JLN Options

New Study Compares 25-Year Performance of Options Strategy Benchmarks to Traditional Indexes

2012-02-15T14:18:00.004-06:00

LEAD STORIES

New Study Compares 25-Year Performance of Options Strategy Benchmarks to Traditional Indexes;

COMPARES VOLATILITY, RETURNS AND PREMIUM INCOME
CBOE Press Release
CHICAGO, Feb. 14, 2012 /PRNewswire/ -- The merits of using options-based strategy benchmark indexes to construct a diversified portfolio is the subject of a new study -- "An Analysis of Index Option Writing for Liquid Enhanced Risk-Adjusted Returns" – released today by investment-advisory firm Asset Consulting Group.
The study, commissioned by Chicago Board Options Exchange (CBOE), evaluates the performance of four key options strategy benchmark indexes: the CBOE S&P 500 BuyWrite Index (BXM), CBOE S&P 500 PutWrite Index (PUT), CBOE S&P 500 2% OTM BuyWrite Index (BXY) and CBOE S&P 500 95-110 Collar Index (CLL) against more "traditional" stock and bond indexes. The study provides an assessment of options-based strategy benchmark index performance over a 25-year period.
http://jlne.ws/x4BJ0o

CME warns of Volcker rule impact on Treasuries
By Telis Demos in New York, The Financial Times

The CME Group has warned that the proposed Volcker rule could impede the primary dealer system used by the US Treasury to sell government debt.
In a comment letter filed this week, Craig Donohue, chief executive of CME, the US’s largest futures market, wrote that the Volcker rule’s exemption for US Treasury debt did not go far enough by failing to extend to the use of Treasury derivatives such as futures and options contracts.
http://jlne.ws/wAr5CP

Nasdaq OMX, BATS, CBOE Websites Flooded by AttacksFebruary 15, 2012
Reuters
Websites belonging to the Chicago Board Options Exchange as well as exchange operators Nasdaq OMX Group and BATS Global Markets were attacked by hackers at the start of this week, causing ongoing disruptions for those trying to use the sites, spokespersons for the companies said on Tuesday.
Only the banner carrying the logo at the top of the web page for http://jlne.ws/xXglOd was visible during repeated attempts to access Nasdaq's site on Tuesday afternoon. Trading in Nasdaq-listed stocks has not been affected, however. A Nasdaq OMX Group spokesman confirmed that it had been suffering a denial-of-service attack (DOS) since late on Monday but said they had not located the origin of the attack and were unable to say when it would be resolved.
http://jlne.ws/w5GOYC

VIX call spread sticks out in quiet trading

XE.com
Option trading on the CBOE Volatility Index is relatively quiet after the February futures and options contracts ceased trading on Tuesday. The settlement occurred on Wednesday morning. Meanwhile, the VIX rose 8.09 percent to 21.12 as the S&P 500 index fell 0.35 percent on concerns over Greece's bailout. The February settlement value for the index is 20.44, below 23.64 at the January expiration, but significantly higher than the 30-day statistical volatility of the S&P -- which has fallen to just 8.8 percent, said WhatsTrading.com options strategist Frederic Ruffy. In all, about 150,000 calls and 55,000 puts traded in the VIX options pit by early afternoon on Wednesday.
http://jlne.ws/yEx5qy

EXCHANGES

CBOE to List Futures on Brazil, Oil Volatility IndexesBy Nina Mehta and Jeff Kearns - Bloomberg
CBOE Holdings Inc. (CBOE), owner of the largest U.S. venue for equity derivatives, will list futures and options tracking volatility indexes on Brazilian stocks and crude oil, according to a statement on the exchange’s website.
http://jlne.ws/y7jKVa

Nymex oil traders go back to the floor
FT.com
By Gregory Meyer in New York
It was like old times. For a few minutes this week, the capacious floor of the New York Mercantile Exchange was again the beating heart of the US oil market.
At about 2:08pm on Monday, exchange owner CME Group unexpectedly halted oil trading on Globex, its electronic platform through which 99 per cent of US crude futures traded on Nymex now change hands. It was 22 minutes before settlement, typically one of the busiest times of day. The official closing price would be based on what transpired on the floor. At a time when many fear algorithms are running the show, floor traders responded with amazing speed. Some ran over from the oil options pit, while others abandoned desks upstairs, flashed coded name tags and began trading the old-fashioned way. “They were a little bit rusty on their bid and offering skills,” Peter Donovan, a floor broker at Vantage Trading, told me.
http://jlne.ws/wQYiAP

