JLN Options: Options Week in Review Feb. 7, 2013

Feb 7, 2013

A “major investor” bought about 100,000 puts on the Financial Select Sector SPDR on Tuesday, which led to an explosion in bearish trading. The puts expire in April and will increase if the fund goes below $16. The bearish bet was a mystery but some speculated that the unknown trader might believe investors are too assured ahead of the sequestration set to take effect March 1, when $1 trillion in spending will be cut from the U.S. budget, Barron’s reported. The wave of trading in SPDR was being reported as put spreads or put buying, but Barron’s pointed out that there was also a ripple effect in which market makers who sold puts to the big investor then scrambled to hedge the puts they sold, creating the “illusion” of bearishness.

Another large “bet” was made on the VIX (S&P Volatility Index) the previous week, Market Intelligence Center reported. Jim Brown of OptionInvestor.com spotted an investor buying April 20 calls and selling the same number of April 25 calls, for a net of $75 per contract – and the trade was for 150,000 contracts.  Such a position indicates an opinion that the VIX will rise to above 20 (42% higher than its current price of 14.00) over the next 60 days. The large number of contracts indicates a $11.25 million bet that the volatility will jump that high. Speculations on the move included the possibility of a dip in the GDP in the first quarter, as well as worry over the budget cuts set for March 1.

The International Securities Exchange announced a partnership with IndexIQ to launch new exchange traded products based on physical commodities, after first announcing a focus on ETFs for its product development group. (For a link to a JLN story on the venture with comments from Kris Monaco, go here: http://jlne.ws/14VM5xu)

Nasdaq OMX Group will offer options on 10- and 30-year U.S. Treasury securities starting on Feb. 19, Bloomberg reported. They will compete with the Treasury options offered by CME Group, which traded 1.17 million options on Treasury futures on Feb. 1, a record high. 

The Euro STOXX 50 Volatility Index (VSTOXX) hit a 2 1/2 month high on Wednesday as European stocks resumed a sell-off, surging 12.5 percent to 21.62, Reuters reported.

NYSE Euronext reported net income of $28 million – $0.12 per diluted share – for the fourth quarter of 2012, compared to $110 million for 4Q 2011.

ICE reported net income for the fourth quarter grew 2 percent to $129 million, down 1 percent compared to the fourth quarter of last year.

CME Group announced it would shut down the Kansas City Board of Trade following its acquisition of KCBT, Bloomberg reported.

The U.S. options market started the year on a high note, with January volume up about 8 percent from the previous year on all the U.S. options exchanges, the Options Clearing Corporation reported.  361 million contracts traded in January, up from 335 million in Jan. 2011. U.S. options trading declined 12 percent in 2012 from 2011, which saw record levels of trading, according to IFR.

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