Observation and Insights
Editor’s Note: JLN Options would like to thank Trade Alert’s president Henry Schwartz for being our guest editor this week. His stories and comments were insightful and interesting. Wish we could have him do this more often but then we’d probably have to pay him.
Henry Schwartz – President, Trade Alert
Earlier this week we looked at some of the major developments that shaped the US listed options industry over the years, and now I’d like to look forward at what trends are taking place and what we may see in years to come.
It goes without saying that exchange and participant technology will continue to evolve, increasing transaction speed and removing what little friction remains in the trading process. While many gripe about the expense involved in handling peak OPRA data rates over 15 million messages per second, no one is complaining about the 30million contract days such systems make possible.
Read More >>> http://jlne.ws/1dQzwVb
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Craig Donohue takes the reins at OCC
JLN Staff – JLN News
In January, Craig Donohue returned to the financial industry as the new executive chairman of the OCC, the world’s largest clearing house. Donohue, who stepped away from the financial markets after 25 years and the CEO post at the CME Group, spoke with Jim Kharouf, editor-in-chief of John Lothian News about why he took the job, governance issues at the organization as well as where the OCC may be heading next.
Read more/watch the video >>> http://jlne.ws/1g4TQox
Volatility Spurs Volume Boon in U.S. Stocks With Trading Up 11%
Sam Mamudi and Whitney Kisling – BloombergBusinessweek
One month of equity volatility (VIX) is doing what six quarters of virtually uninterrupted price gains couldn’t: pushing up volume in the American stock market.
** So NYSE and Nasdaq are implicitly long VIX? Collar anyone? -HS
Nasdaq hits 13.5-year high, stocks set for biggest weekly gain of 2014
JeeYeon Park – CNBC
Stocks drifted higher Friday, with all three major averages on track for their biggest weekly gain of the year, following a batch of economic data.
VIX Has Stopped Falling
Mark Sebastian – The Options Insider
In the last 3 days, the market has rallied about 30.00 dollars in the SPX. Knowing that, traders would expect the VIX to have gotten completely pasted as traders dumped volatility. Take a look at how S&P has moved and how VIX has moved.
Video: We’re Seeing a Lot of Offensive Plays: Deming
Stutland Volatility Group Managing Director Dan Deming and Bloomberg’s Julie Hyman discuss the swings in the sentiment expressed in the VIX in “On The Markets” on Bloomberg Television’s “Street Smart.”
As the stock market comes back, commodities tell a scarier story
Kevin Chupka – Yahoo Finance
Even as the stock market seems to be coming back from a rough start to 2014, Dan Dicker of MercBloc warns that commodities are telling a much scarier story. “I’ve never seen a recovery, except for this one, that hasn’t included a rally in the base metals like copper, zinc, [and] tin,” he tells Breakout’s Jeff Macke.
Well-Timed Time Warner Cable Inc (TWC) Bets?
Adam Warner – Schaeffer’s Investment Research
Did someone’s bunny have a good nose in Time Warner Cable Inc (NYSE:TWC) on Wednesday ahead of the Comcast Corporation (NASDAQ:CMCSA) deal? Chris Ciaccia on TheStreet.com highlighted some interesting action near the bell:
**Seems there is always someone trying this when mergers happen. -JB
Nikkei turmoil drives options flow
Helen Bartholomew – IFR
Japanese equities were the big trade of 2013, with global macro funds making the bulk of their annual gains from two trades: long Nikkei 225 and long US dollar/yen. But that all looks set to change if the first month of 2014 is anything to go by with Japanese equities suffering their highest outflows since Abenomics sent the country’s equity benchmark on a super-charged rally beginning in late 2012.
Complacency Rapidly Returns To The Market
Lance Roberts – Investing.com
The markets have bounced nicely over the last several days as the recent “crisis” in the emerging market countries has subsided. Furthermore, Janet Yellen smoothed over many of the financial market’s concerns with promises of continued accommodative support. As shown in the chart of the volatility index below, these events led to the rapid decline from “panic” to “complacency” within just a few days.
** Two steps forward, one step back. Repeat. -HS
First large-scale study of stock market volatility and mental disorders
Falling stock prices lead to increased hospitalisations for mental disorders, according to new research published today in the journal Health Policy and Planning.
