JLN Options: VIX Briefly Flirts With ‘Backwardation’; Wall Street’s fear gauge soars

Oct 24, 2012

Lead Stories

VIX Briefly Flirts With ‘Backwardation’
Kaitlyn Kiernan, The Wall Street Journal
The market’s so-called fear gauge briefly slipped into an unusual state of worry Tuesday: Traders pushed the cost of short-term protection against market volatility higher than the cost for long-term protection–a sign investors are especially anxious about where the market may be headed in the coming days.

Wall Street’s fear gauge soars
Vivianne Rodrigues and Arash Massoudi, The Financial Times
Wall Street’s fear gauge jumped to its highest level since July and was on course for its biggest one-day rise in almost a year, as investors recoiled from disappointing earnings from a number of large US companies.
The CBOE’s Vix index, which gauges investor expectations of short-term volatility in US stocks, increased as much as 18 per cent to trade at the 19.65 level. The index pared some of its gains to close 13.3 per cent higher at 18.83.

US futures trading to rebound after OTC shift
Tom Osborn, Financial News
Trading volumes in the US futures markets, which have endured a torrid 2012, could rebound in the first half of next year thanks to clarity on new rules pushing derivatives onto listed exchanges.
Trading volumes in core US derivatives markets, including commodities and interest-rate products, have suffered in the face of falling global demand, denting revenues across large derivatives exchanges.

VIX Is Signaling That This Decline Has Some Legs
The last two days VIX did something it has not done since May of this year. The decline stopped once it got back below this MA. Leading up to this latest breakout, VIX would briefly get above it only to drop back below and continue its downtrend. Finally this week VIX broke above the 70 day at 16.28 and broke its downtrend line. This is bullish for the VIX and bearish market. VIX got above its 70 day moving average in May and it started the summer decline.

Where Has the Volatility Gone?
David Willmer, The Wall Street Journal
There are demonstrations on the streets of Athens, the two major euro-zone nations, France and Germany, disagreed on how to resolve the debt crisis at the latest summit, and it’s likely that Spain will miss its 2012 budget-deficit target.  Yet volatility in the currency markets has all but disappeared.
Instead of the wild gyrations that might be expected as headline follows headline, it’s become so calm that the costs of hedging against sharp movements in exchange rates have fallen, in some cases, to their lowest levels in more than four years.

CME energy swap traders swing decisively to futures-data
Energy trading on the CME Group’s ClearPort platform shifted overwhelming in favor of block-traded futures contracts rather than swaps last week, exchange data show, confirming a widely expected switch spurred by new regulations.
So-called “block” futures trades — privately negotiated over-the-counter deals that are then posted through the CME’s clearing house — jumped to more than 70 percent of total volume by last Friday, and stood at over 60 percent of volume on Monday, according to Reuters calculations based on CME data.

The Shenzhen Stock Exchange And The Options Industry Council Sign MOU Regarding Options Research and Education in China
Press Release
The Shenzhen Stock Exchange (SZSE) and The Options Industry Council (OIC) announced today they have signed a Memorandum of Understanding regarding joint options research and education. The ceremony was held with members of the OIC and SZSE in Shenzhen, China on Tuesday October 23, 2012.


ISE Expands Execution Capabilities for Multi-Legged Strategy Orders with a Stock Component
Press Release
The International Securities Exchange (ISE) today announced that it has significantly expanded its execution capabilities for multi-legged strategy orders that include a stock component.
The stock leg of these orders will now be able to access liquidity at Deutsche Bank, Getco, Instinet LLC and Knight, in addition to ISE’s existing routing capabilities to ConvergEX. The addition of multiple venues for stock execution will enhance the fill rate and execution quality for multi-legged options orders with stock, such as buy-writes and delta neutral orders. ISE currently supports multi-legged orders of up to eight options legs and one stock leg.

Exchanges Retreat on Trading Tools
Fund Managers, Regulators Say Certain Orders Are Risky, Aid High-Speed Firms
Scott Patterson and Jean Eaglesham, The Wall Street Journal
The nation’s two largest stock exchanges are facing a backlash by mutual funds and securities regulators for offering trading tools that could harm institutional investors.
Following recent complaints by large investment firms that a particular trading-order type is unfair to their clients, NYSE Euronext, owner of the New York Stock Exchange, intends to ask regulators to let it alter the order type that critics say could benefit high-speed trading firms, according to exchange officials.

NASDAQ OMX reports 3rd Quarter 2012 Results
Press Release
The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today reported results for the third quarter of 2012. Third quarter net exchange revenues were $409 million, down six percent compared to the third quarter of 2011. Excluding the impact of foreign currency, third quarter 2012 net exchange revenues declined four percent year-over-year.
Operating expenses were $239 million, compared to $241 million in the third quarter of 2011. On a non-GAAP basis, third quarter 2012 operating expenses were $228 million, down $4 million year-over-year.

NSE asks brokers to strictly follow trading compliance norms (India)
The Economic Times
Leading bourse NSE has asked all its member brokers to strictly adhere to trading compliance norms of the exchange and to ensure that each order placed by them is within the prescribed limits…
In three separate circulars for the cash, currency derivatives and Futures & Options markets, the National Stock Exchange (NSE) has also reinforced the need for the member brokers of the respective segments to submit their compliance reports to the exchange on a quarterly basis.
** This was prompted by a flash crash in the Nifty earlier this month. –JB 


Comparing Diagonal Spreads To Vertical Spreads For Directional Trades
Seeking Alpha
I trade options on near daily basis and am constantly skimming many options information sources, and it seems to me that one structure that I like to use gets far less discussion than many other strategies. I often use diagonal call spreads to make a bullish directional trades, but diagonal spread strategies don’t seem to be discussed nearly as much as vertical or calendar spreads.

The Trick Or Treat Of Trading Options
JJ Kinahan, Forbes
It is almost Halloween and with that come ghosts, goblins and tricks proving things may not always be what they seem.  In that spirit, let’s step outside of our normal
options strategies like condors and butterflies to cover something even more basic, and I believe even more important.  Do you know who you’re trading with? Who is the “Oz” on the other side of the curtain and “why are they out to get you?”
** Not sure if the disturbing picture of  Freddy Kreuger on that page inspires confidence in Options trading. –JB

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