U.S. SEC approves clearinghouse OCC’s new capital plan
The U.S. Securities and Exchange Commission approved options clearinghouse OCC’s plan to boost shareholders’ equity to $247 million from $25 million at end 2013, OCC said on Friday.
***JB: Press release can be found below under “Exchanges”.
Cross-Asset Volatility Discussion at CBOE Risk Management Conference
Russell Rhoads – CBOE Options Hub
One of the final presentations given at the 31st Annual CBOE Risk Management Conference this year was an in depth discussion of volatility across asset classes. Brandon Bates, Portfolio Manager at BlackRock and Benjamin Bowler, Co-Head of Global Equity Derivatives Research at Bank of America Merrill Lynch co-presented the session titled Leveraging Cross-Asset Volatility Dynamics in Forecasting and Trading.
While Draghi Starts QE, German Stocks Remain a Favorite
Sofia Horta E Costa – Bloomberg
Bulls are betting that the best start to a year since 1975 for German stocks has more to go.
With the European Central Bank buying its first government bonds to shore up the region’s economy, options traders are showing little concern that the DAX Index might decline. Implied volatility is at its cheapest relative to historical volatility in three years. In other words, hedging costs are cheap.
SunGard launches derivatives clearing utility with Barclays
Alice Attwood – Futures & Options World
Financial services software and tech provider, SunGard Financial Systems, has signed Barclays as the first customer of its new utility for post-trade futures and cleared over-the-counter derivatives operations.
Under the terms of the agreement, Barclays will migrate specific futures and OTC derivative clearing operations and technology processes to the utility.
Two months to go and sterling election risks confined to options
Anirban Nag – Reuters
Less than two months before a deeply uncertain British general election, the pound stands at a six-year high, suggesting investors are ignoring political risks to holding the currency.
Sterling’s rise to its highest against a currency basket since September 2008 is mainly caused by the weakening of the euro as the European Central Bank begins its bond-buying programme on Monday. Robust data has also helped lift sterling, with investors pricing in a chance of a rate hike in early 2016
How Will Apple Affect the Dow (and Who Cares, Anyway?)
Adam Warner – Schaeffer’s Investment Research
Sure, Apple Inc.’s (NASDAQ:AAPL) market cap has grown larger than the entire rest of the world combined — or something like that. But it still hadn’t achieved the ultimate U.S. equity status symbol. That is, until Friday.
Barron’s 2015 Ranking of Online Brokers
Theresa W. Carey – Barron’s
The Nasdaq Composite cracked 5000 last Monday for the first time since March of 2000, stoking reminiscences about sock puppets, Internet follies, and 20-something day traders trying to get rich in their parents’ basements. Thankfully, these memories have mostly faded in the last 15 years. Unmentioned were fears about the Y2K computer glitch that was supposed to empty brokerage accounts and grab airplanes out of the sky. It never came to pass, but the issue of computer security hasn’t gone away.
Big Winners and Losers in the Markets: Dollar Soars, Bonds Beaten Down
Chris Dieterich – Barron’s
Another strong jobs report squeezed markets on Friday as traders read the fast pace of job creation as a signal that the Federal Reserve might soon start to tighten the spigot on easy-money policies.
The Labor Department early on Friday showed that the economy created 295,000 non-farm payrolls in February, far more than the 240,000 expected by economists polled by The Wall Street Journal. That’s the 11th consecutive month where more than 200,000 new jobs were created. The unemployment rate ticked lower by two-tenths of one percent to 5.5%, also more than expected.
SEC Approves New OCC Capital Plan
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that the U.S. Securities and Exchange Commission (SEC) has approved OCC’s capital plan, which increases shareholders’ equity from $25 million at the end of 2013 to $247 million through the retention of $72 million in 2014 earnings and receipt of $150 million in equity capital contributions from OCC’s stockholder exchanges: Chicago Board Options Exchange, Incorporated, International Securities Exchange, LLC, NASDAQ OMX PHLX LLC, NYSE MKT LLC, and NYSE Arca, Inc. Under the plan, the stockholder exchanges also commit to provide up to $117 million in replenishment capital in the event of unexpected losses, providing OCC with ready access to approximately $364 million in equity capital resources. Further, as OCC’s target capital requirement grows, the stockholder exchanges’ commitment to provide replenishment capital increases up to $200 million.
OCC Appoints Luke Moranda as New Chief Information Officer
Press Release – OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that Luke Moranda has joined the firm as Senior Vice President and Chief Information Officer. He will direct the OCC’s technology vision and strategy, and lead the transformation of world-class systems and services to meet the needs of OCC clearing members. Mr. Moranda will replace Raymond Tamayo, and report to Michael McClain, OCC President and Chief Operating Officer.
Regulation and Enforcement
Bonds: How firm a foundation?
On the eve of the financial crisis, the office of market supervision at the US securities watchdog included more than 100 employees charged with monitoring stocks and options, two people keeping an eye on $3.5tn worth of municipal bonds, and no one dedicated to the $5.4tn corporate bond market, where thousands of companies sell their debt.
Technical breakdown in the S&P 500 is significant
Lawrence G. McMillan – MarketWatch
The chart of the Standard & Poor’s 500 Index broke below support at 2,090, and that is significant.
The stock market, as measured by the S&P 500 Index SPX, +0.32% had recently gone dull after making new all-time highs.
The S&P 500 Index was unable to build any momentum since breaking out above its prior, late-December peak two weeks ago. In fact, the index had become one, large yawn-inducing slug. That is changing today — in a big way — and it’s a welcome change for anyone looking to trade volatility or momentum.
High ‘Skew’ Doesn’t Always Signal Investor Fear
Saumya Vaishampayan – WSJ
An options-market gauge is suggesting that protective put options on stock indexes have become pricey, but that doesn’t mean investors are girding for an immediate pullback.
“Skew” measures the cost of put options against call options. Put options grant the right to sell a stock at a certain price, called the strike, by a specific time. Call options confer the right to buy a stock.
Selling Volatility Safely: VIX, VXX, and Other Short Volatility Option Strategies
Matt Moran – CBOE Options Hub
Investors who sell VIX-based products often keep a close eye on contango, and the VIX was in contango on 248 days in 2012 and 219 days in 2014.
On Friday at the 31st Annual Risk Management Conference presentations on – Selling Volatility Safely: VIX, VXX, and Other Short Volatility Option Strategies – were delivered by David Burchmore, Portfolio Manager, Ontario Teachers’ Pension Plan, and Rocky Fishman, CFA, Equity Derivatives Strategy, Deutsche Bank Securities.
How bulls and bears can use options to limit stock losses
Michael Sincere – MarketWatch
If you are cautiously bullish or cautiously bearish, consider these two stock option strategies.
If you are long the market but want to limit losses in case there is a correction or crash, use Option Strategy #1 (below).
If you are primarily bearish but want to limit losses in case the market continues to rally, you can use Option Strategy #2 (below). Both strategies are referred to as “stock replacement” strategies because instead of owning stock, you own options.