Lead Stories

Trader Sets Up ‘Massive’ Options Bet Against Facebook
Chris Dieterich – The Wall Street Journal
Ahead of Facebook Inc.FB +3.90%’s earnings Wednesday, one investor has a placed a huge bearish bet in the options market against the company’s stock.
Options experts were quick to say that the trade appeared to be by an investor looking to protect against losses in the social networking company’s stock, rather than speculate on an outsized decline.
Still, the trade drew attention.

Analysts: Risk Gauges Lean Risk Friendly, Not Risk Averse
MNI News
A look at popular risk gauges Monday showed that market sentiment was leaning in favor of risk friendly instruments, with sentiment clearly not risk averse.
While these gauges were not showing high levels of risk appetite, they were not flashing warning signals either.

S&P 500 Rises to Cap Longest Rally in 2014 Amid Earnings
Joseph Ciolli – Bloomberg
The S&P 500 rose 0.4 percent to 1,871.89 at 4 p.m. in New York today, putting its five-day advance at 3.1 percent. The Dow Jones Industrial Average added 40.71 points, or 0.3 percent, to 16,449.25. About 4.9 billion shares changed hands on U.S. exchanges today, the smallest total in 2014.

Markets at record levels, but pre-poll jitters take VIX to 30-month high
Adam Warner – Schaeffer’s Investment Research
There’s a theory out there that volatility picks up right before a market turn. Well, we’re certainly getting that volatility pickup, especially in the Nasdaq as we noted last week.
The big question though is, which move are we about to reverse? Is it the longer-term bull move that’s ending? We can say it goes back to 2012, 2011, or 2009 — it depends on your definition. Or is it the shorter-term choppiness that’s about to end? That, I would say, goes back to the turn of the year into 2014.

India VIX Rises With Nifty as Relationship Breaks Down: Options
Santanu Chakraborty – BloombergBusinessweek
India’s national election is causing a breakdown in the six-year relationship between prices of the nation’s equities and options.
While the CNX Nifty Index (NIFTY) and the India VIX index have almost always traded in opposite directions since Bloomberg began compiling the data in 2007, they’re now moving together more than ever before.

Last Week in VIX – 4/20/2014
Russell Rhoads – VIX Views
So earlier this weekend I posted a blog about VXST and the streak of twenty higher closes for the CBOE Short-Term Volatility Index that comes after a three day weekend.  I also noted that VXST has a better chance of being lower on the Friday before a three day weekend than on any other trading day.

Comparing 2014 VIX and VIX from 2004 – 2013
Russell Rhoads – VIX Views
With all the talk about VIX not acting right (I don’t use the word broken) you would think that someone had written a book criticizing the fear index.  My feeling has been that VIX is doing what it is supposed to do and that is measure the implied volatility of index options that are listed on the S&P 500.  In the past sustained higher volatility has been associated with a bearish equity market.

A Little More of VIX in 2014
Russell Rhoads – VIX Views
Yesterday I posted a blog about VIX price action in 2014 and compared it to different levels from 2004 – 2013.  Justin Pulitzer (@justinpulitzer) noted via a tweet that 2008 – 2009 probably skewed the highs on the chart that I produced and discussed last night.  Based on that tweet I was prompted to take a look at average VIX closing prices by day from 2004 through 2013, but excluding 2009.

What (or Who) Are You Listening To?
Bob Lang – CBOE Options Hub
With the increase in market volatility, we find ourselves reaching for and needing more certainty. Is our approach correct? Do we need to make adjustments? Is there better information out there?  This last question can lead us to listening to anyone with a viewpoint, and as the number of opinions and rhetoric rise, the more confused and indecisive we get.

Investing Insights: Earnings Season is Volatility on the Horizon?
JJ Kinahan – Forbes
This market’s been much like our Chicago weather over the last two weeks — if you don’t like it, give it a day. Stocks snapped back smartly in a holiday-shortened week after getting pummeled to start April. Soothing comments from Fed chief Janet Yellen and a round of mixed earnings that failed to deliver the awful results flashed in pre-earnings warnings lifted the S&P 500 more than 2.5% last week; it’s now up some 1% for the year.

Videocast: May VIX calls bought

Time for a change in derivatives trading
Anish Puaar – Financial Times
The clock has finally started ticking down to one of the most substantial changes ever seen in the European market for over-the-counter derivatives, a significant part of the global market worth EUR692 trillion at the end of June 2013, according to the Bank for International Settlements.

BofA, NYSE, Brokerages Sued Over High-Frequency Trading
Bob Van Voris – Bloomberg
Bank of America Corp. and the New York Stock Exchange were among dozens of exchanges, brokerages and traders sued over high-frequency trading by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.

How Bitcoin Derivatives Could Curb Bitcoin Volatility
Jacob Harper – Equities.com
Whether one is a bitcoin bull or a bitcoin bear, the undisputable fact of bitcoin is that it is, compared to other assets, extremely volatile. It’s part and parcel a young experiment in the free market. It’s also a feature of bitcoin that makes investors wary of getting too involved.


Binary Options Exchange Nadex Welcomes Group One Futures Trading as Market Maker
Forex Magnates
The Chicago-based regulated binary options exchange operator known as the North American Derivatives Exchange (Nadex), has today announced that Group One Futures Trading, LLC (Group One) has joined its exchange membership as market maker.

Regulation and Enforcement

U.S. insider trading cases face test at appeals court
Nate Raymond – Reuters
A U.S. appeals court is set hear a case whose outcome could make it harder for the government to prosecute insider trading and potentially jeopardize several high-profile guilty verdicts, including that of SAC Capital Advisors portfolio manager Michael Steinberg.

SEC Said to Weigh Shining Light on Brokers’ Stock Routing
Dave Michaels – Bloomberg
The U.S. Securities and Exchange Commission is weighing a requirement that brokers tell investors exactly where their stock trades go to be executed, a proposal that may address complaints that the decisions are sometimes made against the client’s best interests.


Trade the Volatility
L. Todd Wood – Fox Business
One thing we can positively say about the markets recently is that they are extremely volatile.  Historically this has been an indication of a change in medium term direction; i.e., a bull or bear market.
I’ve talked in the past about how there are many risks to the market staring investors in the face — debt levels, geopolitical events, QE, reserve currency issues are all reasons to build a wall of worry. And all of this uncertainty creates volatility.

Options Education

Winning With Option Volatility – Know Your Options
There’s been a lot of talk about volatility in stocks lately.
But today, I want to focus on options volatility and what it means for the options investor.
So let’s start off with a definition:
Volatility measures the rate at which a security moves up and down. If a security is moving up and down quickly, volatility will be high. Conversely, if a security is moving up or down slowly, volatility will be low.
Options volatility is largely pinned to the underlying stock.


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