Lead Stories

VIX Trader Buys $5.1 Million in Calls to Bet on 50% Increase
Nikolaj Gammeltoft – Bloomberg
An investor bought $5.12 million in call options that will be profitable if the Chicago Board Options Exchange Volatility Index (VIX) jumps at least 50 percent in the next four months.

Options and Math

Wall Street Sector Selector
One of the greatest advantages of options trading is its extreme flexibility in both the initial construction of positions and in the ability to adjust a position to match the new outlook of the underlying.  The trader who limits his or her world to that of simply trading equities and ETF’s can only deal in terms of short or long.

Is VIX Backwardation a One-off Event?
Mark Sebastian – The Options Insider
Yesterday,  the big news in the option world will be that the VIX went backward cash-Dec future and is essentially flat against January. 
Yet,  if one takes a deeper look at how volatility behaved,  one has to ask if this is a one off event.

Collecting premium in a choppy stock market
James Ramelli – Futures Magazine
With the market remaining choppy in December, many traders are concerned over the shakiness markets have shown on these new highs. Uncertainty at these levels has increased volatility, but with increased volatility comes opportunity.

See How the VXX Runs
Adam Warner – Schaeffer’s Investment Research
Based on the Runs Test we did yesterday, we unsurprisingly found no evidence of day-over-day momentum in the CBOE Volatility Index (INDEXCBOE:VIX). We surprisingly found little momentum in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) either, though I suspect momentum in an index or a stock itself is more evident within a session than from one session to the next.
But those tests were so fun, I figured I’d run one more, this time on our good friend the iPath S&P 500 VIX Short-Term Futures ETN (VXX).

Videocast: Jitters reflected VIX

Gold options: Protecting downside risks still the main concern
Ole Hansen – TradingFloor.com
The bounce in gold from last Friday until today has not surprisingly triggered a small reduction in at-the-money volatility. Despite the bounce, the overriding near-term concern is still related to the risk of renewed weakness as shown on the volatility skew. Traders are prepared to pay a substantial higher price to hedge downside risk compared with upside at the moment.


Exchanges Under Siege Form Committee to Bolster Cyber Defenses
Nandini Sukumar – BloombergBusinessweek
Following a wave of attacks on their computers, the world’s biggest exchange operators formed a committee to enable collaboration on improving their defenses…
Hackers have targeted computers at exchanges including CME Group, the world’s largest (CME:US) bourse operator, and Nasdaq. Cyber security is the greatest threat to markets, Depository Trust & Clearing Corp. said in August, a month after a study co-authored by the WFE found that 53 percent of exchanges had been attacked in the prior year.
**The story (though apocryphal) was that when asked, “Why do you rob banks?” Willie Sutton responded, “Because that’s where the money is.”  It should come as no surprise that the modern equivalent of bank robbers would target the people with the money and do so via electronic means.  It makes a world of sense for the exchanges to tighten security in this regard. -JB

ISE Receives “Best Risk Management Initiative” Award at 2013 American Financial Technology Awards
Press Release (ISE)
The International Securities Exchange (ISE) announced today that it received the “Best Risk Management Initiative” Award at the 2013 American Financial Technology Awards (AFTAs), hosted by Waters Technology. Winners were determined by a panel of independent industry judges and Waters editorial staff.

IntercontinentalExchange Unveils Details of Plans to Combine London Futures Exchanges
Tess Stynes – The Wall Street Journal
 IntercontinentalExchange Group Inc. (ICE) said it plans to start moving contracts from its Liffe futures and options exchange over to the ICE Futures Europe exchange next summer, aiming to complete the move by the end of next year.

Regulation and Enforcement

CFTC unveils position limits proposal
Ben Goad – The Hill
The Commodity Futures Trading Commission (CFTC) is moving forward with regulations meant to cap speculation on a broad array of commodities, including crude oil, natural gas and gasoline.
The agency on Wednesday issued a 530-page notice of proposed rule-making that details the plan to impose position limits capping the number of futures contracts for the commodities that a company might hold in the derivatives market.

Futures traders shun mandatory guards against ‘wash trades’
Mandatory safeguards to prevent automated traders from illegally acting as buyer and seller in the same transactions would be harmful to the trading industry by exposing firms to unnecessary risk, a futures-industry group said on Wednesday
**If the CFTC thinks it is a good idea to try and control wash trades at the firm level, they do not understand the structure of our market. -JL

What Wall Street Can Do to Avoid Overregulation
Sanjay Sanghoee – Time
Complaints and lawsuits cannot solve the problem of overregulation, only ideas can, but for an industry built on ideas for success, Wall Street seems surprisingly short of creativity.
**I vote for moving to Fantasy Land (or maybe Bizarro World). -JB

For No. 2 at Fed, White House Favors Central Banker in the Bernanke Mold
Stanley Fischer, the former governor of the Bank of Israel and a mentor to the Federal Reserve’s chairman, Ben S. Bernanke, is the leading candidate to become vice chairman of the Fed, according to former and current administration officials.

The Fed’s Bridgebuilder?
Doug Ashburn – John Lothian News
What would it mean to have Stanley Fischer as vice-chairman of the Federal Reserve? More hawkish or more dovish? Is it a bold move or a safe pick? Will he, to paraphrase Obi-Wan Kenobi, “bring balance to the force” by acting as a bridge between Janet Yellen and the hawkish wing, which becomes more prominent on the FOMC in 2014?
The man looks like a middle-of-the-road pragmatist, with plenty of experience at the central bank level as well as in the private sector. He has called QE “dangerous but necessary” and seems to be more willing to discuss the unintended consequences of zero interest rates and a bloating of the Fed’s balance sheet. That alone makes him OK in my book.
**Read more for the “but” I didn’t get to in my snippet. -JB

FIA says good risk controls widely used, urges regulator to let industry lead the way
Automated Trader
The FIA, in a response to a CFTC review of system safeguards in the financial industry, said best practices in risk controls were widely used by its members.

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