JLN Options: The 2013 Fear Gauge Looks Very Different From the 2007 Version

Apr 1, 2013

Lead Stories The 2013 Fear Gauge Looks Very Different From the 2007 Version
Kaitlyn Kiernan, The Wall Street Journal
Stocks may be returning to record levels, with the S&P 500 crossing above its 2007 closing high, but the VIX is signaling that they are doing so in a much different environment.
http://jlne.ws/Xmq4XO The Options Industry Council Announces Average Daily Options Volume in March Declined 9 Percent
Press Release
The Options Industry Council (OIC) announced today that average daily options volume came in at 15,578,265 contracts, 8.91 percent down from the 17,102,093 contracts level of last March. Year-to-date average daily trading volume is down 3.2 percent compared to the first quarter of 2012.
http://jlne.ws/YWR4IE OCC Announces Average Daily Cleared Contract Volume Declined 8% in March
Press Release
OCC announced that average daily cleared contract volume for the month was 15,831,521 contracts, an 8 percent decline from March 2012. Total cleared contract volume in March reached 316,630,411, a 17 percent decrease from the 379,763,970 contracts in March 2012, which had two more trading days. OCC’s year-to-date total contract volume is down 6 percent from 2012 with 1,006,895,640 contracts, while average daily volume is down 3 percent at 16,781,594 contracts.
http://jlne.ws/YWQwTa Traders Bet VIX Calm Won’t Last; History Suggests Otherwise 
Kaitlyn Kiernan, The Wall Street Journal
After years of wild price swings in the stock market, the plunge in volatility in recent months has many investors thinking the calm can’t last.
In mid-March, the Chicago Board Options Exchange’s Volatility Index, which measures the expected volatility in the Standard & Poor’s 500-stock index, fell to a six-year low of 11.30. The VIX has averaged 13.52 so far in 2013, levels not seen since before the U.S. financial crisis. The VIX rose 4.7% to 13.30 early Monday.
http://jlne.ws/10igzqg Volatility Measures Support The Bullish Case
Todd Salamone, Forbes
Headlines in March were volatile, but the U.S. equity market did not reflect this volatility. European sovereign debt issues again came to the forefront, and such headlines during the past few years have, at least temporarily, seen calm waters transform into rough waters.
http://jlne.ws/XmrD8f Competition hots up in EU derivatives market
Huw Jones, Reuters
Two U.S. operators are set to go head-to-head in the European Union to record derivatives trades, hoping to cash in on new rules to make markets safer and more transparent.
http://jlne.ws/10VOxCl Limit Up-Limit Down: Where’s the Limit?  
Anthony Becker, Advanced Trading
It seems like the Limit Up-Limit Down rule is a blanket oversight that fails to tackle the real issue around extraordinary market volatility, the rise of high frequency trading and rogue algorithms.
http://jlne.ws/XTaJJh As Market Heats Up, Trading Slips Into Shadows
Nathaniel Popper, The New York Times
Wall Street is embracing its dark side.
As the stock market continues to climb, trading has increasingly migrated from established bourses like the New York Stock Exchange to private platforms, including dark pools, that are largely hidden from public view. The shift is helping big traders hide what they are doing in the markets, and regulators are worried that the development could obscure the true prices of stocks and scare away ordinary investors.
http://jlne.ws/XTazBB Volatility Trading Digest – VIX Futures Premium Added
The Options Insider
We begin by updating our indicators while checking on the progress of the equity uptrend. Then we offer a few words of caution on this first day of April, also known as April Fools’ Day followed by a conditional VIX hedge idea and status report from one of last week’s ideas.
http://jlne.ws/XmohSw

Exchanges

IntercontinentalExchange to Establish ICE Trade Vault Europe as Trade Repository for European Swaps and Futures Data
Press Release (ICE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, announced today that it has applied to the European Securities and Markets Authority (ESMA) to establish ICE Trade Vault Europe Limited (ICE Trade Vault Europe) as a Trade Repository (TR) for the reporting of swaps and futures trade data to meet requirements of the European Market Infrastructure Regulation (EMIR).
http://jlne.ws/XAbOKn

Regulation

Industry Underprepared for OTC Derivates Trading and Market Regulation 
Ganesh Iyer, Advanced Trading
Firms must realize that connectivity to SEFs and the various other OTC derivatives execution venues will be critical — for both regulatory reasons and for getting ahead of the competition.
http://jlne.ws/178Tb2x SIFMA Seeks Role in Oversight of Audit Trail
Tom Steinert-Threlkeld, Traders Magazine
The Securities Industry and Financial Markets Association Thursday called on the nation’s stock and options exchanges to allow a wide range of market participants be involved in the design and governance of the system that will take in all stock and options transaction information overnight, for federal regulators.
http://jlne.ws/XTbDpl

Strategy

Investing, the Rudyard Kipling Way 
Steven M. Sears, Barron’s
Using options can let you keep your head when all around you are losing theirs.
One of the great riddles of our time is why so many people are such bad investors. After all, good investing isn’t terribly difficult.
http://jlne.ws/Xmpv09 Mini Options: Good for Hedging, Bad for Speculating 
Steven M. Sears, Barron’s
Investors with small positions in expensive stocks can buy insurance with a new tool in the options market.
Like bourbon or cayenne pepper, puts and calls are valuable tools, but only if used properly. Early indication from the options market is that investors are indeed acting responsibly.
http://jlne.ws/YWIk5s How do I protect myself in a rising market when I write covered calls?
Alex Mendoza, Futures Magazine
Question: How do I protect myself in a rising market when I write covered calls?
Answer: Simple. Roll the call.
http://jlne.ws/XmrnGc

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