JLN Options: Wall St. falls, VIX on track for third straight weekly gain; Ebay stock jumps; traders cite rumor of Google interest; S&P 500 erases losses as oil rallies

Sep 12, 2014

Observations and Insights

Steve Brodsky, CEO, Spot Trading – My LIFFE: Markets Then and Now

“I know this is the most dynamic industry out there…the creative renewal in this industry is like no other.”

During a time when LIFFE was battling for the Bund futures contract, Steve Brodsky, CEO of Spot Trading, remembered sitting in a meeting with Deutsche Börse and talking about how electronic trading was going to become a game changer for the marketplace. Those in the meeting proceeded to laugh. Today, electronic trading has become dominant in the financial industry, and the way futures contracts were traded changed significantly. Brodsky highlights the rise of electronic trading, from its unsure beginnings to today’s world, where high frequency trading has caught the attention of the financial industry and media. Brodsky also discusses the effects of regulation and gives his prediction of what the market structure of the future may look like.

Watch the video »


Lead Stories

Wall St. falls, VIX on track for third straight weekly gain
By Ryan Vlastelica, Reuters
U.S. stocks fell on Friday, with major indexes on track to snap five-week winning streaks, as energy shares again led the market down.
Energy stocks were pressured after the Treasury department announced new sanctions against Russia. The sanctions, designed to punish the country for its intervention in Ukraine, affect oil and defense industries and further limit major Russian banks’ access to U.S. debt and equity markets.

Ebay stock jumps; traders cite rumor of Google interest
By Reuters
NEW YORK: Shares of eBay Inc rose about 4 per cent in heavy volume on Friday, with two European-based traders and one US-based trader citing rumors that Google Inc would possibly take a large stake in eBay as the reason for the move.
Options volume in eBay spiked to 2.4 times normal, with 98,000 puts and 26,000 calls traded late into the morning session, according to data from options analytics firm Trade Alert.

S&P 500 erases losses as oil rallies
By Callie Bost and Lu Wang, Bloomberg News, Bloomberg
NEW YORK — The Standard & Poor’s 500 index erased losses Thursday, sending the gauge higher for a second day, as a rebound in oil offset concerns over escalating geopolitical tension and the timing of possible interest-rate increases.
Energy shares in the S&P 500 rose 0.1 percent, erasing an earlier loss of 1.2 percent as crude prices recovered from an eight-month low. Celgene slipped 2.3 percent to pace declines in health-care stocks.

Credit Agricole appoints FX options head
Robert Mackenzie Smith, FX Week
Global head of FX Dmitri Shuster appoints senior figure in London
Richard Bailey, former global head of foreign exchange derivatives at Commerzbank, has joined Credit Agricole as global head of FX options.
Based in London, he reports to Dmitri Shuster, global head of FX.

No India Bears Unsettles Options Trader Who Foresaw Rally
By Santanu Chakraborty, Bloomberg
Just four months ago, hedge fund manager Supreeth Shankarghal predicted the only way for India stocks to go was up. Now that almost everyone agrees, he says it’s time to sell.
The manager of $100 million in options at QF Assets Ltd. in Bangalore, whose call in May preceded a 13 percent rally in the S&P BSE Sensex, says stock investors are underestimating risks after valuations rose to a 15 percent premium over the three-year average. India is the only one of 12 major markets where the stock index rose to a record this year and the cost of using options to protect against losses slumped to an all-time low.

New “Risk Aware” ETF Adjusts Straetgy Based on Market Environment
by Mark Melin, ValueWalk  
Following in the footsteps of “actively managed” algorithmic hedge funds, new ETF computer-based artificial intelligence drives investment decisions, while new volatility product challenges CBOE VIX index
As quantitative investment methods to solve risk management problems advance, ETFs, considered “passive” investment methods, are a focus for new tools.  But are these new products based on valid and time tested investment principles or are they too complex with multiple opportunities for failure?

Alibaba Not Eligible for S&P 500, S&P Says Citing China Domicile
By Oliver Renick and Elena Popina, Bloomberg
If anyone was wondering if Alibaba Group Holding Ltd. was going into the Standard & Poor’s 500 Index (SPX), the answer is no.
“Alibaba is not eligible to be on the S&P 500 because it is not a U.S. company,” according to a statement from David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.

Bloomberg: Scotland Vote Causes Nervous Trading
The Options Insider
A measure of volatility expectations for British equities jumped to its highest level since November 2008 relative to European stocks, according to data compiled by Bloomberg. The FTSE 100 Volatility Index has climbed 19 percent in the past four days, compared with a 7.4 percent increase for its euro-area equivalent, the VStoxx Index.


Equinix Offers Trading Firms Access to Atomic Clock Timestamp
Traders Magazine Online News
When it comes to trading, time matters. It matters all the way down to the microsecond, especially for firms when it comes time for compliance checks and oversight.
Equinix, a provider of market data centers, announced it is bringing its clients “High Precision Time” via connectivity provider Perseus Telecom to each point of the globe. Each data center will now offer a standardized time-stamping service linked to the atomic clock for electronic trading.
It is being made available in financial markets in the Americas, Europe and Asia.


How Retail Investors Could Benefit From Alibaba’s IPO
Alibaba’s IPO might be the largest in the world, but most retail investors will not be able to get their hands on the stock. Bidness Etc explains how retail investors can benefit from the IPO even without owning the stock.

This Isn’t Brave Scotland, It’s Foolish
By Saxo Bank
It is undoubtedly the case that a ‘Yes’ vote on September 18 will lead to short-term mayhem. While I want to emphasise here that this is not our central expectation – and today’s YouGov poll shows a swing back towards the No vote at 52% – it is a tail-risk scenario of which investors should be aware. Sterling and gilts will come under severe pressure, with the distinct possibility that sterling suffers a fall in the range of 10-20% against a dollar which is at last beginning to flourish due to the perception that rate rises from the US Federal Reserve may come earlier than expected. That rise may come as early as the first quarter of 2015. GBP/USD faces 1.40 nightmare Buying volatility may still be the best trade, and although that ship has just left port, there may still be time before the vote to profitably buy options.

15 Stocks on the Volatility Radar
Apple Inc. and a lesson on implied volatility
by Adam Warner, Schaeffer’s Investment Research
iWatch, iWatch, on the wall, who’s the largest company of them all?
Well, as you probably well know, it’s Apple Inc. (NASDAQ:AAPL). The market cap was over $600 billion on Wednesday, per Bespoke. In fact, they have a whole list of the top 30 S&P 500 Index (SPX) companies by market cap, as well as some interesting factoids:

Use Options For a Chance To Buy AJG at a 14% Discount
Looking back to 155 days ago, Arthur J. Gallagher & Co. (NYSE: AJG) priced a 19,000,000 share secondary stock offering at $43.25 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment would go up over the course of time and based on early trading on Friday, the stock is now 5.7% above the offering price.


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