Observations and Insight

Fund Injection: Peter Borish Looks to Ramp up Managed Funds Space
JohnLothianNews.com

Peter Borish has seen the ups and downs in the fund space over his career. Now as chief strategist at Quad Advisors, which is aimed at providing key infrastructure services to the managed funds space.

Borish spoke with John Lothian, publisher of John Lothian News, at the Futures Industry Association’s EXPO in Chicago in November about the new venture and what Quad Advisors brings to the managed funds space.

“We look for people with $20 million to $50 million under management,” he said. “But in a post-Dodd-Frank world, they need a lot of help to grow. We become partners, sharing in the revenue to help them grow.”

Watch the video »

Lead Stories

The Options Industry Council Announces November Options Trading Volume Down 6 Percent
Press Release – OIC
The Options Industry Council (OIC) announced today that 294,770,356 options contracts traded in November, down 6.26 percent compared to last November’s 314,465,376 contracts.
Year-to-date trading volume stood at 3,910,760,808 contracts, up 3.16 percent compared to the 3,791,066,303 contracts traded in the same period last year. 2014 looks to be on track to be the second highest volume year on record. With one less trading day than last November, average daily volume was 15,514,229 contracts, 1.33 percent less than last November’s 15,723,269 contracts.
http://jlne.ws/1vG2O6a
**See the marketshare breakdown below in the Exchanges section.
***JK – And all this volume with the VIX around 12 to 14 all year. Oh, and thanks to that October swing, hitting 31.

CME’s eurodollar options pit is all that’s left of open outcry trading
Crain’s Chicago Business
What little action remains on CME Group’s downtown trading floor emanates mainly from one corner: the eurodollar options pit.
http://jlne.ws/1vb0ZOA
***DA: You know the end is near when the clerks and traders in the background while Rick Santelli speaks on CNBC don’t even try to look busy anymore.

CME Group Volume Averaged 13.0 Million Contracts per Day in November 2014, Up 7 Percent from November 2013
Options average daily volume increased 16 percent, with electronic options growth of 24 percent
http://jlne.ws/1vLBzpr
**JK – November eurodollar options volume on Globex was about 15%, a bit down from about 15.6% in October. Treasury options on Globex shows a more convincing trend toward screen trading. There’s a good chart on CME interest rate volumes here – Interest Rate Options Monthly Volume Report November 2014 – http://jlne.ws/1rV0R0D

Hedge Funds Shut as Managers Struggle in Year of Two Percent Returns
Katherine Burton – Bloomberg
Hedge funds are shutting at a rate not seen since the financial crisis, as many managers post disappointing returns and an elite group of firms dominate money raising.
The $37 billion Brevan Howard Asset Management LLP is the latest firm to close a fund. Last week it pulled the plug on its $630 million commodity fund managed by Stephane Nicolas after it had tumbled 4.3 percent this year through the end of October, according to a person with knowledge of the firm.
http://jlne.ws/1yGYgNR
**JK – One wonders, just how many of these funds invested or hedged using options – equity or futures on options? And if so, how many would still be around today?

Apple Bears Get Fat Payout From Stock Swoon; the 60-Second Plunge
Callie Bost – Bloomberg
For options trader Tim Biggam, yesterday was the day he was waiting for in shares of Apple Inc. (AAPL)
The iPhone maker’s minute-long swoon starting 20 minutes after trading began contributed to the biggest jump in the Chicago Board Options Exchanges Apple Volatility Index in two years. The stock plunged almost 5 percent during one 60-second stretch and at its lowest point was down 6.4 percent from the previous close, the largest retreat since January.
http://jlne.ws/1yCXeBt
***DA: The reporter forgot to ask the traders how many puts they have bought that expired worthless over the past few years. My guess is these guys are playing catch-up.

Oil implied volatility forgets to unwind after OPEC meeting
Saqib Iqbal Ahmed – Reuters
The meeting of the Organization of the Petroleum Exporting Countries has come and gone, but the oil sector’s volatility has stayed.
The United States Oil Fund – the most traded oil ETF – fell to $25.27 on Monday, the lowest since March 2009, before recovering a little to trade up 2.7 percent at $26.27.
http://jlne.ws/1vG0psd
***DA: The way I read it, the OPEC announcement added to uncertainty rather than diminished it.

