Observations and Insight

Fund Injection: Peter Borish Looks to Ramp up Managed Funds Space
JohnLothianNews.com

Peter Borish has seen the ups and downs in the fund space over his career. Now as chief strategist at Quad Advisors, which is aimed at providing key infrastructure services to the managed funds space.

Borish spoke with John Lothian, publisher of John Lothian News, at the Futures Industry Association’s EXPO in Chicago in November about the new venture and what Quad Advisors brings to the managed funds space.

“We look for people with $20 million to $50 million under management,” he said. “But in a post-Dodd-Frank world, they need a lot of help to grow. We become partners, sharing in the revenue to help them grow.”

Watch the video »

Lead Stories

Wedbush Announces Closing of Transaction with KCG Futures
Press Release
Wedbush Securities Inc. today announced the closing with respect to an agreement to acquire certain assets of KCG Americas LLC related to its agency futures operations previously doing business as KCG Futures. The transaction continues to build Wedbush Futures’ offerings and enhances the firm’s service by expanding its futures, FX and cross asset class margining clearing, execution and custody capabilities.
http://jlne.ws/1B5Zd4x
**JK – It will be interesting to see how Wedbush integrates and grows this business.
Mike.OCallaghan@wedbush.com; Carl.Gilmore@wedbush.com

Gold ETF Volatility Soars as Dollar, Oil Tame Inflation: Options
Callie Bost – Bloomberg
The surging dollar and plummeting oil prices are posing a threat to gold’s recent rebound from a four-year low.
Options that protect against declines in a popular fund tracking gold have risen in price to the highest level in 15 months compared with a similar gauge for U.S. equities, according to data compiled by Bloomberg. The Chicago Board Options Exchange Gold ETF Volatility Index, which tracks derivatives prices on the SPDR Gold Shares (GLD) exchange-traded fund, climbed 19 percent last week to 25.17, the highest in more than a year.
http://jlne.ws/1rNWkx9
**SR: For more about the SPDR Gold Shares ETF, see our interview with Will Rhind, the CEO of World Gold Trust Services, here: http://jlne.ws/1z9dR72

Plunging oil prompts massive options action in energy ETF
Saqib Iqbal Ahmed – Reuters
Activity in the options on the Energy Select Sector SPDR Exchange-Traded Fund exploded on Friday as traders who had bet on a drop in the ETF scrambled to book hefty profits a day after OPEC decided not to cut oil output.
One trader was estimated to be pocketing $25 million on a block of puts on the XLE bought just 10 days ago, according to market watchers.
http://jlne.ws/15MAV2R
**Also from this story: “XLE options contract volume was at 428,000 or about 5 times the norm, making it the fourth-most-traded options name on Friday, according to Livevol Inc data.”

Oil Options Trash Becomes Treasure as OPEC Stands Pat
Moming Zhou – Bloomberg
OPEC’s failure to curb a global oil supply glut that has sent futures prices tumbling to four-year lows is turning some near-worthless crude options into treasure.
January West Texas Intermediate $70 puts, which allow an investor to sell futures at that level, have soared more than 40-fold from two months ago as the U.S. benchmark has plunged almost $25 a barrel. They were trading near 50 cents at the end of October and worth less than 10 cents two months ago.
http://jlne.ws/15MB0Ud
**Can shale production drive crude back to $30? Don’t laugh.

VX (Oil VIX) Rose a Record 118.5%, GVZ (Gold VIX) Up 96% In Past 3 Months
By Matt Moran – CBOE
Over the past three calendar months (September through November) –
The CBOE Crude Oil ETF Volatility Index (OVX) rose 119%, the highest percentage rise for OVX over three calendar months since the inception of OVX price history in 2007.
The CBOE Gold ETF Volatility Index (GVZ) rose 96%.
The spot prices for crude oil (WTI) fell 31.1%,  gold fell 9.3%.
http://jlne.ws/12k6GOk

China Said to Order Companies to Check Risks in Commodity Trades
Bloomberg
China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials.
The State-owned Assets Supervision and Administration Commission ordered companies under its regulation to manage any expected losses in their commodity trading businesses, according to the people, who asked not to be identified because the order hasn’t been made public. The administration also asked them to end trading that requires large amounts of money and isn’t related to their main business, the people said.
http://jlne.ws/1rNXatA
**They may want to consider this: China opens up $4.2trn stock market to world via Hong Kong — RT Business –  http://jlne.ws/1v5gmmB – and introduce options. The China Financial Futures Exchange was also said to be introducing options…soon.

Betting on Volatility at Doorbuster Prices
Adam Warner – Schaeffer’s Investment Research
Black Friday sales get earlier and earlier every year. It seemed the standard was 6 p.m. Thanksgiving Day across the board this year.
I have a major problem with that. Getting big discounts should require some sort of major sacrifice, like getting up at 3 a.m. or waiting outside in frigid temps all day — or (preferably) both.
http://jlne.ws/1rObJNU

The Option Queen Newsletter
J.A. Schwarz – The Option Queen Newsletter
Remember the olden times when at the end of the Macy’s Thanksgiving Parade Santa appeared on his sled signaling to all the beginning of the Christmas shopping season? Wonder of wonders, sales did not meet expectations for retailers on Black Friday. Duh, well if the sales began in September-October, any wonder the shoppers were not as excited by the Black Friday deals?
http://jlne.ws/1B5Z2pS
**JK – A long-time voice in options and worth a read each week.

