JLN Options: Treasury Volatility Drops on Yellen Low-Rates Message; Is Small-Cap Volatility Contagious?; Options Trader Sitting on Large Profit on Time Warner

Jul 16, 2014

Lead Stories

Treasury Volatility Drops on Yellen Low-Rates Message
Susanne Walker – BloombergBusinessweek
The difference between five- and 30-year yields narrowed to the least since 2009 as Federal Reserve Chair Janet Yellen told lawmakers monetary stimulus is still required while increases in interest rates may occur sooner if the economy accelerates.
Longer-term Treasuries outperformed as Yellen pointed to “significant slack” in labor markets and reiterated interest rates are likely to stay low for a considerable period after bond purchases end. Industrial production growth slowed more than forecast in June and wholesale inflation remained below 2 percent, government reports showed.

Options Trader Sitting on Large Profit on Time Warner
Chris Dieterich – WSJ
One options trader is sitting on a one-week profit of over $1 million after reports that 21st Century FOX Inc. is in hot pursuit of Time Warner Inc.
Time Warner’s shares shot up 16% to $82.49 in recent trading Wednesday after news reports that FOX made an $80 billion, or $85-a-share, offer.

Is Small-Cap Volatility Contagious?
Adam Warner – Schaeffer’s Investment Research
How about we look at volatility through another lens, that of Bollinger Bands? This indicator is similar to historical volatility (HV), but it picks up more of the net moves. HV won’t be able to distinguish much between a daily 0.5% rally in an index and a 0.5% range in an index that offsets itself day after day (i.e., goes nowhere over time). The Bollinger Band width will pick up the net move, however. And that does matter.

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Homerun for some buyers of long-dated Intel calls
Andrew Wilkinson – Interactive Brokers
Over the course of the past month buyers targeting Intel Corp. (Ticker: INTC) call options expiring in January 2016, some 37% above its June average trading price, have driven open interest in 40.0 strike calls from 6,000 contracts to more than 33,000. That pool of open interest heading into Tuesday’s earnings was valued at $2.6mm. During that timeframe call options at the $40.0 strike have traded in a range spanning just 49-86-cents. Today, those call options have jumped by around half to trade at $1.20 each.

Videocast: Big VIX action in August

Among FINRA s Dark Pool Data, One Number Rankles
John D’Antona Jr. – Traders Magazine
When the Financial Industry Regulatory Authority, Inc. (FINRA) in early June released some hard numbers on the trading activity of alternative trading systems (ATS), including roughly 40 dark pools, the financial industry began pouring over the numbers.
For many, it was the first time this data had ever been seen, and some of the numbers were enlightening to say the least. (For example, it showed that bank-owned dark pools controlled much of the market, with those owned by the largest five banks responsible for about half of all dark trading volume.) However, one number stood out as a particularly prickly thorn in the side of many financial market pros.

Regulation and Enforcement

S&P open to paying up to $1 billion to settle DOJ lawsuit: WSJ
Standard & Poor’s Ratings Services decided to settle a pending lawsuit with the U.S. Department of Justice (DOJ) and is open to paying about $1 billion to settle it, the Wall Street Journal reported citing people familiar with the matter.


Don’t short this dull market
Lawrence G. McMillan – MarketWatch
Many financial areas are displaying some of the lowest volatility in memory. Is this a danger sign or just part of a longer-term bullish trend? In some sense, it’s both.
That is, it’s the latter (a longer-term bullish trend), until that trend is broken. Hence, selling now because volatility is low isn’t a good idea. One would be better served to wait for volatility to begin to increase before jettisoning his positions.

Options Education

Binary Options: How To Avoid Getting Scammed
James E. McWhinney – Investopedia
Binary option trading is an increasingly popular strategy that is steeped in controversy. While proponents argue that it is a legitimate investment opportunity, critics call it a scam. Like all investment opportunities, the first step toward success is to make sure you understand the potential pitfalls and rewards before you put your money at risk. If binary options have caught your attention, learn more about them and form your own opinion.


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