JLN Options: Trader Sells VIX Calls in Day’s Biggest Bet on Options; OCC Prepares to Launch OTC S&P 500 Equity Index Options Clearing; Buffett’s Long-Dated Puts Stir Up Pricing Controversy

Jan 28, 2014

Observations and Insights

Options – and the Options Industry Council – Come to China
Sarah Rudolph – John Lothian News

(This is part one of an article derived from an interview with Alan Grigoletto, vice president of education at the OIC, and Mary Savoie, the OIC’s executive director. Part two will focus on the options industry in the U.S. and the OIC’s new educational program there.)

The Options Industry Council has been a leader in educating retail investors in the U.S. in options for many years. For the past four years, however, it has been exploring how best to bring options education to China. This year, the effort becomes even more important, as China prepares to launch its first options contracts, pending regulatory approval.

The Chinese have a strong interest in options education, because their retail market is very large, according to Alan Grigoletto, vice president of education at OIC. He recently returned from a trip to China with the OIC’s executive director, Mary Savoie, and Bill Ryan (OIC representative for IntercontinentalExchange | NYSE Options). Working with a consultant fluent in Chinese who helped with the logistics and protocol, they put together a “very aggressive” itinerary for a two-day tour of Shanghai, the world’s most populous city.

Read More >>> http://jlne.ws/1fkMsXP

Lead Stories

Trader Sells VIX Calls in Day’s Biggest Bet on Options
Nikolaj Gammeltoft – Bloomberg
An investor sold about $18 million in calls on the Chicago Board Options Exchange Volatility Index, a strategy that will be profitable as long as the VIX doesn’t keep extending last week’s surge.
http://jlne.ws/1fkOpDB

OCC Prepares to Launch OTC S&P 500 Equity Index Options Clearing
Press Release (OCC)
OCC announced today it has received regulatory approvals to clear over-the-counter (OTC) equity index options, bringing capital and operational efficiencies and enhanced customer protections to the equity derivatives marketplace.
OCC plans to launch its OTC S&P 500® equity index option clearing services in the second quarter following the completion of testing with market participants.
http://jlne.ws/1fkPprq

Buffett’s Long-Dated Puts Stir Up Pricing Controversy
Michael Ide – ValueWalk
Warren Buffett sold a number of large, long-dated put options against various stock indices between 2004 and 2008, and while those puts are definitely liabilities, there seems to be a big disagreement about how much of a liability they should be reported as.
http://jlne.ws/1fkNWkU

Videocast: Turning point in VIX?
optionMONSTER
http://jlne.ws/1fkQH5G

Reading the VXX Tea Leaves After a Volatility Spike
Adam Warner – Schaeffer’s Investment Research
I’m always looking at SPDR S&P 500 ETF Trust (NYSEARCA:SPY) returns when the CBOE Volatility Index (INDEXCBOE:VIX) makes certain moves…usually abrupt up moves. So, I figured I’d change it up a little bit. What happens to the iPath S&P 500 VIX Short-Term Futures ETN (VXX) when VIX closes greater than 20% above its 10-day simple moving average?
http://jlne.ws/1fkQShs

Are the bears in retreat?
Lawrence G. McMillan – MarketWatch
The decline has been sharp and rather “scary.” But, it is often the case that an extremely overbought market (as this one was) suffers a sharp, but short-lived correction. That is certainly a possibility right now.
http://jlne.ws/1fkPRG2

VIX is not Just for Kicks
Bob Lang – Benzinga
One of the best ways to measure market volatility is the VIX index, which basically is an expression of the demand for puts and calls on the SPX 500 index. Some will define it other ways but simply put that is the crudest and most raw definition – and really suits our purposes here.
http://jlne.ws/1fkQu2x

Nasdaq cancels trades in erroneous transactions
Reuters
Nasdaq MarketWatch said on Monday it was cancelling some trades in 11 securities that occurred within the first minute of trading on Monday.
http://jlne.ws/1fkIr5H

A ban on traders chatting to each other could spell trouble for Bloomberg
Mark DeCambre – Quartz
The ubiquity of Bloomberg terminals at Wall Street trading houses may be facing its biggest threat yet.
Reports emerged last week that Goldman Sachs is weighing a ban (paywall) on “person-to-person” communication by its employees using third-party services including Bloomberg, Yahoo and AOL messenger. A Goldman spokeswoman told Quartz that the bank has made no decision about its internal chat policy.
http://jlne.ws/1fkOcjW

Exchanges

ISE Gemini Surpasses 750,000 Contracts in a Trading Day
Press Release (ISE)
ISE Gemini today announced that it surpassed 750,000 contracts for the first time (actual: 852,184 contracts) in a single day. Through January 2014, ISE Gemini has an average daily volume (ADV) of 565,730 and an overall equity options market share of 3.5 percent, excluding dividend trades.
http://jlne.ws/1hIne5e (PDF)

Regulation and Enforcement

SEC Deploying New Tool to Spot Insider Trading, White Says
David Michaels – Bloomberg
U.S. regulators have developed a faster analytical tool for monitoring securities markets for evidence of insider trading and other types of misconduct, Securities and Exchange Commission Chairman Mary Jo White said today.
http://jlne.ws/1fkL07R
**In my experience when you build a better mouse trap you end up with more clever mice.  Guess they have to try anyway. -JB

Swaps body to reform benchmark to make rigging less likely
Huw Jones and Clare Hutchison – Reuters
A benchmark used in the $630 trillion market for swaps will be based on actual market transactions rather than quotes from banks this year in an effort to make it less vulnerable to rigging and to comply with new global transparency rules.
http://jlne.ws/1fkLnPS

Commissioner says the CFTC was rushed
Dan Collins – Futures Magazine
Scott O’Malia, commissioner with the Commodity Futures Trading Commission (CFTC), told market participants the agency must do a better job in protecting end users from overly burdensome rules at the Commodity Markets Council’s State of the Industry 2014 Conference in Miami on Monday.
http://jlne.ws/1hIndOX

Technology

OCC Teams with Securities Finance Trust Company to Create an Automated Default Management Platform
Press Release (OCC)
OCC and Securities Finance Trust Company (SFTC) announced today they have developed Auction Platform Services (APS) to aid OCC with its default management process.
APS is a secure web-based portal that provides OCC with the ability for listing auction assets, centralized bid submissions, and management/audit reporting. OCC will use SFTC’s hosted software APS to achieve administrative efficiency and cost savings. APS was used to conduct OCC’s most recent default management simulation exercise with successful participation from clearing members in November.
http://jlne.ws/1fkPhZ3

Strategy

Are Short Volatility ETPs Worse Than SPY?
The Options Insider
“‘Volatility Tourists’ Get Crushed,” exulted a column in Barron’s on Friday, referring to losses incurred that day by short volatility ETPs like XIV and SVXY.
I would approach the data a little differently.
http://jlne.ws/1fkPz1Z

Options Education

Paired Trades: Using Options to Reduce Risk
Steve Smith – Minyanville
In 2013, the rising tide lifted almost all boats as 9 out the 10 major S&P 500 sectors all enjoyed double-digit increases, propelling the overall index to a whopping 30% gain.
But expectations for the coming year are more subdued and active money managers, most of whom underperformed their benchmarks in 2013, are crowing that 2014 will be “a stock picker’s market” as correlations will decline.
http://jlne.ws/1fkO4Rw

 

 

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