JLN Options: U.S. Options Exchanges Close to Issuing Uniform Rule on Erroneous Trades, Exchange Leaders Say; VQT: A Better Way to Play Volatility?; The ‘Fear Index’ as ‘Pain Index’

Nov 8, 2013

Lead Stories

U.S. Options Exchanges Close to Issuing Uniform Rule on Erroneous Trades, Exchange Leaders Say
Kaitlyn Kiernan – WSJ.com
The 12 U.S. options exchanges are close to issuing a uniform rule on how to handle erroneous trades, according to exchange leaders at an industry event in Chicago on Thursday. “We will come out with harmonized obvious error rules,” Jeromee Johnson, head of BATS Options at BATS Global Markets, said at the Futures Industry Association’s Futures & Options Expo. “There are still some discrepancies, but we’re close,” he said.

Twitter Slumps on Day Two: Valuation Is ‘Extremely Difficult’ to Peg
Steven Russolillo – The Wall Street Journal
Twitter shares slumped Friday, giving up a bit of yesterday’s IPO pop, as investors turn their attention to whether the short-messaging platform justifies such a high valuation.

Index-based longevity solutions continue to face challenges, experts say
Louie Woodall – Risk.net
The so-called longevity experience options (LEOs) are designed to provide firms with protection between two points on an underlying index – essentially a call spread, where hedgers are paid once the underlying moves above a certain strike, but the protection is exhausted once the index breaches another, higher strike.

VQT: A Better Way to Play Volatility?
Adam Warner – Schaeffer’s Investment Research
New all-time lows for the iPath S&P 500 VIX Short Term Futures ETN (VXX) … blah blah blah … reverse split … yada yada yada. I tweeted out about the new all-time lows in VXX for the eleventy-billionth day yesterday (before the market sell-off), and got this in response:

The ‘Fear Index’ as ‘Pain Index’
Brendan Conway – Barron’s
ConvergEx strategist Nicholas Colas makes the observation in his Thursday client note that the CBOE Volatility Index could just as easily be called the “pain index”:

Will the Vix Stay in a Low Range Into Year’s End? [Video]
Weeden & Co. Chief Global Strategist Michael Purves discusses the Vix with Olivia Sterns on Bloomberg Television’s “Street Smart.”


Analysis: CME, ICE brace for renewed fight on esoteric trading rule
Tom Polansek and Ann Saphir – Reuters
CME Group Inc (CME.O) and the IntercontinentalExchange Inc (ICE.N) are gearing up to revisit a high-stakes battle in an obscure corner of commodities rule-making, highlighting the fallout still emerging from Washington five years after the financial crisis.

Regulation and Enforcement

U.S. Senate to grill watchdogs on Wall Street commodity bets
Douwe Miedema – Reuters
U.S. senators will question financial regulators over Wall Street’s role in commodity markets, a person familiar with the matter said, in a hearing that will draw close attention from the largest investment banks.

Dodd-Frank Derivatives Momentum Threatened by Vacancies on CFTC
Silla Brush – Bloomberg
The top U.S. derivatives regulator may dwindle to just two voting commissioners and struggle to approve new rules unless the White House and Senate can overcome political hurdles to fill the vacancies by the end of the year.

Goldman Sachs Reveals Currency Trading Probe
Michelle Jones – ValueWalk
Perhaps unsurprisingly, Goldman Sachs has joined the list of banks and financial firms being probed in connection with its forex trading activities…
Goldman Sachs Group Inc (NYSE:GS) also said regulators are investigating a number of its financial products and other related activities. They are also investigating Goldman Sachs’ options trading and technology systems and controls.

Options Education

The Gamma Problem for Straddles, Or Why VIX Futures Are Necessary
Jared Woodard – The Street
One of the frustrating things about buying straddles is that the more correct you are, and the more quickly you are proven correct, the more quickly your position loses the ability to profit from volatility. A straddle opened as a bet on volatility quickly becomes a simple long/short bet on the underlying asset: straddles run out of gamma too quickly.

How To Avoid Closing Options Below Intrinsic Value
Jim Graham – Investopedia (via SFGate)
You may have noticed that in-the-money calls and puts can sometimes trade for less than their intrinsic amount (the difference between the stock and strike price). The problem seems much more prevalent for deep-in-the-money options as you approach expiration day.

Volatility As An Odds Enhancer
Brandon Wendell – The Options Insider
Investors dislike volatility and would rather place their money into a stable market. So when volatility rises, the nervous investor will tend to withdraw money from the share market in favor of a safer investment.

A Discussion About Put Options
Dan Passarelli – The Options Insider
There has been significant talk recently about a potential market pullback but so far market participants have remained relatively bullish. Whether it happens tomorrow or well into the future, there is a time when the market and every stock will lose value.


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