Profiting From Wall Street Fear is No Longer Easy for Cboe

May 3, 2018

Observations & Insight

Nandini Sukumar Explains the WFE’s Mission and Vision

Nandini Sukumar took the reins as CEO of the World Federation of Exchanges in 2015. Under her leadership, the 57-year-old organization has been revitalized and its membership now represents more than 200 market infrastructure providers. She spoke with JLN’s Jim Kharouf about how WFE approaches key issues facing exchanges, clearing houses and other market participants. She said one of the organization’s main points of focus, now 10 years since the 2008 financial crisis, is maintaining trust in the exchange space.

Watch the video »

Lead Stories

Profiting From Wall Street Fear is No Longer Easy for Cboe
Gunjan Banerji – WSJ
Anxiety is back on Wall Street. That should be good news for Cboe Global Markets Inc., the operator of the VIX index of expected stock swings, widely known as the market’s fear gauge.
But Cboe shares have tumbled 14% this year, lagging far behind both the broader stock market and the firm’s peers. Questions about the reliability of volatility trading—punctuated by the one-day February market crash and a rarely seen wobble last month that raised concerns about possible manipulation—are dimming enthusiasm for the VIX just at the time when it would seem most attractive.

Greenwich Associates Study Finds More Than 80 Percent Of Institutional Investors Surveyed Who Use Exchange-Listed Options Are Satisfied With Performance
The Options Industry Council (OIC), an industry resource funded by OCC, the world’s largest equity derivatives clearing organization, today shared the results of a new study by Greenwich Associates, How Institutional Investors Use and Think About Exchange-Listed Options, which found that more than 80 percent of institutional investors surveyed who currently use exchange-listed options are satisfied with the performance against major market benchmarks.

Have stocks been volatile this earnings season? Yes and no
Ryan Vlastelica – MarketWatch
U.S. stock-market investors who are tired of the steep swings seen over the course of 2018 may look back at the first-quarter earnings season and think, “well that wasn’t so bad.”
According to Goldman Sachs, the reaction of stocks to earnings news has been less than expected thus far this reporting season, although it has been above a medium-term average.

Why the stock market is unimpressed by the best first-quarter results in 24 years
Mark DeCambre – MarketWatch
By at least one measure, corporate earnings are the best in nearly a quarter-century. However, the stock market is not enthused!
Rather than rally on the back of upbeat results, the main equity benchmarks have sulked lower.

Analysts see renewed volatility in global financial markets
Business A.M.
Though the bouts of volatility in early February and late March that spooked investors were confined to equity markets, authors of an International Monetary Fund blog (IMFBlog) article – Volatility Strikes Back – say the developments illustrate the potential for sudden market moves to expose fragilities in the financial system more broadly.
The authors specifically noted that with central banks in advanced economies set to normalize their monetary policies just as trade and geopolitical tensions flare up, economic and policy uncertainty may rise and financial conditions may tighten abruptly, which they said could lead to a period of renewed volatility.

Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI): Fed Doesn’t Help
ETF Daily News
ADP numbers came in slightly lower than expected on Wednesday and despite AAPL moving higher on earnings, the market was flat at the opening. The major indices traded on both sides of the flat line during the day, as traders awaited the FOMC announcement.

Exchanges and Clearing

Intercontinental Exchange Reports Record First Quarter 2018 Revenues of $1.2 billion, +5% y/y and GAAP Diluted EPS of $0.79; Record Adjusted Diluted EPS of $0.90, +22% y/y
Press Release
Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listing services, today reported financial results for the first quarter of 2018. For the quarter ended March 31, 2018, consolidated net income attributable to ICE was $464 million on $1.2 billion of consolidated revenues less transaction-based expenses. First quarter GAAP diluted earnings per share (EPS) were $0.79. Adjusted net income was $525 million in the first quarter and adjusted diluted EPS were a record $0.90, up 22% year-over-year. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on our adjusted operating expenses, adjusted operating margin, adjusted net income and adjusted diluted EPS.

Regulation & Enforcement

SEBI Chalks Out Additional Risk Management Measures For Derivatives Segment
Navneet Saluja Dsouza – Bloomberg
Cost of trading in India’s equity derivative markets will rise as the market regulator increased margin requirements to manage risks.
From June 1, trading members will have to collect an upfront exposure margin from clients, according to a May 2 circular by the Securities and Exchange Board of India. This will be in addition to the SPAN margin—named after the software that calculates it—that they already pay for executing derivative trades.


Wall Street’s Fear Gauge Hasn’t Jumped Like This Since XIV Died
Luke Kawa – Bloomberg
The wall of worry is growing taller.
Not only has the S&P 500 Index breached its 200-day moving average, but the Cboe Volatility Index — the VIX, Wall Street’s fear gauge — leapt from below 15 intraday on Wednesday to above 18 in trading on Thursday.

Wall Street’s ‘fear index’ jumps as stocks slide, could see biggest one-day move in a month
Ryan Vlastelica – MarketWatch
The Cboe Volatility Index jumped on Thursday, putting it on track for its biggest one-day move in about a month. The VIX VIX, +8.02% rose 11.8%, or 1.89 point, to 17.86. At current levels, the day’s move would represent its biggest gain since April 6.


What Do Implied Option Volatilities Have to Do With Actual Volatility?
David Borun – Nasdaq
We’ve spoken a fair amount recently about implied volatilities in options, mostly with the intention of designing trades that allow us to purchase options that are relatively cheap and sell those that are relatively expensive, tipping the odds in our favor.


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Inside the World’s Most Elite (and Secret) Traders’ Club
Alastair Marsh – Bloomberg
In an industry where power and influence are measured in dollars and cents, this may be the most exclusive club in finance: The price of admission is at least $25 million.
It has no name and no board of directors but has a roster drawn from the world’s wealthiest and most successful traders. Members essentially become their own one-person firms, even firms within firms, by gaining a seal of approval to deal in the complex products typically reserved for institutions that manage hundreds of billions of dollars. And all without drawing the attention of Wall Street’s everyday millionaires.

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