Lead Stories

Volatility vanishes in Fed taper show
James Mackintosh – Financial Times
The casual observer could be forgiven for thinking traders are half-asleep. Three of the most keenly awaited events in the world economy came this week, yet markets barely moved. US economic growth proved far more disappointing than expected, rising just 0.1 per cent in the first quarter; the Federal Reserve carried on tapering, cutting its bond purchases by $10bn a month; and then yesterday blowout jobs figures showed the economy bouncing back from the dismal first three months.

Record April for E-mini NASDAQ-100 Options
CME Group
E-mini NASDAQ-100 options traded a record 21,753 contracts per day in April, surpassing the previous record month of 17,108 set in February 2014. Market participants turned to our liquid E-mini NASDAQ-100 options to manage April’s substantial increase in realized volatility in the underlying NASDAQ-100 Index, due in large part to the swings reflected in Internet and biotech stocks. Average 20-day realized volatility rose from 11.35% in March to 19.30% in April, hitting a record high of 21.93% for 2014 on April 29. For more info, visit the CME Group Options Volatility Surface Report:

Beware the temptation of low volatility
International Financing Review
IT’S INTERESTING TO see that the latest buzz phrase in global capital markets is “low volatility”, proffered in the financial media in a variety of incarnations, including the ominous, the heartening, the logical, the complacent and the nostalgic.
I suppose if you combine all those interpretations of the prevailing gridlock in secondary price action with the sad old mantra of “sell in May and go away” you have the recipe for something rather explosive, volatility-wise.

Will the Market Chop Ever End?
Analyzing the wishy-washy price action of the S&P 500
Adam Warner – Schaeffer’s Investment Research
Looks like we can pretty much all agree that the first third of 2014 has provided us one big churn into nowhere. It’s even choppier than I thought. As our own Ryan Detrick points out, the S&P 500 Index (SPX) has alternated up and down weeks for eight straight weeks. It’s a phenomenon that last happened in 2006, and before that 1998, so clearly eight is some sort of magical number.

Collateral and counterparty tracking: Emerging initial margin requirements
IBM – Risk Magazine
Ongoing market uncertainty over the new and evolving margin regime for non-cleared over-the-counter derivatives has drawn many questions from firms, with too few reliable answers. This global survey – conducted by Risk and sponsored by IBM – is one of the first, comprehensive attempts to shed some light on industry preparations and covers issues such as methods for computing initial margin, the increased collateral requirements and restrictions on rehypothecation, and the impacts on collateral operations. Questions focused on how industry practices are evolving under regulatory change, and the responses reveal where market participants are heading.

Videocast: Long-term plays in VIX

BigTrends 2014 Kentucky Derby Picks & Analysis
Price Headley – CBOE Options Hub
It’s time for our annual KY Derby selections and commentary.  First, we’ll start off with an updated table of past Derby winners, their speed ratings and final tune-up race.  Our analysis of past data indicates that horses with strong 100+ speed ratings in prep races have a better probability of winning the big race.

OCC Wins Gold for the Best Annual Report at the FCS Portfolio Awards
OCC Press Release
OCC announced today that its 2012 annual report won top honors taking the Gold for the best annual report at the 2014 FCS Portfolio Awards presented by the Financial Communications Society in New York City on May 1, 2014.


ISE Holdings Reports Business Activity for April 2014
Press Release (ISE)
– ISE and ISE Gemini combined represent 17.1% of equity options market share, excluding dividend trades.
– ISE and ISE Gemini reported a combined ADV of 2.6 million contracts.     
– Dividend trades made up 1.2% of industry volume in April 2014.