Volatility Update: Late Year Holds Consumer Spending, Stock Volatility Uncertainty
JJ Kinahan – Forbes
December begins with the S&P 500 perching at record highs. Importantly, the path to the latest records was traveled on tiptoe. The S&P 500’s average daily move last month was just 4.5 points. That’s about half as much volatility as September and a steep drop from the 18.5-point average daily price swings in October.
So now that the markets have slowed from the wild ride of early fall, what’s on tap for the final month of 2014?
http://jlne.ws/1yDksrh

Black Friday Sales: A Lesson in Sample Size
Adam Warner – Schaeffer’s Investment Research
Black Friday sales are down! The economy must be worse than we think! Sell everything!
Well, that’s kind of the impression I got listening to the insta-reaction off the insta-numbers from Black Friday. And anecdotally? The line outside Best Buy looked pretty long about eight hours before they opened. Then again, I can’t compare that to anything. I was picking up our Thanksgiving turkey at Whole Foods, which is next to a Best Buy.
http://jlne.ws/1vhIeZY
***DA: The news cycle runs 24 hours, but most days have about 12 minutes of actual news. The rest is fluff, color, and trying to make stories out of non-stories. If you trade on such garbage, your portfolio will show it.

Grinding Higher Economy & Stocks – Weekly Market Outlook
Price Headley – CBOE Options Hub
As is usually the case, Thanksgiving week proved to be a rather tepid one for stocks, with most of the trading crowd choosing to check out around the middle of the week.  Volume for last week as about half the norm. Nevertheless, where we left off on Friday is where we’ll restart things on Monday, so it’s still worth figuring out where we are and where we’re likely to go from here for the broad stock market.
We’ll do exactly that below and look at one interesting sector long-term setup, after a quick run-down of last week’s economic numbers.
http://jlne.ws/1vG0b4i
***DA: I forget – is tepid warmer than lukewarm, or cooler?

No Surprise Here: Gold ETF Volatility Jumps
Tom Lydon – ETF Trends
Gold exchange traded funds, both the physically-backed variety and miners funds, are among Monday’s top-performing ETFs, but investors should not expect a gold recovery to be a smooth ride.
The SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold ETF, is higher by 3.1% Monday on above average volume, an impressive recovery after bullion stumbled to a three-week low following news that voters in Switzerland rejected a ballot measure that would have required the Swiss central bank to hold some assets in gold.
http://jlne.ws/1yCYUe8

Editor’s Note:  The Wedbush story ran yesterday but with a broken link.  This now corrected below:
Wedbush Announces Closing of Transaction with KCG Futures
Press Release
Wedbush Securities Inc. today announced the closing with respect to an agreement to acquire certain assets of KCG Americas LLC related to its agency futures operations previously doing business as KCG Futures. The transaction continues to build Wedbush Futures’ offerings and enhances the firm’s service by expanding its futures, FX and cross asset class margining clearing, execution and custody capabilities.
http://jlne.ws/15NUSpY
***JK – It will be interesting to see how Wedbush integrates and grows this business.
Mike.OCallaghan@wedbush.com; Carl.Gilmore@wedbush.com

Exchanges

OCC Announces Cleared Contract Volume Declined 6% in November While 2014 Volume is Up 3%
Press Release – OCC
OCC announced today that total cleared contract volume in November was 298,563,036 contracts, a 6 percent decrease from the November 2013 volume of 318,233,056 contracts. OCC’s year-to-date total cleared contract volume is up 3 percent from 2013 with 3,972,331,230 contracts.
http://jlne.ws/1yDd4vR

CBOE Holdings Reports November Trading Volume
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that trading volume for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2SM) and futures contracts on CBOE Futures Exchange (CFE) totaled 85.57 million contracts in November. Average daily volume (ADV) was 4.50 million contracts, a two-percent decrease from November 2013 and a 36-percent decrease from October 2014, the busiest month ever in CBOE Holdings’ history.
ADV through November is up 11 percent from the same period one year ago. With one month remaining in 2014, CBOE Holdings year-to-date volume has already matched 2011’s record annual volume of 1.21 billion contracts.
http://jlne.ws/1vG56C8

CBOE Futures Exchange Reports November 2014 Trading Volume
Press Release – CBOE
CBOE Futures Exchange, LLC (CFE) today reported that November 2014 monthly average daily volume (ADV) and monthly total volume in trading of futures on the CBOE Volatility Index (VIX Index) rose over year-ago levels.
VIX Futures
November average daily volume in VIX futures was 140,325 contracts, up 11 percent from November 2013 and down 57 percent from October’s record ADV. Total volume in VIX futures for November was 2.67 million contracts, up six percent from November 2013 and down 64 percent from October, which was an all-time high for monthly volume. Year-to-date total volume in VIX futures is 24 percent ahead of the same time period in 2013.
http://jlne.ws/1yatKYV

ISE Holdings Reports Business Activity for November 2014
International Securities Exchange, LLC
ISE and ISE Gemini combined represent 14.9% of equity options market share, excluding dividend trades.
ISE and ISE Gemini reported a combined ADV of 2.1 million contracts.
Dividend trades made up 3.0% of industry volume in November 2014.
http://jlne.ws/1CBhVmy

Options Exchange Marketshare – November 2014
Press Release – OCC (via email)

