Observations & Insight

A Plea to President Obama
Steven M. Sears – Barron’s

An open letter to President Barack Obama and Labor Secretary Thomas Perez:

Dear Mr. President and Mr. Secretary:

The Labor Department is considering a proposal that would, in effect, bar investors from using options in individual retirement accounts. While I support the proposal’s intent of safeguarding investors from being unduly influenced to buy inappropriate investments, the change, which could become effective by January, may well produce more harm than good.

The measure, part of a broader Conflict of Interest proposal from the Labor Department for retirement investments, would effectively ban the use of options in IRAs, where they are now allowed. In my view, the ban would deprive investors of an important tool for protecting their portfolios. I hope that options were simply overlooked in your proposal and banning them is not a key goal.
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Lead Stories

VIX Didn’t Update for 30 Minutes as Options Quotes Got Erratic
Callie Bost – Bloomberg
For a brief period this morning, anxiety got too high to measure in the U.S. options market.
The Chicago Board Options Exchange Volatility Index failed to update for about 30 minutes after the open of stock trading at 9:30 a.m., data sent to Bloomberg show. Trading in the options from which the VIX is derived was too disjointed to calculate a value, its overseer said.
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Panic Grips Emerging-Market VIX in Biggest Jump on Record
Elena Popina and Nikolaj Gammeltoft – Bloomberg
The rout in markets from China to South Africa triggered a record jump in a gauge of options prices on developing-nation stocks as investors purchased contracts to protect against future declines.
The benchmark — called the CBOE Emerging Markets ETF Volatility Index — more than tripled as trading began at 9:30 a.m. in New York. The selloff in developing nations took a turn for the worse on Monday as Chinese equities fell the most since 2007. The measure jumped 44 percent to 47.88 at 11:03 a.m in the biggest gain on record.
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Options Market On Fire
Steve Sears – Barron’s
With major stock indexes on verge of limit down trading halts, investors need to be very careful trading options.
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Record Volume Day for CBOE and SPX Options, as VIX Index Has Its Biggest One-Week Jump
Matt Moran – CBOE Options Hub
This past week the CBOE Volatility Index (VIX) rose 118.5%, its largest move ever (in percentage terms) in one calendar week. On Friday CBOE, C2 Exchange and the CBOE’s S&P 500 (SPX) options all experienced record volume days, with estimated volume of 11 million options contracts traded on CBOE. A news report at Marketwatch noted – “Across the globe, investors dumped anything with a whiff of “risk” as an economic slowdown in China accelerates, resulting in rapidly plunging oil prices and complicating the Federal Reserves aim of normalizing interest rates.”
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Stand Your Ground Or Get Out of the Way? Market In A Mood to Sell
JJ Kinahan – Forbes
Here we go again? Early stock indicators picked up where they left off after a gut-check that marked the biggest weekly declines for Wall Street since 2011.
Many traders held their collective breath over the weekend, wondering if Chinese officials would step in with any teeth to shore up stock declines there. No dice. China’s Shanghai Composite closed down 8.5% Monday. It has erased all gains for 2015—a bumper year for bulls until recently. Japan’s major stock market retreated Monday as did Europe.
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Selling Frenzy Grips Markets as Traders Tally Losses From Rout
Anna Kitanaka, Kyoungwha and Kim Zahra Hankir – Bloomberg
On Mirabaud Asia Ltd.’s Hong Kong trading floor, stockbrokers sat in quiet disbelief. At Vunani Private Clients in Johannesburg, calls from worried investors came in thick and fast. In Mena Corp Financial Services LLC’s Abu Dhabi office, traders canceled vacation plans.
“The situation is terrible and there’s a lot to be concerned about,” said Nabil Rantisi, managing director of Abu Dhabi-based Menacorp, the biggest brokerage by value traded in the United Arab Emirates. “It feels like it’s judgment day. I’ve spent my entire holiday working.”
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Great fall of China sinks world stocks, dollar
Sinead Carew – Reuters
World stock markets plunged on Monday, as a near 9-percent dive in China shares and a sharp drop in the dollar and major commodities sent investors rushing for the exit.
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After Months in Denial VIX Hears Signals Sent by Other Markets
Callie Bost – Bloomberg
U.S. stock and options traders finally got the message.
Spurred by the worst selloff in U.S. equities since 2011, the Chicago Board Options Exchange Volatility Index jumped 118 percent to 28.03 last week, its biggest five-day gain on record. American equities were the last to succumb to a drumbeat of warnings on global growth emanating for months from bond, currency and commodities markets.
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Fear Flashes in Options Market; VIX Nearly Doubles
Saumya Vaishampayan – WSJ
The stock market’s fear gauge surged to its highest level in nearly four years as stocks around the globe were pounded by growth worries.
The CBOE Volatility Index, or VIX, reflects options prices on the S&P 500. Prices on those options tend to rise rapidly when investors rush to protect themselves against a selloff. That’s exactly what happened on Friday.
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Wall St slump, soaring volatility boosts options volume
Saqib Iqbal Ahmed – Reuters
The rout in U.S. stocks this week and soaring volatility has helped push options trading volume to a four-year high as traders loaded up on near-term protection against further downside pressure.
On Friday, concern about a China-led global slowdown sent the S&P 500 below the 2,000 level and the Dow into correction territory.
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The Dow Correction And Everything Else That Went Wrong in Stocks
Joseph Ciolli – Bloomberg
The global equity selloff that sent benchmark indexes to their worst week in four years played havoc with individual stocks and industries in the U.S. market.
To energy shares already snared in a bear market, add semiconductor stocks, which crossed the threshold by capping a decline of more than 20 percent. Apple Inc. also entered a bear market, while the Dow Jones Industrial Average entered a so-called correction with a decline of 10 percent from its last record. Biotechnology, small caps, media, transportation and commodity companies have also entered corrections.
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The Fed Is Looking at a Very Different Dollar Than Wall Street
Andrea Wong – Bloomberg
By many popular measures, the dollar has traded sideways for the last six months. Then there’s the Federal Reserve’s measure.
The greenback is surging, according to an index the Fed created to track the U.S. currency versus 26 of the country’s biggest trading partners. It’s risen 1.3 percent beyond a 12-year high reached in March, when the central bank fired the first of a series of warnings that a stronger dollar may hurt growth and lower inflation.
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Banks Leave Investors in Dark on Exposure to Market Turmoil
Mayra Rodríguez Valladares – American Banker
For proof that events in emerging markets can influence capital markets in the rest of the world, one need only look at the developments of the last few weeks.
Global markets plunged Monday as investors grew increasingly alarmed over China’s economic slowdown. Early this month, Chinese authorities devalued the yuan by almost 2%, arguably to begin letting the currency float freely. This move has already put pressure on South Asian countries to devalue their currencies in order to remain competitive with China.
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The Week in Russell 2000 Trading – 8/17 – 8/21
Russell Rhoads – CBOE Options Hub
Small cap stocks held up (generous term here) well versus large cap stocks last week. The Russell 2000 (RUT) was down 4.61% while the large cap focused Russell 1000 (RUI) lost 5.73%. The drop for RUI was the biggest one week lost since mid-September 2011. For the year RUT and RUI are down 3.98% and 3.89% respectively. I’m going to say that’s a tie with just over four months to go.
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Market rout: NSE VIX signals heightened volatility, rises 64.36%
Business Today
The India NSE VIX on Monday rose 64.36 per cent, marking its biggest single-day jump in the recent past.
The index which signals market expectations of near-term volatility rose to a intra-day high of 30.65 level but closed at 28.13, up 11 points from 17.11 points at the beginning of the trade.
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Exchanges

