Observations & Insight

Gail Osten: Remembrances
In Friday’s newsletter we reported the passing of CBOE communications director and 40-year industry veteran Gail Osten. Since then we have received countless notes of remembrance from readers – colleagues and former colleagues, journalists and more. We are collecting these comments and remembrances and publishing them on JohnLothianNews.com HERE

If you would like to contribute, please send to jimkharouf@johnlothian.com

If you missed Friday’s obituary by Jim Kharouf, here it is again:

Think Positive: Gail Osten Leaves Fond Memories
Jim Kharouf – JLN
There are some people who just get it.
Gail Osten was one of those people who just got it. Got what? You name it, work, personal issues, a joke – life. As a professional, her career spanned more than four decades starting in marketing at the MidAmerica Commodity Exchange and ending as director of corporate communications at the Chicago Board Options Exchange. She was also a mother of two boys, Dan and Jon, and wife to Joe Osten, all of whom she spoke about regularly.
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** A celebration of Gail Osten’s life will be held on March 29th, from noon to 5 p.m. at The Snuggery, 122 S. York Road, in Elmhurst, IL. Friends and colleagues are welcome.

Lead Stories

‘Whopper’ Options Bet Against VIX ETF
Chris Dieterich – Barron’s
One trader just set up a $50 million wager against the market’s “fear gauge.”
The largest single trade in the options market on Friday is a “whopper” of a bet that an exchange-traded fund linked to the CBOE Volatility Index will fall sharply over the next two years.
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***DA: I wonder if he ordered fries with that.

Senator Warren questions SEC chair on broker reforms
Sarah N. Lynch – Business Insider
Senator Elizabeth Warren said Friday that the Labor Department should press ahead with brokerage industry reforms, and not be deterred by the Securities and Exchange Commission’s plans to adopt its own separate rules.
President Barack Obama, with frequent Wall Street critic Warren at his side, last month called on the Labor Department to quickly move forward to tighten brokerage standards on retirement advice, lending new momentum to a long-running effort to implement reforms aimed at reducing conflicts of interest and “hidden fees.”
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**JK – If brokers do not recommend portfolio protection with options, will that be considered poor retirement advice?

Quadruple Witching Trims Friday’s Gains
John Burke – Wall Street Sector Selector
Although the infamous last hour of “quadruple witching” Friday took its toll, the major stock indices still managed to advance significantly.
The infamous “witching hour” (the last hour of the trading day) on “quadruple witching” Friday trimmed the big gains made by the major stock market indices. Nevertheless, the Dow and the S&P 500 remained nearly one percent ahead, by the closing bell. The Russell 2000 Index of small cap stocks actually advanced during the witching hour, hitting new record intraday and closing highs.
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***DA: And as of midday Monday we are back up to Friday’s highs.

A Rare Moment of Praise for VXX
Adam Warner – Schaeffer’s Investment Research
For those of you exhibiting patience with your iPath S&P 500 VIX Short-Term Futures ETN (VXX) long … well, time finally ran out. Friday marked the first time that VXX hit an all-time low since Dec. 5 — a full 71 trading days ago!
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***DA: If you are trading VXX with a short term view, you are in the wrong product. Open a futures account and trade the VIX.

Real-Time Risk Can Predict Next Flash Crash
Irene Aldridge and Steve Krawciw – Traders Magazine
The trading activities that have become electronic are exact replicas of manual approaches of the past. Order placement, for example, was once a highly manual process but it is now almost entirely automated. Back in the manual days, an investor would call his broker who would record the customer’s order. These orders were written on paper and passed to a different office where a separate set of workers aggregated the orders by financial instrument and phoned the cumulative orders to another broker and ultimately to an exchange.
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***DA: Let’s not confuse the term “flash crash” with that of “pocket of illiquidity.” One is the result of a fat finger error; the other is simply an order imbalance.

The Option Queen Newsletter
Option Queen Blog
The Federal Reserve has signaled that for now, rate increases are on hold. Moreover the Federal Reserve is signaling to us that it is too transparent and that it might just revert to fewer sound-bites in the future. Why? Well maybe because these scholars have discovered that their policies are not working and that perhaps they need to rethink their plan. Naturally, they cannot publicly say that they need to rethink the policy.
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***DA: Splitting hairs between Fed secrecy and the Fed saying essentially nothing, but in an open forum.

