Observations and Insight

FIA Boca 2014 Exchange CEO Series Teaser
JohnLothianNews.com

At the FIA Boca 2014 event, John Lothian News sat down and interviewed several Exchange CEOs about the competitive landscape, technology and industry growth. Stay tuned for our upcoming series.

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Lead Stories

VIX Trader Pays $8 Million on Bet Gauge Will Increase 60% by May
By Nikolaj Gammeltoft, Bloomberg
An investor paid about $7.95 million for a trade that will pay off if the Chicago Board Options Exchange Volatility Index rallies at least 60 percent by May.
The trader bought 150,000 bullish contracts on the VIX expiring in May with a strike price of 22, while selling the same number of May 30 calls in a strategy known as a call spread, according to New York-based Miller Tabak & Co. The trade cost 53 cents to put on for each contract and it will profit if the volatility gauge rises above 22.53 from the current level around 14, data compiled by Bloomberg show. It has a maximum payoff if the VIX more than doubles to 30.
http://jlne.ws/1hxCGjW

Traders Seeking Ukraine Haven Pile Into Treasury Wagers
Inyoung Hwang and Callie Bost – BloombergBusinessweek
Options traders are pushing the price of betting on a rally in Treasuries to the highest in almost two years.
Calls on the iShares 20+ Year Treasury Bond ETF are the most expensive since July 2012 relative to puts, data compiled by Bloomberg show.
http://jlne.ws/1hxRI9y

Trading Volatility Across Asset Classes Discussion at RMC
Russell Rhoads – CBOE
Puneet Kohli from the Healthcare of Ontario Pension Plan and James Hosker from Societe Generale contributed to a presentation titled Trading Volatility Across Asset Classes.
Kohli began the presentation discussing volatility noting that it is mean reverting, it is bounded, and it tends to have low correlations relative to other asset classes.  He considers volatility and asset class as it is investable and measureable.
http://jlne.ws/1iAZcIc

Touching Clovers Is Like Gold, Not VIX
Jodie Gunzberg, Indexology blog
Thus far on the blog, we have written a few pieces about busts in the stock market. David Blitzer wrote, “Whenever this bull market ends, it is likely to be with a bang, not a whimper.” He also wrote about Deflation, Debt and Disaster where he pointed out we may be on the edge of deflation, which leads to stagnant economies and depression. I also pointed out the cycle of stock-to-commodity outperformance may be switching back in favor of commodities.
http://jlne.ws/Nr6Vjc

Options-Focused Online Brokerage tradeMONSTER™ Emerges as a Top Overall Trading Firm in Barron’s Latest Rankings
Customer-Focused Design and Top Mobile App Give Upstart Online Firm the Edge
CHICAGO–(BUSINESS WIRE)–tradeMONSTER, a leading web-based brokerage co-founded by Pete and Jon Najarian, announced it has received a 4½-star ranking in the annual Barron’s ‘Best for Online Brokers of 2014’ survey and review.
http://jlne.ws/1hxIYQO

What Sparks a Fear Spike?
Adam Warner – Schaeffer’s Investment Research
So if it seemed like that CBOE Volatility Index (VIX) spike on Friday came in the absence of much in the way of market dip, perhaps that’s because it really did arise out of thin air.
Now in all fairness, the VIX did not quite meet my strict definition of overbought. That is, it did not close 20% above its 10-day simple moving average. It did “print” there intraday, however, and overbought is best viewed more as a continuum than a series of hard-and-fast rules.
http://jlne.ws/1hxWkfL

Chinese Companies Caught in Yuan Riptide
The Wall Street Journal
China’s decision to squeeze speculators out of its currency is causing pain for local companies and individual investors…
…Foreign-exchange options, including these leveraged wagers, are traded over the counter, via the phone, email and other broker networks, rather than on an exchange. As a result, the marketplace is opaque, with little regulatory oversight.
http://jlne.ws/1hxQ8UV

The 20 strongest S&P 500 stocks
Brett Golden – MarketWatch
The debate of active investment management vs. buy and hold rages on as investors have quickly forgotten about 2008 to 2009. Buy-and-hold investors to a certain degree believe that markets are efficient and price reflects all known information, therefore future stock prices cannot be forecast.
http://jlne.ws/1hxVjo1

Will The Last Bear Please Turn Out The Lights?
Wolf Richter – Investing.com
When BlackRock CEO Larry Fink grumbled about “way too much optimism” in the markets, he wasn’t kidding. An entire mindset has built up, benchmarking today’s metrics against those of the bubbles that imploded in 2000 and 2007. But little squiggles in the metrics are used to prove beyond doubt that there is no danger of this being a bubble, and even if it’s a bubble, that there is no danger of it imploding anytime soon, that it would, in fact, continue to inflate wonderfully into an even more magnificent bubble, and that that this time it won’t end in tears.
http://jlne.ws/1hxW40l

Exchanges

CBOE CEO Edward Tilly At 30th Annual CBOE Risk Management Conference: Announces Plans For June 22 Launch of 24-Hour VIX Futures Trading
CHICAGO and BONITA SPRINGS, Fla., March 18, 2014 /PRNewswire/ — CBOE Futures Exchange(SM) (CFE®) plans to extend CBOE Volatility Index® (VIX® Index) futures trading hours to nearly 24 hours a day, five days a week, beginning Sunday, June 22, CBOE Holdings Chief Executive officer Edward T. Tilly announced this morning at the 30th annual CBOE Risk Management Conference (RMC) in Bonita Springs, Florida.
http://jlne.ws/Nr7QA3

CBOE to launch nearly 24-hour Vix futures trading
By Neil Munshi in Chicago, The Financial Times
CBOE Holdings, which operates the largest US options exchange, plans to extend trading in futures based on its flagship volatility index to nearly 24 hours as it seeks to capture greater overseas interest in Wall Street’s so-called “fear gauge”.
http://jlne.ws/1hxJDSh

CBOE Holdings Announces That Certain Officers Have Entered Into 10b5-1 Plans    
Press Release (via PRNewswire)
CBOE Holdings (NASDAQ: CBOE) today announced that certain officers of the company have each established pre-arranged share disposition plans with a brokerage firm under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.
http://jlne.ws/1hxP8QR

Strategy

A Stock Split Options Trade That Favors Market Darlings
By STEVEN M. SEARS, Barrons.com
Investors may not be too worried about record high prices of many stocks, but corporate America seems to be showing some concern.
Under Armour (ticker: UA) today announced a two-for-one stock split of its $120 stock. This follows MasterCard’s (MA) 10-for-one stock split on Jan. 22.
http://jlne.ws/1hxdES0

All Or Nothing – Understanding Structured Notes And Options Tied To Binary Events
Joseph Halpern – Seeking Alpha
A recent structured note caught my attention because it a) offered great characteristics and b) was based on an underlying biotechnology stock. These characteristics suggest that note performance may be tied to an upcoming binary, highly volatile event Did investors pick up on this prior to putting $20M notional into this note and do they understand the implications as relates to the note?
http://jlne.ws/1hxOL8S

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