Researchers assessed the relationship between stock price movements and mental disorders using data on daily hospitalisations for mental disorders in Taiwan over 4,000 days between 1998 and 2009. They found that a 1000-point fall in the Taiwan Stock Exchange Capitalisation Weighted Stock Index (TAIEX) coincided with a 4.71% daily increase in hospitalisations for mental disorders.
** Followup study might examine correlation of VIX with revenues at Cactus Bar & Grill. -HS
Small Cap Volatility: U.S. Small Cap Equity Market Expected Volatility Has Trended Upward in Recent Weeks…
Press Release (Russell Investments via MarketWired)
Since reaching an all-time low closing level of 13.65 on March 14, 2013, the CBOE Russell 2000 Volatility Index (RVX) continued to test all-time lows throughout 2013 and into 2014, but has seen a steady increase in recent weeks. The Index closed above 20 on January 24, hit 27.19 on February 3 (its highest close since June 2012) and has remained elevated, closing at 21 on February 10, 2014. In addition, trading in Russell 2000 Index-based futures and options has increased since the beginning of 2014, with over 3,200 combined open contracts as of February 10, 2014*.
Videocast: Trading short-term VIX
Is Modern Trading Too Complicated and Distracting?
Matt Samelson – Traders Magazine
Talk of automation, algorithms and data in equity trading has reached an all time high. The sell-side – brokers and technologists – have a tremendous vested interest in complex offerings. Is it overkill? Trading desks at many institutions and hedge funds, as well as service providers, may be squandering valuable resources focusing on issues that don’t really matter.
**Taming complexity is a crucial part of the process today, but I think we are doing a pretty good job! -HS
Group overseeing data processor agrees to Nasdaq’s fixes – source
John McCrank – Reuters
The committee that oversees the data processor that was at the center of a three-hour trading halt in Nasdaq-listed stocks in August agreed on Thursday to implement fixes demanded by the exchange, according to a source familiar with the situation.
Investors Test New Swaps Trading Platforms
Katy Burne – The Wall Street Journal
U.S. investors are testing new platforms for swaps that could redraw decades-old Wall Street boundaries and over time lower trading costs.
The testing comes ahead of a Monday deadline, whereby many interest-rate swaps must be traded openly under Commodity Futures Trading Commission rules stemming from the 2010 Dodd-Frank financial law. Certain credit swaps will fall under the same rules on Feb. 26.
A Bright Future for Swaps
Renee Caruthers – Traders Magazine
While no one expects swaps futures to take over the OTC swaps market, a movement of 5 percent of the massive OTC swaps volumes into swaps futures would be a huge win for futures markets.
CME to cut board, but it’ll still be the biggest
Lynne Marek – Crain’s Chicago Business
Chicago-based futures exchange company CME Group Inc., which has the biggest board of directors among large publicly traded companies, will cut its director group by 17 percent this year. Nonetheless, it will remain No. 1 in terms of board size.
President’s Day Trading Schedule for VIX Futures
Marty Kearney – CBOE
Holiday trading schedules for the most part are….. well, boring. For example, Information Circulars used to tell us tidbits like Presidents Day we’re closed for trading, see you Tuesday.
Holiday trading hours in the future will be a little more interesting. On Monday, February 17th the U.S. Exchanges are pretty much closed, but VIX Futures at the CFE will be open on Monday Feb. 17th from 2:00am until 10:30am.
Trades in VIX futures made during a holiday trading session or extended hours are submitted for clearing for the next business day, so these will appear as 2/18 trades. All other CFE products are closed on Presidents Day.
Exchanges face off in global tech race
Anna Irrera and Anish Puaar – Financial News
For modern stock exchange groups a strategic focus on technology is essential. Over the past decade, global financial markets have grown in complexity, with many firms now relying on speed to make money from trading.
Are Covered Call Funds a Smart Income Play?
Ronald Delegge – Fox Business
What’s better? A covered call options strategy executed by the individual investor or a covered call ETF or fund that proposes to do the heavy lifting?
Selling covered calls is a popular investment technique used by investors with high income or cash flow as their primary goal.
The Olympics of Trading
Dan Passarelli – The Options Insider
The Winter Olympics in Sochi are currently in full swing and it can be quite enjoyable and patriotic to watch. But did you ever stop and think for a minute how these fantastic athletes got to be where they are? It took a lot of dedication, courage and a well thought out plan to make it to their elite level.
** And even after all that training you get the occasional spectacular wipeout. -HS