The Collapsing VIX And The Rise Of New Options Trader
Traditionally, professional options traders choose to utilize options because of the advantage provided by volatility. Volatility traders (“vol traders”), those who are always selling options to take advantage of the convergence of volatility and Theta (time) decay, are seen as the smartest guys in the room.
CBOE earnings up as interest rate fears spark market volatility
Arash Massoudi – Financial Times
CBOE Holdings reported a surge in quarterly profits as the options exchange known for its proprietary S&P; 500 and Vix contracts benefited from heightened market volatility in the second quarter.
Wall Street Firms Back Removing Exchanges’ Legal Protections
Sam Mamudi – Traders Magazine
The government should strip U.S. stock exchanges of the legal status that protects them from most lawsuits, a trade group for brokers said.
In a letter to the Securities and Exchange Commission, the Securities Industry and Financial Markets Association said the self-regulatory model of organizations such as the New York Stock Exchange and Nasdaq Stock Market is outdated.
Wall Street group seeks end of exchange self regulation
John McCrank – Reuters
The largest U.S. securities trade group asked regulators on Thursday to end the self-regulatory status of stock exchanges, saying the structure is outdated, creates conflicts of interest, and should be replaced by some form of outside supervision.
Videocast: Key level to watch in VIX
S&P; 500 Remains Strong in Face of Bad Number
Dan Collins – Dan Collins Report
Equity markets dipped on the worse than expected July employment situation report released today but the S&P; 500 turned positive by the afternoon. This comes a day after the S&P; 500 set a new all-time high and surpassed the psychologically important 1700 level.
S&P; 500 Tops 1,700, a First; Does Anyone Think This Won’t End Badly?
Michael Gutmann – Dan Collins Report
A 60-year view of the U.S. stock market from the perspective of the benchmark S&P; 500 index is telling, to say the least: What was once a fairly predictable market based on fundamental economic growth (1950-85) has, over the last 15 years, turned into a volatile and chaotic casino of wide and unpredictable swings.
CBOE profit tops estimates as volatility pumps up trading
Ann Saphir – Reuters
CBOE Holdings Inc, operator of the Chicago Board Options Exchange, reported a higher second-quarter profit, beating analysts’ expectations, as stock market volatility climbed and trading in CBOE’s lucrative exclusive contracts surged.
CBOE Holdings, Inc. Reports All-Time Record Quarterly Results For Second Quarter 2013
Press Release (CBOE)
CBOE Holdings, Inc. (NASDAQ: CBOE) today reported second quarter 2013 net income allocated to common stockholders of $45.5 million, or $0.52 per diluted share, compared with $37.9 million, or $0.44 per diluted share in the second quarter of 2012. On an adjusted basis, net income allocated to common stockholders was $47.0 million, or $0.54 per share, compared with $37.9 million, or $0.44 per diluted share, in the same period last year. Operating revenues of $150.8 million for the second quarter increased 14 percent compared with $132.6 million in the second quarter of 2012.
ISE Reports Business Activity for July 2013
*ISE was the second largest equity options exchange in July with a market share of 16.6%, excluding dividend trades.
*Dividend trades made up 1.0% of industry volume in July 2013.
*For the month of July, Implied Order functionality accounted for 7.4% of all non-crossing, multi-legged contract volume executed on ISE.
TMX Shares Trailing Exchange Peers as Volume Slumps
Eric Lam – Bloomberg
TMX Group Ltd. (X) is the worst-performing exchange stock in North America this year, as a rout in global commodity prices cuts equity trading volume and a bank-led competitor prepares to enter the business.
**Boston Options Exchange got hit especially hard. -JB
Options Exchange Marketshare for July 2013, via email from the OCC:
OMX PHLX- 19.14%
July 2013 Equity Options Marketshare:
NYSE Arca- 11.58%
OMX PHLX- 20.48%
REGULATION and ENFORCEMENT
SEC Charges Former Green Mountain Coffee Employee And Friend In $7 Million Insider Trading Scheme
Press Release (SEC)
In a complaint unsealed July 31 in U.S. District Court for the District of Connecticut, the SEC alleges that Chad McGinnis purchased Green Mountain Coffee securities – typically out-of-the-money options – shortly before earnings announcements were made. McGinnis also tipped his longtime friend and business associate Sergey Pugach, who illegally traded in his own account and his mother’s trading account.
CME Group lacks adequate trade monitoring procedures, CFTC says
Tom Polansek – Reuters
CME Group Inc should improve the way it polices its Chicago exchanges to ensure that traders are not using certain types of trades to disguise rule breaking, U.S. regulators said in a report released on Friday.
FX Options Platforms Add RFQ Capabilities
Platforms that trade foreign-exchange options are adding request-for-quote capabilities that bring exchange-like features to the derivatives environment.
Butterflies, Expiration, Raquel Welch and the Importance of Time
Dan Passarelli – The Options Insider
One of the major differences when learning to trade options as opposed to equity trading is the impact of time on the various trade instruments. Remember that option premiums reflect the total of both intrinsic (if any) and extrinsic (time) value.
**The analogy is a bit of a reach but hey…if you can work Raquel Welch into an options story I applaud the effort. -JB
Understanding Option Models
Phil McDonnell – The Street
Many option traders do not understand the theory behind the Black-Scholes model. The actual idea is quite simple. The underlying assumption is that the stock price moves as a random walk. There is no assumption of directional movement. The only assumption is that the recent historical volatility will persist. Note that the volatility is stock specific. Different stocks will have different volatilities.
The “Greeks” – What Options Traders Need to Know Part 5 – Rho
Jim Bittman – The Options Institute At C.B.O.E. (via Investors.com)
How and why option prices change is a mystery to many options traders. This is the fifth article in a series that discusses the seemingly complex topic of opt
ions price behavior and the “Greeks.”
**Previous entries in this series:
– The “Greeks” – What Options Traders Need to Know Part 1 – Delta
– The “Greeks” – What Options Traders Need to Know Part 2 – Gamma
– The “Greeks” – What Options Traders Need to Know Part 3 – Vega
– The “Greeks” – What Options Traders Need To Know Part 4 – Theta