TMX CEO says BSX should aim high
By Jonathan Kent, Bermuda International Business
Feb 15, 2012
Bermuda has all the ingredients necessary to be an offshore leader in capital markets and should aim high for the future. That is the view of the Bermuda Stock Exchange’s newest board member, Thomas Kloet, the chief executive officer of the TMX Group. Mr Kloet attended his first board meeting on Monday, following TMX’s purchase of a 16 percent stake in the BSX, a deal announced last December. TMX Group, a $3.3 billion Canadian listed company, which recorded revenue of $673 million last year, owns and operates the Toronto Stock Exchange, the seventh large exchange in the world. It also has a majority interest in Boston Options Exchange (BOX) and owns Natural Gas Exchange (NGX) a leading North American exchange for the trading and clearing of natural gas and electricity contracts.
http://jlne.ws/yTUfvr

TMX Group Inc : TMX Group acquires over 90% of Razor Risk Technologies
February 14, 2012 (TORONTO) and February 15, 2012 (SYDNEY) - TMX Group Inc. (TMX Group) (TSX:X) is pleased to announce that its wholly-owned subsidiary TMX Australia Pty Ltd (TMX Australia) has received acceptances of its takeover bid in respect of 91.2% of the shares in Razor Risk Technologies Limited (Razor) (ASX:RZR). The minimum acceptance condition of 90% has been satisfied; as a result, TMX Australia has freed the takeover offer from all bid conditions. Razor has appointed TMX Australia's nominees, Brenda Hoffman, Michael Ptasznik, Sharon Pel and Mark Licciardo to join Ellis Bugg on the Razor board of directors. Andrew Wood, Ralph Pickering, Simon Yencken and Jane Yulie have retired from the board.
http://jlne.ws/w0eYPL

CME Group Inc. Names Slate of Director Nominees
CHICAGO, Feb. 15, 2012 /PRNewswire via COMTEX/ -- CME Group today announced its slate of candidates for election to serve on the company's board of directors. CME Group shareholders will vote for directors at the company's annual meeting to be held Wednesday, May 23, 2012. The Class A and Class B shareholders voting together will elect seven candidates to the board. Additionally, the Class B-1 and Class B-2 shareholders will each elect a candidate to the board.
http://jlne.ws/zwjCFN

REGULATION

Board member charged with fraud
BY TODD SHIELDS, Northbrook Star
Updated: February 14
A Glenbrook School District 225 school board member and Northbrook resident faces federal charges that he profited more than $17 million from improperly trading shares. The U.S. Securities and Exchange Commission alleged Jeffrey Wolfson and his brother, Robert Wolfson, sold borrowed shares in hopes of profiting from declining prices. Called naked short selling, while the transaction is legal, SEC rules require sellers to locate shares to borrow before selling them short, according to a SEC release. Naked short selling also occurs without borrowing the securities to make delivery.
If Wolfson violated SEC rules, he could be ordered to repay the gains plus a fine and be barred as a registered broker-dealer, according to the SEC.
He has been an active member of the Chicago Board Options Exchange since 1980.
http://jlne.ws/w0D4CY

TECHNOLOGY

TradeStation to Exhibit New Platform Updates at the International Traders Expo in New York
PLANTATION, Fla., Feb 15, 2012 (GlobeNewswire via COMTEX) -- TradeStation, the award-winning broker-dealer and futures commission merchant, will unveil updates to TradeStation 9.1, the latest, most powerful version of its award-winning trading and analysis platform, at the New York Traders Expo on February 19-22, 2012, at the New York Marriott Marquis. This four-day event is an opportunity for attendees to experience firsthand the many advanced new features of the TradeStation 9.1 platform while interacting with TradeStation training specialists and account executives.
TradeStation will showcase its all-new OptionStation Pro options trading and analysis platform. Designed with the help of active options traders, OptionStation Pro contains such advanced features as interactive 3-D position graphs; advanced order-entry technology to trade options spread strategies; configurable spread-specific options chain views and dynamic options pricing and Greek calculations.
http://jlne.ws/zLBYj9

STRATEGY

Be Fearful When Others Are Greedy
By STEVEN M. SEARS, Barrons.com
Use options to put Buffett's axiom in practice and protect stock profits.
Warren Buffett has famously said the secret to successful investing is being greedy when others are fearful and fearful when others are greedy. The axiom is simple, yet difficult for most to follow. It requires doing the opposite of the market mob when stock prices are surging and nary a cloud darkens the sky. Now, is such a time when shrewd investors should be fearful and think about using options to reduce risk and lock in profits.
http://jlne.ws/x8JnbQ

