JLN Options: Volatility Is Collapsing Right In Front Of Our Eyes, As Debt Ceiling Fears Fade

Jan 18, 2013

Dear Readers,

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Volatility Is Collapsing Right In Front Of Our Eyes, As Debt Ceiling Fears Fade
Joe Weisenthal, Business Insider
Headlines about the GOP agreeing to increase the debt ceiling for three months are causing a collapse in fear. The VIX (an options based index that measures traders inclination to hedge against market downside) is collapsing. This means traders are buying less and less plunge protection.

Bulls Rejoice: Options Traders Still Fearful  
Bernie Schaeffer, chairman and CEO of Schaeffer’s Investment Research (via Barron’s)
For decades, analysts have watched options trading patterns to try to divine market sentiment. By comparing the trading volume in call options to the volume of put options, they can gauge levels of bullishness or bearishness, and try to time the market accordingly.
**About the ISE Sentiment Index (ISEE)  — SR

Too-Perfect Timing? CBS Options Trading Nets Big Gains With Spinoff
Kaitlyn Kiernan, The Wall Street Journal
Big gains in CBS Corp. options raised eyebrows Thursday — a number of trades looked strikingly well timed, as the stock jumped on news the TV company is spinning off some assets.

Traders Win as Nations Provoke Swings With Protests: Currencies
Liz Capo McCormick & Ye Xie
, Bloomberg
The growing chorus of government officials around the world bemoaning the inflated levels of their currencies is proving to be a bonanza for traders.
A JPMorgan Chase & Co. index that tracks volatility measures by options in the $4 trillion-a-day foreign-exchange market has risen almost 2 percentage points from a more than five-year low in December, led by developed-nation currencies such as the dollar, yen and euro. At the same time, the Chicago Board Options Exchange Volatility Index tracking price swings in stocks has fallen.

Bright spots amid 2012 futures gloom
Tom Osborn, Financial News
It was a year to forget for the US futures industry. Low volatility, deleveraging by banks and weak demand from clients saw volumes sink by 13.2% across all US futures and options markets, according to figures released by the Futures Industry Association yesterday, with benchmark equity and interest rate futures the worst hit.

VIX Hits Pre-Crisis Levels
Last year was one of the calmest years in terms of stock market gyrations and this year, thus far, is turning out to be the same.
Stock market volatility in 2013 has continued its downward trend toward levels experienced just before the onset of the 2008 financial crisis.

CBOE starts to get it 
Joe Cahill, Crain’s Chicago Business
I’m glad to see CBOE Holdings Inc. dropping directors with ties to firms that trade on its Chicago Board Options Exchange.
Sure, the move came at the point of an investigation by the Securities and Exchange Commission into CBOE’s regulation of traders. But it makes the board more independent, and that’s good for shareholders.

Fed chastises JPMorgan over losses
Claes Bell, Bankrate.com
JPMorgan Chase & Co. will have a little extra regulatory homework to do this year, thanks to a recent penalty handed down by the Federal Reserve.
** Bad JPMorgan!  Write, “I will not make big bets in the debt market” 100 times and then to bed with no dinner. –JB

Swap Data Reporting
Douglas Ashburn, John Lothian News
A major storm is brewing in the typically sleepy world of derivatives regulation over the reporting and storage of swap data. The dispute between the Depository Trust & Clearing Corporation (DTCC) and CME Group seeks a definitive answer to a fundamental question: who owns the data? In the case of the OTC derivatives market, whose notional value is about $639 trillion according to the last BIS survey, it may be up to the courts to decide the answer.

Deutsche Bank Derivative Helped Monte Paschi Mask Losses
By Elisa Martinuzzi and Nicholas Dunbar on January 17, 2013
Jain and other Deutsche Bank executives are grappling with escalating regulatory probes and litigation stretching from the alleged manipulation of interbank lending rates to claims the bank misrepresented products tied to U.S. mortgages.
…Deutsche Bank entered into short-term bets on interest rates with Monte Paschi, including so-called digital options linked to euro interest rates…


CME derivatives land grab sparks anger
Shahien Nasiripour and Michael Mackenzie, Financial Times
CME Group is facing the wrath of leading financial groups in a dispute over US derivatives rules, which has pitted Wall Street against Chicago.
At stake is whether the Chicago-based global exchange operator can bypass industry-owned utilities, such as Depository Trust & Clearing Corporation, and bundle services for clients that clear swaps via CME.

John Lothian Newsletter

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