JLN Options: The Time Has Come for Options Dark Pools

Aug 14, 2012

Lead Stories

The Time Has Come for Options Dark Pools
Russ Chrusciel, Advanced Trading
Many people think dark pools are a complicated concept. But there are three points about dark pools and the U.S. equity trading market that even a casual observer in the financial services industry will recognize:
1. Dark pools primarily serve the needs of institutional investors and traders who need to execute very large amounts of stock with limited price movements
http://jlne.ws/Ny2hLQ
** Perhaps this is the way of things these days but is more opacity in the markets a good thing? –JB

Those Pesky Derivatives Strike Again
Michael Bobelian, Forbes
During the 2008 economic crisis, terms like CDOs, credit default swaps, and other derivatives once confined to the vernacular of the financial industry became household terms as analysts tried to explain the fading fortunes of the global economy.
http://jlne.ws/Ny0kPK
**  This is the Morgan Stanley settlement again and for all the world it looks to me as if (figuratively speaking) you rob a bank, get caught, and have to give *some* of the money back without admitting you did anything wrong.  Hopefully I am not the only one who sees a fundamental problem here.  –JB

What VIX ETFs Tell Us About Investors
Tom Lydon, ETF Trends
With investors no longer expecting an immediate stock market implosion, exchange traded funds tied to the CBOE Volatility Index, or “VIX,” have plunged and are now reflecting the complacency in the marketplace.
http://jlne.ws/NxZuCu
**  If after reading the article you know what VIX ETFs tell us about investors please let me know (my best guess is “complacent” but I wouldn’t bet on it).  –JB

Hedge fund Tiger Asia to return investor money
Nishant Kumar, Reuters
New York-based hedge fund Tiger Asia Management LLC will return outside capital to investors by the end of August amid an ongoing investigation by Hong Kong regulators into possible insider trading, founder Bill Hwang told clients in a letter sent on Monday.
http://jlne.ws/NxZX7L

US options house hires ex-Getco trader in London
Tim Cave, Financial News
A former high-frequency trader at Getco and Goldman Sachs has reemerged as the UK director of Volant Trading, a specialist US options trader looking to grow its presence in Europe.
Betty Shea, who left Getco’s London office last June, was appointed as a UK director at Volant Trading in June, according to filings with Companies House.
http://jlne.ws/OgOVo2

Options: Prop Shop Volant Dives Into Routing
Peter Chapman, Traders Magazine
Volant Trading is entering the options routing business.
The proprietary trading firm recently hired two executives formerly involved with Goldman Sachs’ options routing business to head the new initiative. In building a routing business, which involves paying retail brokerages for their flow, Volant will compete against such giants of the industry as Citadel, Susquehanna and Citi/ATD.
http://jlne.ws/Ny1JWn

OptionMonster Daily Volatility Report with Chris McKhann:

Exchanges

ISE – International Securities Exchange Holdings I : ISE Completes Rollout of Implied Order Functionality
Press Release
ISE Completes Roll Out of Implied Order Functionality Industry-Leading Complex Order Book Further Enhanced by Improved Liquidity and Fill Rates NEW YORK, August 14, 2012 – The International Securities Exchange (ISE) today announced that it has completed the roll out of Implied Order functionality* for all products in its complex order book. ISE introduced Implied Order functionality in May to a limited number of symbols and has conducted a measured roll out over the past three months. Implied Orders significantly enhance ISE’s industry-leading complex order book by enabling greater interaction of multi-legged orders with the regular order book. This functionality has already tightened spreads on ISE’s regular order book, resulting in better executions for multi-legged orders and for regular orders.
http://jlne.ws/Ny8K9z

BATS Global Markets Announces Retail Price Improvement Program
Press Release
BATS Global Markets today announced plans to introduce a Retail Price Improvement (RPI) program to its BYX Exchange as a one-year pilot program, subject to approval by the U.S. Securities and Exchange Commission (SEC).
The BATS RPI program is designed to provide material price improvement for retail orders sent to the BYX Exchange by executing incoming retail orders against retail price improving orders and all other liquidity that improves upon the national best bid or offer.
The program creates a new class of market participants called Retail Member Organizations (RMOs) that are eligible to submit retail orders (ROs). All BYX Exchange Members may certify to submit RPI orders that offer price improvement in $.001 increments to retail orders submitted by RMOs.
http://jlne.ws/NiaiE1 (PDF)

Strategy

Hedging with ETF Options, No ETFs Required
David Pinsen, Forbes
Shorting an ETF or buying and selling options are among the many features exchange-traded fund investors cite for picking ETFs over traditional funds or individual securities. What they and non-ETF investors might not realize is that ETF options can add protection to any investment portfolio, whether it includes an ETF or not.
For evidence, look no further than the two lessons I learned observing steep market declines since the beginning of the secular bear market in 2000.
http://jlne.ws/NxZanf

The Vixen VIX
Sunil Sharma, Seeking Alpha
There are many strategies that use overextended VIX reading as buy signal and an extended period of low VIX reading as a sign of market top. An example is CVR3, a short-term strategy to time S&P 500 trades developed by Larry Connors and Dave Landry.
SPY – the SPDR S&P 500 Trust – is a good proxy for timing the S&P 500. For the purpose of this thesis, SPY and S&P 500 can be used interchangeably.
http://jlne.ws/Ny6Cig

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