November 2014 Total Options Marketshare:
AMEX-                 10.54%
BATS-                     5.76%
BOX-                       2.12%
CBOE-                   26.14%                                                            
C2-                          1.99%
GEM-                      3.19%
ISE-                        10.03%
MIAX-                     3.69%
NOBO-                    0.60%
NSDQ-                    9.56%
NYSE Arca-            9.18%
OMX PHLX-         17.22%
 
November 2013 Total Options Marketshare:
AMEX-                  13.66%
BATS-                      2.75%
BOX-                        2.21%
CBOE-                    26.61%
C2-                            1.80%
GEM-                       2.59%
ISE-                          13.71%
MIAX-                      1.50%
NOBO-                     0.74%
NSDQ-                      7.81%
NYSE Arca-             10.33%
OMX PHLX-           16.30%
 
November 2014 Equity Options Marketshare:
AMEX-                  11.44%
BATS-                      6.29%    
BOX-                        2.32%
CBOE-                    19.61%
C2-                            2.15%
GEM-                        3.47%
ISE-                         10.94%
MIAX-                       4.02%
NOBO-                     0.65%
NSDQ-                     10.43%
NYSE Arca-              9.91%
OMX PHLX-          18.77%
 
November 2013 Equity Options Marketshare:
AMEX-                  14.88%
BATS-                      3.00%
BOX-                       2.41%
CBOE-                   20.06%
C2-                            1.96%
GEM-                       2.82%
ISE-                        14.95%
MIAX-                     1.64%
NOBO-                    0.80%
NSDQ-                    8.52%
NYSE Arca-          11.16%
OMX PHLX-         17.78%

Regulation and Enforcement

U.S. CFTC reopens comment period for ‘position limit’ proposal
Reuters
The U.S. Commodity Futures Trading Commission on Monday again extended the amount of time the public can comment on its prop
http://jlne.ws/1zLwbDo
***DA: For a summary of the proposed rule and a brief history of the rule, visit the Position Limits Regulation page in MarketsReformWiki.

Technology

HFT stabilises modern markets – academic research
Automated Trader
A recent research paper, High frequency trading and extreme price movements, takes issue with allegations that HFT causes and amplifies price jumps, consequently harming market stability.
Instead, US and Canadian academics, led by the University of Washington’s Jonathan Brogaard, found that during extreme price movements, high frequency traders act as net liquidity suppliers while non-high-frequency traders act as net liquidity demanders.
http://jlne.ws/1vG3jwW

Exclusive: FBI warns of ‘destructive’ malware in wake of Sony attack
Jim Finkle – Reuters
The Federal Bureau of Investigation warned U.S. businesses that hackers have used malicious software to launch a destructive cyberattack in the United States, following a devastating breach last week at Sony Pictures Entertainment.
Cybersecurity experts said the malicious software described in the alert appeared to describe the one that affected Sony, which would mark first major destructive cyber attack waged against a company on U.S. soil. Such attacks have been launched in Asia and the Middle East, but none have been reported in the United States. The FBI report did not say how many companies had been victims of destructive attacks.
http://jlne.ws/1yDrbRS
***JB:  Not usually the sort of thing we report on but it is worth spreading the word on this.

Strategy

How to Buy Energy Stocks With a Little Less Risk
Steven M. Sears – Barron’s
The stock market hurts most people most of the time. If you doubt this truth, ask anyone who owns energy stocks.
Last week, even as energy stocks traded lower, some investors were buying in anticipation OPEC would lower production to increase market prices. Instead, OPEC decided to maintain daily production at 30 million barrels, and the sector fell so hard it gave new meaning to “Black Friday.”
http://jlne.ws/1yCWjkA

Events

How Are You Adapting to the New OTC Regulatory Landscape?
PRMIA Chicago
On December 4, PRMIA Chicago will host a lunch and discussion at CME Group’s Executive Conference Center, which will look at the challenges in trade reporting, reconciliation and margin as a result of global regulatory changes. Hear presentations from the experts at CME Group and TriOptima in a panel moderated by John Lothian News’ Doug Ashburn. The event is free for market participants, but space is limited.
http://jlne.ws/1wZ1Kqu
***DA: I hear there are a few spots left. Lunch will be served. And I am moderating. And lunch will be served.

Options Alliance Annual Conference Dec 8
Join us on December 8 for a deep dive into the exploding world of financial startups. Meet and mingle with your fellow entrepreneurs as you learn how to market, grow and fund a wide range of financial startups. The program begins at 1 pm at the Arditti Center for Risk Management at DePaul University’s Chicago Loop campus. The three panels cover the marketing, growth in AUM and funding of startup firms. A networking cocktail reception follows.
http://jlne.ws/1xe5PuU
***Panelist firms include OIC, CME Group, Tradelegs, RCM Asset Management and more.

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