Bulls Retake The Wheel, With A Little Help From Their Friends At The Fed
Scott Martindale – Seeking Alpha
Well, it didn’t take long for the bulls to jump on their buying opportunity, with a little help from the bulls’ friend in the Fed. In fact, despite huge daily swings in the market averages driven by daily news regarding timing of interest rate hikes, the strength in the dollar, and oil prices, trading actually has been quite rational, honoring technical formations and support levels and dutifully selling overbought conditions and buying when oversold. Yes, the tried and true investing clichés continue to work — “Don’t Fight the Fed,” and “The trend is your friend.”
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Treasury ETF Loses Record $6.1 Billion by Betting on Rate Rise
Alexandra Scaggs – Bloomberg
An exchange-traded fund that profits when interest rates rise has burned through more investor cash than any other in the industry.
The ProShares UltraShort 20+ Year Treasury fund has lost $6.1 billion of investor money since its inception in 2008, more than any other ETF has lost during its existence, according to data from Bloomberg Intelligence as of March 19. The fund, which trades under the ticker TBT, is down 10.7 percent this year through Friday, losing 7.3 percent last week alone after the Federal Reserve sparked a rally in Treasuries by lowering its economic forecasts and the projected pace of rate hikes.
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***DA: The fund is not “betting on a rate rise; its investors are. The fund is sticking to its prospectus. To me, it is used as a hedge against one’s traditional portfolio.

Exchanges

CME Is Said to Mull Rule Change as Basel Pressure Hampers Banks
Matthew Leising and Silla Brush – Bloomberg
New rules meant to make banks safer are prompting the world’s largest derivatives exchange to consider changing how it backs trades in one of the biggest shifts since futures were created in 1865.
Under a CME Group Inc. proposal being discussed with the U.S. Commodity Futures Trading Commission, the cash and securities put up by bank customers to back their derivatives wouldn’t have to be counted as the bank’s own assets, according to a person familiar with the matter, who asked not to be named because the talks are private. As a result, banks wouldn’t have to carry capital to back those assets.
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CBOE Proposes Amendments to Trading Permit Holder and Direct Access Qualifications
The National Law Review
On March 11, the Chicago Board Options Exchange (CBOE) proposed new qualifications for Trading Permit Holder (TPH) applicants and direct access users.
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CFE Amends Rules on ECRPs and Block Trades
The National Law Review
On March 11, the CBOE Futures Exchange, LLC (CFE) extended the reporting window for exchange of contract for related position (ECRP) transactions and clarified when it will provide written confirmations of ECRPs transactions and block trades.
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Regulation & Enforcement

Alleged ‘Spoofing’ Trader Faces New Accusations
WSJ
A prominent Chicago trader under investigation by regulators for allegedly manipulative trading is now accused of trying to silence a former partner, according to a federal lawsuit filed last week.
Igor Oystacher, a co-founder of proprietary trading firm 3Red Group, tried to keep former partner Edwin Johnson from speaking to regulators about Mr. Oystacher’s alleged tactics, Mr. Johnson alleges in the suit.
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Volcker Outlines Plan for Overhauling Financial Regulation
Ryan Tracy – WSJ
Former Federal Reserve Chairman Paul Volcker outlined a new plan for revamping the way the U.S. government oversees the financial system, adding his voice to an idea that is broadly supported – even if Congress can never muster enough votes to pass it.
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Strategy

Keep Calm, Trade on, Buy Calls
Steven M. Sears – Barron’s
Buy calls on U.S. stocks.
It seems like a prosaic recommendation after so much drama and high-minded punditry around an ultimately anticlimactic Federal Reserve meeting. But U.S. stocks still look good, especially since the Federal Reserve is unlikely to raise rates until September. If economic data remain tepid, the central bank might not even raise rates at all this year.
The recommendation to wager on rising stock prices by purchasing calls has been made here before, and oft repeated. Still, it seems right. Smart people who trade more than they talk agree.
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