is a measurement of the degree in an option’s price movement when the underlying moves.
The theme of delta neutrality can refer to many differently constructed strategies including spreads (covered and uncovered) and straddles. When an option position is covered with long stock (one short call offsetting 100 shares of stock), the delta neutral creates an equivalent stock position. This position moves up or down and tracks the 100 shares synthetically, creating a form of leverage.