JLN Options: VIX Jumps Most Since November as S&P 500 Sinks on Europe Concern

Jul 23, 2012

Lead Stories

VIX Jumps Most Since November as S&P 500 Sinks on Europe Concern
Lu Wang and Julia Leite, Bloomberg
The benchmark gauge for U.S. options prices rose the most in eight months as concern that the European debt crisis is worsening spurred losses in equities.
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, surged 17 percent to 19.01 at 12:32 p.m. in New York, poised for its biggest gain since Nov. 9. The Standard & Poor’s 500 Index, a benchmark measure for U.S. equities, slid 1.4 percent to 1,343.15. In Europe, the VStoxx Index (V2X), a measure of Euro Stoxx 50 Index option prices, rose 16 percent to 28.08 and posted the biggest two-day gain in almost nine months, as the equity gauge tumbled 2.6 percent.
http://jlne.ws/M68TEx

Volatility: Is It Back?
Brendan Conway, Barron’s
Don’t call it a comeback. But “long” volatility as a short-term trade is showing some signs of life this morning.
As traders react to speculation that the International Monetary Fund will withhold Greece’s next tranche of aid, the sluggish-of-late Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) is ahead by 6.1% in premarket trading.
http://jlne.ws/LIBCcz

Unusual price action in four stocks may be due to automated hedge
Doris Frankel, Reuters
A mysterious trading pattern noticed on Thursday in the shares of four blue-chip stocks was likely an experiment in the automated hedging of large options positions, an analyst at JPMorgan said.
http://jlne.ws/M685Qc

A Gift From Interactive Brokers
The market maker offers a cheap stock with a 3% yield, and talk is it may pay a special divided or take itself private at an above-market price. Either way, an investor wins. How to play the odds.
Steven M. Sears, Barron’s
Of all the market’s manifold contradictions, large looms the disconnect between Thomas Peterffy and shares of his company, Interactive Brokers.
The brokerage and market-making firm’s stock never seems to trade at a premium, even though Peterffy and his cadre of traders and programmers are among the best in the business. In fact, Interactive Brokers (ticker: IBKR) stock gets very little respect. The price has barely budged in the past three years; the shares closed Friday at $13.38, close to their book value.
http://jlne.ws/M68FNL

A Short Explanation For Why Investors Are Still Leaving Their Money In Hedge Funds Despite Dismal Returns
Myles Meserve, Business Insider
Hedge funds have had a rough last few months.  Even the once wildly profitable hedge fund titan Ray Dalio saw his fund down 2.7% for the first half of 2012. 
Despite all that bad news, this morning, FINalternatives, reported that the GlobeOP Financial Forward Redemption Indicator for July shows that client redemption requests for hedge fund investments are at near historic lows for the GlobeOP Indicator.
http://jlne.ws/M68cuV

Regulators knew Libor was rigged
Jonathon M. Trugman, New York Post
The Libor scandal hit US shores this week, but bank regulators just shrugged their shoulders.
It appears from their reactions that problems with the London Interbank Offered Rate — which is used to price trillions of dollars in US mortgages, car loans and credit cards as well as derivatives — aren’t a big deal.
http://jlne.ws/LIBLNc

For brokers like Peregrine, from bad times to worse
Ann Saphir and Jeanine Prezioso, Reuters
Long before Peregrine Financial Group’s dramatic collapse last week, months before MF Global’s meltdown triggered an industry-wide crisis of confidence, the world of the independently owned futures broker was not a happy one.
Even as trading volumes handled by these relatively small futures commission merchants (FCM) boomed over the past decade, profits were dwindling: electronic trading, the rise of the hedge fund and rapid-fire algorithmic trader, and the slump in interest rates had upended their century-old business model.
http://jlne.ws/M68Bxw

OptionMonster Daily Volatility Report with Jamie Tyrrell of Group1 Trading:

Exchanges

Singapore Exchange denies merger talks with LSE
V. Phani Kumar, MarketWatch
Singapore Exchange Ltd. on Friday denied it was in talks with London Stock Exchange Group PLC for a potential merger, but added it was open to collaborations and partnerships that may benefit its shareholders.
http://jlne.ws/LIBXfc

Customer segmentation – a fundamental shift for exchanges
Joe Ratterman, FTSE Global Markets
With a backdrop over the last several years of significant equity volumes transacting away from the public exchanges (for example, over 1,300 stocks traded more than 50% of the time off-exchange in June), the SEC recently approved a responsive program proposed by the NYSE. This approval sets the stage for what I believe will be a fundamental shift in the way equity exchanges operate, the doctrine by which exchanges interact with their customers, and how exchanges and off-exchange venues compete with each other.
http://jlne.ws/LIEFS5

SEBI hikes liquidity level for derivatives (India)
Firstpost
Market regulator Sebi hiked the benchmark liquidity level for any scrip to be eligible for trading in the derivatives segments, a move aimed at checking any manipulation by doing away with illiquid stocks.
Now scrips with a minimum trading volume of Rs 10 lakh and market wide position limit (MWPL) or market capitalisation of Rs 300 crore would be eligible for entry into the Future and Options (F&O) segment, Securities and Exchange Board of India (Sebi) said in a circular.
http://jlne.ws/M69G8C

Technology

The SEC Ups its Game with High Frequency Trading Tools
Ivy Schmerken, Advanced Trading
The Securities and Exchange Commission is moving a step closer toward policing the equities and options markets in real time, based on reports that it has licensed a market data and research platform from Tradeworx, a high-frequency trading firm and technology vendor in Redbank, New Jersey.
This suggests the top cop will now obtain the technology and direct-data feeds it needs to investigate rogue algorithms and other wild swings that plague U.S. stocks on a daily basis.
http://jlne.ws/M694ji

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