JLN Options: Gary Katz on ISE Gemini; VIX Trader Pays $6.7 Million Betting That Fear Gauge May Double; The Options Market Is Pricing In Big Moves When These 14 Stocks Announce Earnings

Oct 18, 2013

Commentary and Insight


Gary Katz

Born Under a Good Sign: Gary Katz Says ISE Gemini Off to Fast Start

Gary Katz, president and CEO of the International Securities Exchange (ISE), has seen the options markets change dramatically since he co-founded the all-electronic options exchange in 2000. Now with the launch of ISE Gemini in August, the ISE is looking to add another exchange model that differs from the flagship exchange. Gemini also represents the 12th US options exchange. Katz sat down with JLN editor-in-chief Jim Kharouf about the new exchange, which garnered 2 percent marketshare of the total industry options volume in its first month.

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Lead Stories

VIX Trader Pays $6.7 Million Betting That Fear Gauge May Double
Nikolaj Gammeltoft – BloombergBusinessweek
An investor paid $6.7 million for a trade that will pay off if the Chicago Board Options Exchange Volatility Index more than doubles by February.
The trader today bought 160,000 bullish contracts on the VIX expiring in February with a strike price of 24, while selling the same number of February 29 calls in a strategy known as a call spread, according to New York-based Trade Alert LLC.

GOLDMAN: The Options Market Is Pricing In Big Moves When These 14 Stocks Announce Earnings
Matthew Boesler – Business Insider
Stocks tend to move on earnings announcements, as the occasion provides investors an opportunity that only comes around four times a year to update the denominator in popular valuation metrics (like the price-to-earnings ratio).

Put (Another) New VXX Low in the Books!
Adam Warner – Schaeffer’s Investment Research
Lost in all the excitement over the debt ceiling is that earnings season actually started. Well, we’ll have to get to that next week, but upon first glance it looks like the market’s generally anticipating some small reactions in the higher-profile names.

Deal of the Year – Credit Suisse
Risk Magazine
Devising a volatility-based tail hedging strategy in Asia invariably involves dealers citing the lack of liquidity in the newly developed volatility futures products in Hong Kong and Japan and resorting instead to the tried and tested Vix futures in the US which tracks the volatility of the S&P 500.

Derivatives House of the Year, Japan – Goldman Sachs
Risk Magazine
A new noun – Abenomics – entered the lexicon to describe the huge monetary easing programme introduced by new Bank of Japan (BoJ) governor Haruhiko Kuroda and new prime minister Shinzo Abe, sparking a period of volatility across foreign exchange, equities and rates which Goldman Sachs capitalised on.

VIX creator calls Volatility ETPs ‘guaranteed losers’
Jim Patterson – Research News @ Vanderbilt
An increasingly popular investment product that tracks the volatility of financial markets is “virtually guaranteed to lose money” over the long term, says a Vanderbilt University finance professor.

Leveraged ETFs dodge blame for volatility
Luke Clancy – Risk Magazine
The US Federal Reserve has warned that leveraged exchange-traded funds could pose a systemic risk through their rebalancing activities, but many exchange-traded fund providers think these claims are overblown

Volatility ETFs: Weapons of Mass Portfolio Destruction?
Ankush Shaw – The Motley Fool
The exchange-traded fund industry has grown by leaps and bounds ever over the past two decades. While it is true that most ETF products have been a blessing for most investors, there are some “exotic” products that have devastated many portfolios.

Asia Risk awards 2013 winner: HSBC – RMB House of the Year
Risk Magazine
HSBC sold 50% more RMB options in the first half of 2013 than in the whole of 2012, an increase that has seen USD-CNH volumes overtake eurodollar to become the second highest traded currency pair option behind dollar/yen, according to Selene Chong, global head of forex and precious metals structuring at HSBC in Hong Kong.

CBOE SKEW Index Hit 19-Month High on Oct. 15, Reflecting Demand for Disaster Protection
Matt Moran – CBOE
This week on October 15th, the CBOE SKEW Index closed at 131.01, its highest value since March 2012. CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a “black swan” event — an unexpected event of large magnitude and consequence.

An Alternative to High-Frequency Trading
John Hintze – TABB Forum
Chicago Booth associate professor of economics Eric Budish says the HFT arms race is a symptom of market instability and not a cause. But he has a way to increase market stability.

How did AlphaMetrix go so wrong?
Lynne Marek – Crain’s Chicago Business
Just a few years ago, AlphaMetrix LLC was a high-flying Chicago financial-technology startup, riding the growth of its futures and hedge-fund clients.
The company’s success was underscored as recently as November, when CME Group Inc., which operates the largest futures market in the world, and the National Futures Association, an industry regulator, hired AlphaMetrix to help build a technology system that would let them monitor futures brokers’ accounts after fraud at MF Global Inc. and Peregrine Financial Group Inc.


Regulation leads to exchange regionalization: NYSE Euronext official
Clare Hutchison – Reuters
Diverging regulation of financial markets will lead to a regionalization of cash markets and make future consolidation between U.S. and European exchanges unlikely, the Executive Vice President of NYSE Euronext (NYX.N) said on Tuesday.

CBOE Revises Schedule for Expanding VIX Futures Trading Hours
Sam Mamudi – BloombergBusinessweek
CBOE Holdings Inc. (CBOE:US), which delayed the expansion of VIX futures trading hours because of the U.S. government shutdown, revealed the process will now take place on Oct. 28 and Nov. 4.

Regulation and Enforcement

This week’s Commitments of Traders, cotton data delayed – CFTC
Key data from the U.S. Commodity Futures Trading Commission – the Commitments of Traders and Cotton on Call reports – will not be published this week as scheduled, the agency said.

Regulator Clarifies Accounting Rules in Wake of ‘Whale’ Case
Michael Rapoport – The Wall Street Journal
Regulators are letting bank executives know they are still watching for whales.
The Office of the Controller of the Currency, which oversees the biggest U.S. banks, last week said it would be “inappropriate” for banks to change how they value their derivatives holdings just to make their financial results look better.


We Have Liftoff: Wolfgang Eholzer on the New Eurex Trading Platform
Jim Kharouf – MarketsWiki.tv
Wolfgang Eholzer, head of Eurex Trading IT, has seen his share of technology changes to exchange platforms. The latest, and biggest of his career, was the creation of a brand new trading platform for Eurex, called T7.


Commentary: Covered call strategy provides shelter from market storms
Howard Atkinson – MarketWatch
 Should stock investors be cautious come November? The Standard & Poor’s 500 Index has had a strong run since last year, which some analysts believe could make it more susceptible to a pullback. Historically, however, November heralds the beginning of a seasonally strong period for stocks that carries through until April.

ETFs to play the fear factor trade
Yves Rebetez – Financial Post
So much could have gone wrong this year. The United States barely avoided the fiscal cliff, side-stepped the negative impact of sequestration, and, this week, defused a government shutdown and debt-ceiling crisis that brought the world’s largest debtor within days of defaulting.

Options Education

Blu Putnam on Options [Video]
CME Group
CME Group’s Chief Economist, Blu Putnam, discusses the unique value and flexibility that options provide to investors, and how they are especially important for managing volatility risk.

The Yin and Yang of Options – Part 3
Russ Allen – The Options Insider
In the last two articles, I’ve been discussing the movements in option prices in response to market forces. I’ve focused on the equal and offsetting effects of option price changes on the two parties to the option contract: the option buyer and the option writer (seller). We’ll extend that discussion today.


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Past Options Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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