CBOE, C2, SPX Options Set Daily Volume Records; Single-Day RUT Options Volume Soars
Press Release – CBOE Options Hub
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported that trading volume at the Chicago Board Options Exchange (CBOE) and the C2 Options Exchange (C2) each set a one-day trading record, with CBOE trading an estimated 11,027,570 options contracts and topping a previous single-day record of 10,919,537, set on August 8, 2011.
The all-electronic C2 Options Exchange also established a one-day record, with an estimated 749,563 options changing hands, topping its previous day volume record of 721,478, set October 15, 2014.
In addition, volume in options on CBOE’s S&P 500 Index (SPX) options set a single-day record. The estimated volume of SPX options was 2,980,564 contracts. The previous single-day options record in SPX was set October 15, 2014, with 2,686,964 contracts.
Yesterday, CBOE saw in excess of 259,000 Russell 2000 (RUT) options traded, more than double the average daily volume since CBOE became the exclusive home for RUT options trading on April 1st.
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Technology

CQG connects to ASX 24 ITCH
Automated Trader
CQG has announced direct market access to ASX 24 ITCH, the Australian Securities Exchange’s low latency protocol for accessing ASX 24 markets, which include interest rate futures and options, equity futures and options, agricultural futures and options, and energy futures and options.
The new connection allows CQG customers to access ASX 24 ITCH market data through all of its trading products, including its CQG Integrated Client platform, and its mobile app CQG M. ASX 24 ITCH has been developed as a comprehensive market data offering with direct trade capabilities from the ASX Trade24 platform.
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Strategy

Is It Safe to Fade the Latest VIX Rip?
Adam Warner – Schaeffer’s Investment Research
As I mentioned in Part 1 of this series, there is a way to go back further in time and look at volatility blasts, even in the absence of a volatility index. Long story short, before there was the CBOE Volatility Index (VIX), there was the CBOE OEX Implied Volatility Index (VXO). VXO was — and is, as it still exists — a volatility index that proxies 30-day implied volatility on S&P 100 Index (OEX) options. Prior to 2004, the index now known as VXO was known as … VIX. The index now known as VIX didn’t exist yet.
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The Key VIX Level to Watch as Fear Spikes
Todd Salamone – Schaeffer’s Investment Research
In order to look ahead, we should revisit last week’s bloodbath. As we noted last Monday, it was a standard expiration week. This is important, as whenever an index is situated just above key put open interest strikes during a standard expiration week, a negative catalyst can exacerbate selling relative to what might occur during non-standard expiration weeks.
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