Observations and Insight
Finding Our Differences: FOA’s Anthony Belchambers Says Regulation Has Long Way to Go
European regulatory changes continue to move forward, but there are significant differences between the US and EU, and also between the European states themselves. The Futures & Options Association’s Anthony Belchambers spoke with John Lothian News about where Europe stands in the rulemaking process and the challenges that still remain. Belchambers said that the issue of extraterritoriality continues to concern EU regulators and market participants.
VIX Makes a Crucial Move at Year’s End
Wall Street Sector Selector
The Chicago Board Options Exchange Volatility Index (VIX) finished 2013 with one last surge to break out of a slump which began on December 18. Although stock market volatility historically increases during the period from Thanksgiving through the end of the year, the VIX has been attempting to play “catch-up” since December 27 to maintain that tradition.
S&P 500 Starts 2014 With Drop After Best Year Since 1997
Alexis Xydias and Callie Bost – Bloomberg
U.S. stocks declined, with the Standard & Poor’s 500 Index poised to start the year lower for the first time since 2008, after benchmark indexes posted the biggest annual rallies in more than 15 years.
Was the VIX Too Low in 2013? No…
Wall Street Sector Selector
The resulting possibility that there was some sort of unseen threat to the financial markets that was not showing up on their radar. In the last few years, the situation has reversed and now I find investors expressing more concern about a low VIX more often than a high VIX.
A Few Brave Investors Scored Huge, Market-Beating Wins
Gregory Zuckerman, Rob Copeland and Nicole Hong – The Wall Street Journal
A trader who made more than $100 million from a $10 million bet against gold. A hedge fund that gained 42% after a bullish wager on stocks. A firm that saw returns of 48% thanks in part to soaring Japanese stocks.
These were among the winning investors who managed to rack up huge gains forecasting a handful of key shifts in a year that vexed many market gurus.
**As is noted at the bottom of this newsletter, “Past results are no indication of future performance.” Not that I am envious or anything. -JB
Top Five 2013 Options Insider Stories
The Options Insider
Happy New Year! It was a busy 2013, filled with a number of great options-related stories. Here at The Options Insider, we took a look through the many ones that we posted and found the following five to be the top five stories of the year.
Happy VIX New Year
Adam Warner – Schaeffer’s Investment Research
It’s 2014, but should we worry about the strength of the CBOE Volatility Index in (very) late 2013? This, from Bespoke on Monday:
– Noteworthy that the VIX is up 8% on this slow, penultimate day of 2013 even with market flat? $SPY $VIX $$
To which, I noted:
-…holidays mess with VIX calculation, I wouldn’t read anything into the noise imho
No Bounce Seen for a Deflated Commodities Sector
Matt Day – The Wall Street Journal
Many investors expect commodities markets to struggle for a fourth consecutive year in 2014, as steady-but-unspectacular economic growth extends a rough patch for what had been one of the hottest investment niches of the past decade.
Flawed Fee Model Distorts U.S. Trading, Virtu Says
Sam Mamudi – Bloomberg
Regulators could stem the migration of U.S. equity trading to dark pools by coordinating a cut in trading fees, an action exchanges are unlikely to take on their own, according to one of the biggest high-frequency firms.
A Stock Exchange Expands Its Global Reach
Nathaniel Popper – Dealbook
The face of the global stock market used to be the classically proportioned exchange building on Wall Street.
In the future, it may well be a squat suburban office building in Lenexa, Kan., outside Kansas City, where BATS Global Markets is based.
CBOE Holdings Reports 2013 Consolidated Trading Volume
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) reported today that 2013 marked its second-best year in total trading volume and average daily volume (ADV).
CBOE Holdings consolidated trading volume for options contracts on Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) and futures contracts on CBOE Futures Exchange (CFE) totaled nearly 1.19 billion contracts. Average daily volume (ADV) in 2013 was 4.71 million contracts, an increase of four percent from 2012.
CBOE reported record ADV of 1.48 million contracts for its cash index options in 2013, an increase of 22 percent from a year earlier, led by record volume in CBOE’s S&P 500 Index options (SPX) and CBOE Volatility Index (VIX Index) options. SPX ADV was 823,369 contracts, a 19-percent increase from 2012, and VIX options ADV was 567,460 contracts, a 29-percent increase.
CBOE Futures Exchange reported its fourth consecutive year of record trading in VIX futures in 2013 when VIX futures ADV was 159,498 contracts, up 67 percent from 2012.
OCC Announces Cleared Contract Volume Reached 4.2 Billion in 2013 and Record Year for Futures and Stock Loan Activity
Press Release – (OCC)
OCC cleared contract volume reached 4,170,855,768 contracts in 2013, up 3 percent from the 2012 annual volume of 4,042,175,801 contracts. OCC ended the year with cleared contract volume reaching 325,905,926 contracts in December, up 3 percent from the December 2012 volume of 317,190,974 contracts.
2013 marks the second highest year for OCC cleared contract volume to date, just 430,100,181 contracts behind the 2011 record volume of 4.6 billion contracts. OCC also reported a record year for futures and stock loan activity in 2013.
The Options Industry Council Announces December Options Volume Up 2% as 2013 Volume Rises Nearly 3%
Press Release (OIC)
The Options Industry Council (OIC) announced today that 320,209,356 total options contracts were traded in December, which is a 2.46 percent increase compared to the previous December when 312,528,471 contracts were traded.
Total options trading volume for the year stood at 4,111,275,659 contracts, an increase of 2.68 compared to last year’s 4,003,871,308 total options contracts exchanged. This marks the third consecutive year annual volume was more than 4 billion contracts while 2013 becomes the second highest volume year on record. Equity options volume came in at 3,725,864,134 contracts, 1.20 percent more than the 3,681,820,659 contracts traded the year prior.
Last year also saw $1.2 trillion in options premium change hands, the seventh consecutive year above $1 trillion.
Regulation and Enforcement
Volcker Rule Block Request Dropped by Bankers Group
Edvard Pettersson – Bloomberg
The American Bankers Association dropped its request for a federal judge to temporarily block Volcker Rule restrictions on collateralized debt obligations backed by trust-preferred securities.
The industry group said the temporary restraining order it had requested is no longer needed after regulators said Dec. 27 they are reviewing challenged aspects of the rule, according to a filing yesterday in federal court in Washington.
Regulators Have New Cases of Frauds and Abuses to Tackle
Peter J. Henning – Dealbook
Goodbye 2013 frauds; welcome 2014 abuses.
The financial crisis may be five years behind us, but there will never be a shortage in the ways in which the financial markets may be manipulated and abused.
You Can’t Stop Market Rigging by Ignoring It
Scandals surrounding the setting of some of the world’s most important financial benchmarks, which influence the prices people pay for everything from oil to mortgages, have shaken confidence in vital markets.
The latest shenanigans, affecting currency markets, show how difficult restoring trust will be.
More Uses for Puts
Russ Allen – The Options Insider
In my last article, I wrote about buying long-term put options as a part of a long-term investment strategy. These can be used to protect a long stock position; or as a part of various other strategies. The attraction of buying the long-term puts was that they were cheap. Today we’ll discuss another way to use puts as part of a long-term investing strategy.