JLN Options: Large Blocks of Calls Rolled on the Dow Jones Industrial Average

Aug 16, 2012

Lead Stories

Large Blocks of Calls Rolled on the Dow Jones Industrial Average
The Options Insider
With August options expiration upon us, it is not surprising to see positions rolling from one month to the next. What is a bit more interesting is seeing large, coordinated blocks across multiple instruments; that’s exactly what we are seeing today in the Dow Jones Industrial Average.

The Fear Gauge Goes Quiet—Too Quiet
Spencer Jakab, The Wall Street Journal
Wall Street’s famous “fear gauge” is scraping along the bottom once again.
Should that, counter-intuitively, spook investors? Not necessarily, although there probably are more fundamental reasons to wonder if we are now in a period of summertime calm before September storms.

US STOCKS-Wall St continues advance but at a snail’s pace
Angela Moon, Reuters
U.S. stocks spent another session in a tight range on Wednesday, with the S&P 500 ending a few points higher and extending a rally that seems to be happening in slow motion…
For the next couple of days the greatest influence may be the options market, which is seeing heavy volume in August call and put options clustered around the 1,400 level for the S&P 500.

Stocks Becalmed Before the Storm
Michael Kahn, Barron’s
This year, the dog days of August should be called the sloth days. Trading activity has ground to a crawl, and technical indicators are flatlining.
Rather than grabbing suntan lotion and enjoying some time away, investors should be downloading trading apps from their brokers. The longer the dead quiet in the market lasts, the bigger the explosion will be when stocks finally move.

Oil Settles at Three-Month High
David Byrd, Dow Jones
Crude-oil futures prices were trading above $95 a barrel early Thursday afternoon, extending to a third day a rally spurred by concerns over tightening supplies.
The intraday move above $95 a barrel for the first since mid-May, after a sluggish start to trading, was fueled by position adjustments ahead of the expiration of September crude-oil options at the end of trading Thursday on the New York Mercantile Exchange, traders said. 

Morgan Stanley Unit Fined Over Trader’s $1.3 Billion Bet
Laura Marcinek and Donal Griffin, Bloomberg
Morgan Stanley (MS) Smith Barney, the brokerage venture of Morgan Stanley and Citigroup Inc. (C), was fined $450,000 after a trader amassed a $1.3 billion bet in 2009, Financial Industry Regulatory Authority records show.
The brokerage didn’t have enough controls in place to detect that Jared Weinryt, 31, had breached his $116 million trading limit as he made overnight bets on futures, Finra said this month. The trades led to losses for Morgan Stanley Smith Barney of about $14.9 million, according to Finra.

How Options Markets Have Changed Since 2008
The Options Insider
Financial markets change along with the real economies on which they depend. This maxim applies to investing strategies and options markets, too. For example, the “fire and forget” approach to option selling that some traders favored in the pre-crisis world is no longer tenable (if it ever was). Risk appetites have shifted, order flow is moving into different products, and the cast of influential market agents is composed of different actors. As detailed in the attached video, here are some ways that options markets have changed, possibly for good, since the financial crisis.

OptionMonster Daily Volatility Report with Jamie Tyrrell of Group1 Trading:

OptionMonster Cash Money Zone with Eric Wilkinson:


Miami Options Exchange Moves Closer to Becoming 11th U.S. Venue
Nina Mehta and Nikolaj Gammeltoft, Bloomberg
The Miami International Securities Exchange’s planned U.S. options venue will compete for orders by giving priority to market makers that meet certain quoting requirements, according to its application to regulators.
MIAX, as the proposed exchange is called, may become the 11th U.S. venue to trade equity options if the Securities and Exchange Commission approves its application published yesterday. The exchange has been planned for several years and its filing, submitted to the SEC in April, provides the first detailed look into its trading plans and rules. The SEC is seeking comment on the exchange as it considers approval.
** And don’t forget the ISE is hoping to start a 12th exchange.  Starting to become an embarrassment of riches. –JB

ASX dealing with a seven-year ditch
Neil Wilson, Herald Sun
THE value of shares traded on the Australian Securities Exchange has tumbled to a seven-year low as household investors pull back from the market.
ASX Limited has revealed the average value of securities traded on the exchange clocked in at about $3.5 billion a day in the six weeks since the end of the financial year. It is down more than 35 per cent on the same period last year, and the lowest level since 2007.


CFTC Proposes Inter-Affiliate Clearing Exemption
Joe Mont, Compliance Week
The Commodity Futures Trading Commission has issued a proposed rule that would exempt inter-affiliate swaps from mandatory clearing requirements of the Dodd-Frank Act.
The proposal, approved by the CFTC on Thursday, asks the public to comment on whether inter-affiliate swaps pose less counterparty risk than swaps transactions with third parties. The Commission is considering whether alternative methods of counterparty risk mitigation may be appropriate for swaps between majority-owned affiliates of the same corporate group, a strategy often used to aggregate, manage and hedge risk. 
http://jlne.ws/MASVBx  (you can also find detailed information, history and documents on this topic at MarketsReformWiki)


Playing Market Complacency With Non-Traditional Option Strategies
Seeking Alpha
Just take a look at the (VIX). Any expectation of a panic has essentially subsided. What does this mean for traders? Index options, generally used for hedging, have zero demand, so option sellers are asking for very low prices. We know that implied volatility is a mean reverting animal, so we would expect low volatility to move to high volatility in the future. An increase in implied volatility would increase the value of all options, giving option holders an additional “expected volatility” profit. Put another way, index options are currently very cheap, and if history repeats itself, they don’t stay this cheap for long.

Is Volatility The Enemy of Investing? [VIDEO]
Volatility is the enemy of most investment strategies, which generally do better in rising than falling markets. Veteran volatility trader Michael Wexler from Maple Leaf Capital explains how investors can actually profit from volatility by employing strategies that make more money in higher volatility than low vol environments. This is possible because the dislocation in the pricing of options between fair value and actual trading is greater at higher volatility levels. Historically, Mapl
e Leaf’s funds have made money in both rising and falling markets.


Dallas Lunch: Options for Managing Volatility
Press Release
Dallas Lunch: Options for Managing Volatility
Matt Moran
Vice President, Chicago Board Options Exchange
Thursday, September 20, 2012
11:30 AM Registration
Noon Program
Tower Club
Cost: $25 Member
$35 Guest

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