BATS Global Markets Reports April Volume and Activity
Press Release (BATS)
BATS Global Markets (BATS) today reported April volume, market share, and monthly highlights:
– BATS reported 20.7% U.S. equities market share in April, up from 10.9% a year ago.
– BATS Options reported 4.2% market share, up from 4.0% one year ago. Separately, BATS Options is the lead sponsor of the annual Options Industry Conference taking place in Austin, TX through May 2.
http://jlne.ws/1kvyKBO (PDF)

BOX Price Improvement Activity for April
Press Release (BOX)
In the month of April, price improved contracts on BOX Options Exchange (“BOX”) averaged 300,510 per day, which represented a 38% increase over the same period last year. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $466,285 per day, while total savings to investors this month was $9.8MM. With this, BOX has saved investors over $497 MM since its inception in 2004. Overall average daily trading volume on BOX in the month of April was 453,931 contracts, an increase of 23% over the same period last year.
http://jlne.ws/RcBNpY (PDF)

CME Group Volume Averaged 12.2 Million Contracts per Day in April 2014, Up 6 Percent from April 2013
Press Release (CME Group)
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that April 2014 volume averaged 12.2 million contracts per day, up 6 percent compared with April 2013.  Total volume for April 2014 was more than 256 million contracts, of which 87 percent was traded electronically.

Regulation and Enforcement

SEC’s Berman Says Critics Like Schneiderman Misjudge Regulator
Nick Baker – BloombergBusinessweek
Gregg Berman of the Securities and Exchange Commission has a message for those doubting that the regulator understands the U.S. stock market in the era of light-speed trading: You’re wrong…
…In remarks today at an Options Industry Conference near Austin, Texas, Berman aimed a rebuttal at critics and “maybe an attorney general” who might think “regulators are very behind the times and can’t keep up with market participants.”

Acknowledging Mistake, U.S. Regulators Still Struggle to Oversee Derivatives Market
Andrew Ackerman and Katy Burne – The Wall Street Journal
U.S. commodity regulators continue to have difficulty peering into the multitrillion-dollar derivatives market and disclosed a mistake this week involving the types of swaps that triggered more than $6 billion in trading losses by J.P. Morgan Chase & Co.’s “London whale.”
The Commodity Futures Trading Commission said late Wednesday it published inaccurate data on certain swaps going back to November. The reporting errors may have caused the CFTC to understate the market for certain credit-default swaps—insurance-like contracts used to hedge against losses on bonds and loans—according to a CFTC official and industry experts.

Public unrest over HFT hints at string of legal cases
John Bakie – The Trade
Public outcry in the US over the role of high-frequency trading (HFT) is likely to lead to a series of lawsuits, according to one exchange which was wrongly accused in a recent class action suit.

Exclusive – New York attorney general eyes exchanges in high frequency probe: sources
Karen Freifeld and Nadia Damouni – Reuters
The New York Attorney General’s office is seeking information from exchanges and alternative trading platforms about their relationships with high frequency trading firms, as part of its probe into allegedly unfair trading practices on Wall Street, according to sources familiar with the situation.


The NFP Trade Is Dead…. For Now
Andrew Giovinazzi – The Options Insider
13.25 for VIX yesterday.
That is the lowest number I can remember going into an NFP report in the last year.  In that way the Fed did their job.  The Taper is on course to be unwound in 4 months and stocks somehow are hovering near their all time highs.  A feat of magic that would make  Criss Angel do a double take.  There is not a bid  for volatility going into the move like the ones that shook stocks last year around this time.

Options Education

Trader and Investor Perception vs Reality
Sam Seiden – The Options Insider
Have you ever felt the need to be on guard when buying a car, major appliance, new home, or anything that involves a sales person? Or, have you ever had a career in sales which means spending weeks if not months in advanced training sessions where the entire goal of the training is how to convince someone that they should pay $1000 for something that is really worth $200.

Protecting Precious Capital
Brandon Wendell – The Options Insider
“Cut your losses short and let your profits run.” So many traders chant that mantra while working in the markets. Anyone who has, or ever had, money in the markets knows that this is an easy thing to say but much harder to do. The emotions of fear and greed creep into our trading environment and influence our trading decisions.  My students often ask me if there is a way for them to hold on longer to their trades for greater profits or better protect their capital.

Filtering out the Best Trades
Brandon Wendell – The Options Insider
When we teach our courses at Online Trading Academy, we teach our students where the proper areas to buy and sell lie on the charts.  Those areas as you may know are supply and demand levels.  However, there seems to be some confusion amongst traders as to how to identify the best levels for entering or exiting trades.

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