JLN Options: VIX Shows No Fear Into Year-End; Your Broker Probably Gets VIX Options Completely Wrong; The anniversary no market timer should ever forget

Nov 13, 2013

Lead Stories

VIX Shows No Fear Into Year-End
Kaitlyn Kiernan – The Wall Street Journal
Bullish investors are taking the market’s so-called fear gauge back toward multiyear lows.
With investors believing that the coast is clear for stocks through the end of the year, the Chicago Board Options Exchange’s Volatility Index has fallen 36% since an early October spike amid the political wrangling in Washington over the debt ceiling.
http://jlne.ws/1fC5Sq5
**The VIX has not really evinced any fear in a long time.  We shut down the government and ran right up to the debt ceiling and national default and the VIX only ticked up a bit.  Does it still really count as a market barometer?  Not sure… -JB

OPTIONS REPORT: Deutsche Bank Autobahn Algos Target Options Traders
Phil Albinus – Traders Magazine
Traders Magazine spoke with Jose Marques, global head of electronic equity trading, and Jay Fraser, head of Autobahn Equity Americas, to find out how the options trader differs from the equity trader, what need there is for new algos in this asset class and whether they missed the boat when equities lost some steam after the global financial crisis of 2008.
http://jlne.ws/1fC6xrv

Your Broker Probably Gets VIX Options Completely Wrong
Jared Woodard – The Street
It’s been seven years since the CBOE Volatility Index (VIX) options were launched, and some brokers and option pricing software providers haven’t quite gotten around yet to reading the contract specs.
http://jlne.ws/1fCg1Ty

U.S. stock exchanges offer plans to prevent trading glitches
Herbert Lash – Reuters
U.S. stock and option exchanges said on Tuesday they reached a general agreement on how to strengthen securities markets after federal regulators ordered them to come up with new rules in the wake of Nasdaq’s three-hour trading halt in August.
http://jlne.ws/171qUfn

Videocast: Playing budget volatility
optionMONSTER
http://jlne.ws/1fCecGi
**80,000 options bought (by one person) looking towards the next debt ceiling negotiations!?  To be fair though it is hard to overestimate the dysfunction of our bureaucrats.  -JB

Shorts Get Rare Payout on Tesla in Worst Year for Bears
Nikolaj Gammeltoft and Lu Wang – Bloomberg
In one of the toughest years ever for short sellers, betting against Tesla Motors Inc. is starting to pay off.
Tesla, the best-performing stock in the Nasdaq 100 Index for 2013, has lost 29 percent since Sept. 30. About $6.59 billion was wiped from its market value, the biggest decline this year among the 10 most-shorted American companies, data compiled by Bloomberg show. Options traders are increasing the cost of betting on declines amid speculation the shares will keep paring a 307 percent rally.
http://jlne.ws/1fCfukL

The anniversary no market timer should ever forget
Mark Hulbert – MarketWatch
It was five years ago that the CBOE’s Volatility Index rose above its previous all-time high. That triggered buy signals from virtually all VIX-based market-timing systems, since the assumption at that time was that record-high VIX levels only occurred at or close to market bottoms.
http://jlne.ws/1fCgchP

Microsoft Is About to Dethrone Apple as the S&P 500’s Power Stock
Eric Chemi – Bloomberg
Unless Apple’s (AAPL) share price turns positive and rallies over the next six weeks, its multiyear run as the most influential stock in the Standard & Poor’s 500 index will come to an end. Over the past four years, Apple’s strong stock performance has added the most S&P index points. Now it looks like Microsoft (MSFT) rules.
http://jlne.ws/1a5IjVw
**I am starting to wonder how much of Apple was its products and how much was Steve Jobs. Actually I am not the first to think that by a long shot but the evidence is starting to collect. -JB

Exchanges

ICE Completes Purchase of NYSE
Press Release (via Dan Collins Report)
IntercontinentalExchange Group, Inc. (NYSE: ICE), the leading global network of exchanges and clearing houses, today announced the successful completion of its previously announced acquisition of NYSE Euronext (NYSE: NYX). The stock-and-cash transaction has a total value of approximately $11 billion. The combination creates the premier operator of global exchanges diversified across a range of asset classes spanning interest rates, equities and equity derivatives, credit derivatives, bonds, foreign exchange, energy, metals and agricultural commodities.
http://jlne.ws/1fCdo4a
**There is something vaguely anti-climatic about it.  Seems like someone should hand over the front door keys or have Jeff Sprecher do a retina scan or something.  Nevertheless it is certainly a notable moment.  -JB

NYSE’s New Boss Says 221-Year-Old Market Must Act Like Startup
Matthew Leising & Sam Mamudi – Bloomberg
IntercontinentalExchange Inc. (ICE) completed its purchase of NYSE Euronext at the close of today’s trading session, and its chief executive officer said the deal will usher in a swift shift to a more aggressive culture at the 221-year-old owner of the New York Stock Exchange.
http://jlne.ws/1gJlsmN

ICE-NYX May Help Consolidate U.S. Market
MarketsMedia
After a decade or so of increasing fragmentation in U.S. equity markets, some observers say IntercontinentalExchange’s imminent acquisition of NYSE Euronext may act as a catalyst to turn the tide.
http://jlne.ws/1fCbkcs

MIAX Options Exchange to List Twitter Options; Merrill Lynch Appointed as Twitter Primary Lead Market Maker
Press Release (MIAX)
MIAX Options Exchange (MIAX) announced today that it will list options on Twitter (Ticker: TWTR) as soon as the Twitter stock meets listing criteria. Merrill Lynch has been appointed to serve as the Primary Lead Market Maker (PLMM) for all Twitter options. Contract specifications will be determined and made available prior to trading once The Options Clearing Corporation has approved the trading of Twitter options.
http://jlne.ws/1a5CnLY (PDF)

Regulation and Enforcement

New swaps regulator must prove mettle in Wall Street reform
Douwe Miedema – Reuters
President Barack Obama on Tuesday named Timothy Massad, a lawyer who oversaw the U.S. government’s $700 billion bank bailout program, as the next head of one of Wall Street’s most powerful supervisors.
http://jlne.ws/1fCagoT

Options Education

Reader Mail: Dissecting Volatility Math
Adam Warner – Schaeffer’s Investment Research
Every so often, we get some questions. And a small percentage of the time, we actually answer (OK, only kidding, I always try to answer).
Anyway, this was from Monday night:
– How can the CBOE Volatility Index (VIX) drop while the CBOE Near-Term VIX Index (VIN) and CBOE Far-Term VIX Index (VIF) both go up big?
http://jlne.ws/1fCe3CR

It’s There If You Need It
Don Dawson – The Options Insider
It’s there if you need it, but most of time there is very little demand. I’m referring to the availability of Commodities at contract expirations. When you are trading Commodity Futures you are in reality trading a contract that will eventually expire. When the contract expires you could take delivery or make delivery of the particular Commodity you are trading. Or you may elect to offset your position before the contract expires which is what 98% of market participants do.
http://jlne.ws/1fCfi50

Playing volatility before events
Chris McKhann – optionMONSTER
There are many ways to play volatility, and one that often gets overlooked these days is the simple straddle.
Most advanced option traders like to sell implied volatility because there is a so-called risk premium that can be collected, not unlike what insurance companies do. But along with that comes the risk of having to pay out, and there are many big-name volatility sellers that have gone out of the business–Long Term Capital Management, Victor Niederhoffer, and Myron Scholes are probably the most prominent.
http://jlne.ws/1a5HTOM

 

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