JLN Options: Traders turn to options to beat flat European bourses

Oct 19, 2012

Lead Stories

Traders turn to options to beat flat European bourses
Sudip Kar-Gupta, Reuters
Investors betting on European stock markets staying in a tight price range for the rest of the year are turning to specialist options trades to improve their returns.
Demand for such trades has risen on the view that the 2012 stock market rally, driven in the second quarter of the year by central banks’ pledges to inject new stimulus into a weakening global economy, might be over, dealers said.

Few wake-up signs for snoozing euro/dollar
Mike Dolan, Reuters
With all else around it in flux, the world’s biggest market — the U.S. dollar and euro exchange rate — has virtually dozed off.
Its relative stasis is as striking as some of the wilder, erratic market swings elsewhere…
Reinforcing that, the options market shows implied 6-month volatility has fallen well below 10 percent to its lowest level in four and half years.

CFTC Under Fire Abroad on Swaps
Vladimir Guevarra, The Wall Street Journal
In a show of unity, finance authorities from the European Union, the U.K., France and Japan pressured a key U.S. counterpart to avoid rushing through proposals on the trading of swaps among U.S. and foreign firms.
The finance chiefs warned that the U.S. Commodity Futures Trading Commission’s proposals, if handled wrongly, risk weakening the global trade of derivatives.

Smith Quit Goldman After ‘Unrealistic’ Pitch for $1 Million
Christine Harper, BloombergBusinessweek
Goldman Sachs Group Inc. (GS) sought to profit last year by persuading clients to buy and sell stock options on European banks such as BNP Paribas SA (BNP) and UniCredit SpA (UCG), according to former employee Greg Smith’s new book.
“We must have changed our view on each of these institutions from positive to negative back to positive ten times,” Smith writes in “Why I Left Goldman Sachs: A Wall Street Story,” scheduled for release on Oct. 22. “I remember thinking, ‘How can we be doing this with a straight face? No thinking client could believe that conditions on the ground could change that frequently.”’ 

Looking At Options On A Day Of Strange Confessions From O.J. To Google
John Dobosz, Forbes
With more grains of salt than you’d usually find rimmed around a margarita glass, check out the National Enquirer story that O.J. Simpson is looking to sell the knife used to murder his ex-wife Nicole Brown Simpson and her friend, Ronald Goldman, in June 1994. The former Heisman Trophy winner and sportscaster beat the criminal rap in 1995 in Los Angeles, but is now doing time in Nevada for attempting to take back his football memorabilia from collectors in Las Vegas at gunpoint.

Hedge funds reach record size thanks to recent strong returns
Svea Herbst-Bayliss, Reuters
Strong returns during the third quarter have boosted the hedge-fund industry to its largest size ever, offsetting a more muted appetite among investors for these types of funds, research data shows.
Global hedge funds now oversee $2.2 trillion in assets, up from $2 trillion at the end of the 2011 and more than double what they invested for their wealthy clients in 2005, new data released by Hedge Fund Research on Thursday show.

Credit Derivative Trade Ebbs as ‘Naked’ CDS Ban Nears
Serena Ruffoni, The Wall Street Journal
Banks and investors are mired in last-minute checks to ensure they meet new European Union rules on debt-derivatives trading that come into force Nov. 1, but even with just days to go before the new rules kick in, few are sure exactly how they will work, which is keeping trade flows depressed.

Shanghai Association for International Exchange of Personnel and The Options Industry Council Sign MOU Regarding Options Education in Shanghai  
Press Release
Shanghai Association for International Exchange of Personnel (SAIEP) and The Options Industry Council (OIC) announced today that they have signed a Memorandum of Understanding (MOU) to strengthen cooperation on options research and education. This is the first MOU in China for OIC. Members of SAIEP and OIC attended the signing ceremony in Shanghai, China on Friday, October 19, 2012.
Shanghai is committed to building an international financial center. SAIEP and OIC have agreed to work together to develop a program in China to educate investors, professionals, regulators and industry organizations about exchange listed options.


Cooling the Pits: ICE Yelling Ends
Leslie Josephs, The Wall Street Journal
Augustine Lauria knew his 37-year career as a floor trader was over when he got a memo from IntercontinentalExchange Inc. ICE in late July announcing the closing of the exchange operator’s last trading pits.
“What can I do? I can count fast and yell loud,” says Mr. Lauria, who boards the Staten Island Ferry before sunrise to get to work in time for the 8:10 a.m. bell.

Dealers welcome launch of credit futures
Christopher Whittall, IFR Asia
In a further sign of the decline of the over-the-counter derivatives business, the IntercontinentalExchange will launch futures contracts on Markit’s North American and European corporate credit default swaps indices in the first quarter of 2013.
In a notable change of attitude towards exchange-traded products, dealers have welcomed the news that the exchange and OTC derivatives clearing house operator has licensed Markit’s widely-traded CDS indices to develop futures and options contracts based on the Markit CDX and iTraxx index families.


How to Use Options to Calm the Earnings Season Nerves
Greg Jensen, NASDAQ
Earnings season is worrying for investors at the best of times. This time around, following a string of downward revisions in estimates from analysts, it seems doubly so. Most investors suffer more anguish from taking losses than they get pleasure from taking profits. If you find the stress of earnings season too much, there is a fairly simple options strategy that could give you some peace of mind; a zero cost collar.

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