Observations and Insight

SEFCON Snapshot 2014, Part I: Technology and Innovation
JohnLothianNews.com

The WMBA Americas hosted SEFCON V on November 12, 2014, and John Lothian News was there. We interviewed 14 SEF operators, regulators and participants and put together this three part series on the state of SEFs one year into the mandate.

Part I looks at the state of innovation in SEF technology and market structure. The creation of the swap execution facility really forced a collision of the bilateral and listed worlds, and necessitated an entirely new workflow. Some of the technology is still being invented. Furthermore, the need for capital efficiency and product standardization have led to new product design.

Watch the video »

Lead Stories

VIX Note Volume Proving Prescient as Volatility Surges
Inyoung Hwang and Callie Bost – BloombergBusinessweek
Turbulence is reappearing in the stock market. For traders in exchange-traded notes that rise and fall with market volatility, it’s like it never went away.
Three of the most popular securities that appreciate when swings in equities increase are poised to post record volume in 2014, data compiled by Bloomberg show. The latest flurry of trading began when markets buckled in October and failed to subside even as markets calmed down in November.
http://jlne.ws/12VOcED

The Option Queen Newsletter
blog.optnqueen.com
The slow to non-existent growth around the globe has caused a genuine decline in the demand for crude products; this much we know. Expansion demands energy and when we see excess supply and falling demand, we can assume that expansion is flagging globally. That said, the strong US Dollar removes the competitive edge that the US may have enjoyed and will impact companies that rely on exports for much of their earnings.
http://jlne.ws/1B5Z2pS
**JK – A tour of all things markets including the interesting note about declining platinum/gold spread.

Rise in options trading from small centres worries Sebi
Business Standard News
The Securities and Exchange Board of India (Sebi) is getting uneasy about the rise in index options trade by investors from smaller centres. Lured by the possibility of high returns, investors from the retail category in smaller towns and cities have been increasing their exposure to these options since the beginning of the year.
http://jlne.ws/12VFbv4
***DA: I’ll never forget the day in 2007 that my dad called me asking about options trading, saying his mechanic, Tony, was bragging about how much money he was making selling these “put and call things.” I followed up a few months later and, sure enough, Tony’s option selling days were over.

Markets Struggle with lower Crude Oil, But There is a Silver Lining
Bob Lang – Finances
The action in the markets since Thanksgiving have been amazing, there is so much to cover after the past week so let’s get into it.
The last five days saw the worst price action for markets in a few years, the Industrials dropping nearly 800 points from the high set on Monday morning. The SPX 500 fell a staggering 3.7% but that was also off of an all time high, while the Russell 2K was down but not nearly as much. We can point to one culprit of the poor action – crude oil. Since Thanksgiving crude has cascaded lower and has reached 5 yr lows. Unless some intervention occurs it appears oil prices could continue to slide.
http://jlne.ws/12VGjyZ
**JK – An interesting look at the VIX/VXV ratio.

How Oil Volatility is Affecting Stocks
Adam Warner – Schaeffer’s Investment Research
And the early “VIX-mas Miracle” marches on. CBOE Volatility Index (VIX) closed last week at 21.08, the highest absolute level on a close since Oct.17, 2014. It also now sits at 35% above the 10-day simple moving average (SMA) — very firmly into overbought territory. The last close that far above the 10-day SMA was on Oct.13, 2014.
Yada yada yada, we’re in a rerun of the October volatility pop. Except really, we’re not.
http://jlne.ws/1svNIkA

Does Friday’s Red Ending Spell Options Volatility This Week?
Nicolas Chahine – Benzinga
After a red ending to the week, traders will look forward to even more potential volatility to come this week. As if the Fed events are not enough, the Senate failed to pass the spending bill and instead decided to kick the can until Wednesday. Politicians are confident that they can pass it on Monday, but if they don’t, traders may get nervous again and sell any bounces the markets may muster.
http://jlne.ws/1uJdX1j
***DA: This market can’t seem to hold a rally these days.

Videocast: VIX goes on wild ride
optionMONSTER
http://jlne.ws/1svM5U1

Last Week in VIX – 12/8 – 12/12
Russell Rhoads – CBOE Options Hub
Nothing like a 3% drop to provide a year-end boost to VIX, especially when it appeared no one was expecting it. Last Friday we got through the employment report unscathed and the result was a VIX close under 12. The last potential big “known unknown” this year comes Wednesday afternoon with the FOMC announcement. As a friendly reminder, December VIX futures and options settle on the open Wednesday so any trades based on an FOMC announcement reaction should focus on January contracts.
http://jlne.ws/1svMNk4

Exchanges

Vix Futures Extended Trading Hours Volume Hits New Single-Day High
Press Release – CBOE
The CBOE Futures Exchange, LLC (CFE) today announced that trading volume in CBOE Volatility Index (VIX Index) futures during extended trading hours (ETH) – from 3:30 p.m. CT yesterday to 8:30 a.m. CT today – established a new single-day volume record.
An estimated 79,926 VIX futures contracts were traded during ETH, surpassing the previous record of 70,168 contracts traded on October 16.
To date in 2014, approximately 8.4 percent of VIX futures have been traded during extended trading hours. In June, CFE expanded trading hours to 23 hours and 45 minutes during the trading week.
http://jlne.ws/1IT5EdE

Will NASDAQ End The Year On A High Note?
Forbes
NASDAQ OMX Group is one of the most well-diversified global stock market operators, with trading products ranging from equities, derivatives, exchange traded funds and fixed income products. The exchange operator announced its monthly volume report for November, with a decline in trading volumes after a surge in activity observed in October. Here’s a quick roundup of trading metrics across various products for the month of November.
http://jlne.ws/1uJdlIR
***DA: A high note in terms of volume, sure. And guys who are long right now would not call it a high note, though they might be singing soprano, if you catch my drift.

Technology

Top 2014 Trends: A Big Year for Big Data
Phil Albinus – Traders Magazine
Forward-thinking hedge funds are relying on data feeds beyond their Bloomberg terminals to find the next trading opportunity. And it’s having an impact on today’s once-bustling trading floors.
http://jlne.ws/12Vstwv

Strategy

The Best Trade Might Be No Trade
Steven M. Sears – Barron’s
About this time last year, I was supping at Keens Steakhouse in New York with one of the options market’s wise men. After discussing the past year’s events, and what might lie ahead, we confronted an upsetting sight as we were leaving. An empty hospital gurney stood in the middle of Keens’ small foyer. Some poor soul at a holiday party had apparently suffered a heart attack. The image was a graphic reminder that it’s possible to have too much of a good thing.
http://jlne.ws/1stNRPU
***DA: Or hide under the covers until the current volatility blows over.

Short The Blood: Betting Against The VIX Into A Volatility Spike – iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX)
Seeking Alpha
Despite the historically tranquil period between Thanksgiving and Christmas, stocks have been on a roller-coaster ride over the past two weeks-and not in a good way. The rampant destruction in the oil and gas sector has frazzled investors, even as many believe that low oil is a boon for the domestic and worldwide economies.
http://jlne.ws/1svNdXM

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