The Week in VIX – 11/24 – 11/28
Russell Rhoads – CBOE Options Hub
The S&P 500 has now closed at record highs on 47 of the 230 trading days in 2014. Two of those records were set last week before the market dropped during the short post-Thanksgiving shorted session. The lone green bar below coincides with a 5 point drop in the S&P 500 on Friday.
http://jlne.ws/1rO9mdM

Weekly Market Outlook 11.28.14
Larry McMillan – CBOE Options Hub
The stock market, as measured by the Standard & Poor’s 500 Index ($SPX) continues to march upward at a dizzying pace.  The market is overbought, and if $SPX violates support at 2060, we could finally see a correction.
http://jlne.ws/1rOa62I

Exchanges

Can CME Keep Up Trading Momentum?
Forbes
In its recent earnings, CME Group witnessed 7% annual growth in clearing and transaction fee revenues, with trading activity rising for interest rate and foreign exchange derivatives during the quarter. Keeping up the trend of the quarter ending September, trading activity rose significantly in October (both sequentially and year-on-year). Average daily trade volumes rose to a record 17.6 million contracts a day in October – 60% higher than the year-ago period.
http://jlne.ws/1rN5lq7

Regulation and Enforcement

Chicago, the last refuge of light touch regulation?
Paul Murphy – Financial Times
Friday, November 28th. It’s the day after Thanksgiving in the US – possibly the lightest trading session of the year. And here, buried under the turkey leftovers, we find two statements…That’s the CME handing out disciplinary action against Mr Igor Oystacher, one of the biggest individual fish in the deep Chicago derivatives pond. He’s been landed with a $150,000 fine and a one month trading ban. Happy Holidays Igor!
http://jlne.ws/1rMSYju
**SR: This blogger is NOT happy with the ‘light touch’ of the CME and the no touch of the CFTC on this.

Technology

Defining Algos In Futures Markets
Yuriy Shrterk – Traders Magazine
Algorithms affect every aspect of our lives, from deciding which elevator arrives first to forecasting the weather. Yet, in financial markets, the term ‘algo’ rapidly takes on more sinister connotations. The truth is, however, that most algorithms in financial markets provide the same benefits in terms of efficiency and predictability that they bring to our everyday lives.
The idea of using algos in finance first emerged in cash equities, but the changes sweeping through derivatives markets have ignited demand for more intelligent access to futures and options too.
http://jlne.ws/1rO095d

Strategy

VIX Triggered, Traditional Santa Rally?
Alan Bradley – Investing.com
Taking a look at the S&P over-extension chart shown above, we see that the S&P has been going sideways at its upper red trend line for the past several trading days. Friday morning’s opening showed the S&P at 214 points above its 324 day EMA line, the midterm neutrality line for stocks and indexes.
http://jlne.ws/1rNVYqe

Using credit spreads to boost profits and minimize risk
Michael Fowlkes – NASDAQ
It goes without saying that in bull markets, such as the one we are currently in, it is easy to make money. Strong markets tend to pull all sectors higher, which makes the job of picking winning stocks a much easier process.
However, the down side of bull markets is that traders will often become complacent, and too confident in their stock-picking abilities. We must always remember that just because the markets are moving higher today, at some point stocks will have to retreat, and when that happens, it is easy to give back a lot of previous gains if you are not prepared.
http://jlne.ws/1rO4A00

Options Education

The Potential Of Low-Priced Options
Ian Harvey – Investopedia
When considering trading options with a low cost, it is vital to understand the difference between “cheap options” and “low-priced options.” Essentially, cheap options have very little likely potential, and are therefore priced accordingly, whereas low-priced options are those that are considered undervalued and are therefore priced lower than their real potential could warrant.
Learning how to pinpoint genuinely low-priced options, as opposed to cheap options, is the basis for any successful trading in the arena of options that require a less than typical initial outlay.
http://jlne.ws/1rNYVac

Book Review: Option Volatility And Pricing (2d Ed.)
Brenda Jubin – Investing.com
My message here is simple: everyone who trades options as stand-alone instruments or who uses options to hedge stock or futures positions should own a copy of Sheldon Natenberg’s Option Volatility and Pricing: Advanced Trading Strategies and Techniques (McGraw-Hill, 2015). Even those who have a copy of the first edition published twenty years ago should pony up for the second edition because it has been considerably updated, revised, and expanded.
http://jlne.ws/1rO7Atd

Events

Leveraged BuyWrite [Tuesday, December 2, 2014]
CBOE
Join Mark Sebastian and Russell Rhoads as they discuss implementing a leveraged BuyWrite strategy as described in a recent white paper jointly published by The Options Institute and Option Pit. In addition Mark and Russell will discuss some preliminary findings that will be published in a new paper in early 2015 along with a preview of their upcoming all day seminar at CBOE.
Register here: http://jlne.ws/1rOqKiP

Options Alliance Annual Conference Dec 8
Join us on December 8 for a deep dive into the exploding world of financial startups. Meet and mingle with your fellow entrepreneurs as you learn how to market, grow and fund a wide range of financial startups. The program begins at 1 pm at the Arditti Center for Risk Management at DePaul University’s Chicago Loop campus. The three panels cover the marketing, growth in AUM and funding of startup firms. A networking cocktail reception follows.
http://jlne.ws/1xe5PuU
***Panelist firms include OIC, CME Group, Tradelegs, RCM Asset Management and more.

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