The American Spectator
The Spectacle Blog : Derivatives of Derivatives
By Ross Kaminsky
For those of you interested in the nuts-and-bolts of financial markets...
It's been an insane few days at work for me, as I've been trading, with something quite unlike success, the VIX. The VIX is the CBOE Volatility Index, and you can trade futures or options on it.
So, stay with me here for a minute:
The Standard and Poor's 500 index is essentially a derivative, derived as it is from the capitalization-weighted prices of its 500 underlying stocks. Options on the S&P 500 are derivatives of the S&P 500. The VIX index which measures the implied volatility of options on the S&P 500 is a derivative of those options. However, there is no way to trade the VIX index directly. VIX futures and options are derivatives of the VIX index. (There are also ETFs like the VXX which buy a time-weighted mix of VIX futures, and are themselves derivatives of VIX futures, and there are options on those ETFs! I'm trading those a little bit too. VXX and other VIX-related ETFs have had massive volume in recent days, with VXX alone trading over 45 million shares on Tuesday...more than the total number of VXX shares outstanding as the product has been a popular short-term trading vehicle.)
Therefore, this insane products that I'm trying to trade are basically a 4th or 5th or 6th derivative of the stock market.
http://jlne.ws/wNPrlD

Three Things You Should Know About VIX ETFs
ETF Trends
February 15th at 1:35pm by Tom Lydon
Volatility-linked exchange traded funds that follow VIX futures such as ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) have shown signs of life recently on rising trading volume following the steady descent from October. A leveraged exchange traded note, VelocityShares Daily 2X VIX Short Term ETN (NYSEArca: TVIX), has seen volume spike in a volatile week. These volatility-linked products rise when investors are seeking protection in options markets from stock pullbacks. However, it’s critical to remember they track VIX futures contracts, rather than the spot price. The CBOE Volatility Index, or VIX, is a widely monitored indicator for implied future volatility. Volatility ETFs can be used by traders to hedge portfolios or speculate on market weakness.
http://jlne.ws/AlBNLo

Henry Schwartz - Trade Alert [INTERVIEW]

2012-02-15T13:20:00.004-06:00

Henry Schwartz is the President and Founder of Trade Alert, a real-time option flow analytics firm that serves Wall Street sell-side derivative desks, floor brokers, market makers, hedge funds, and proprietary trading firms. He previously worked at Banc of America Securities, where he was responsible for electronic market making on the start-up ISE. Trade Alert was founded in 2005. Schwartz spoke with JLN Options editor Sarah Rudolph about the OptionAlert analytics system, technology challenges for clients and firms, and fragmentation in the options markets.

CBOE Holdings Downgraded by Credit Suisse to “Neutral” (CBOE)

2012-02-14T14:00:00.004-06:00

LEAD STORIES

CBOE Holdings Downgraded by Credit Suisse to “Neutral” (CBOE)
Web Inquirer
CBOE Holdings, Inc logoCBOE Holdings (NASDAQ: CBOE) was downgraded by equities research analysts at Credit Suisse (NYSE: CS) from an “outperform” rating to a “neutral” rating in a research note issued to investors on Tuesday. Separately, analysts at Jefferies Group (NYSE: JEF) cut their price target on shares of CBOE Holdings to $26.00 in a research note to investors on Friday. Also, analysts at UBS AG (NYSE: UBS) raised their EPS on shares of CBOE Holdings in a research note to investors on Friday. They now have a “neutral” rating on the stock.
http://jlne.ws/yPTQZu

Deutsche Boerse Looks for Head of New Technology Unit
February 14, 2012
Tom Steinert-Threlkeld
Deutsche Boerse said it will put all its technology and market data operations under one corporate roof. And is looking for someone to head it up.
The operator of the Frankfurt Exchange said it will combine its information technology along with system development, services and operation into the unit, as well as its market data and analytics business. Also in the new unit: “external services,’’ such as the sale and servicing of trading systems for other exchange companies, the business process offering in its entirety, information technology operations for other financial service providers as well as network services.
http://jlne.ws/A2yp0H

Liz-Ann Sonders: The Markets Just Experienced A 'Double-Cross,' A Bullish Sign For Stocks
Everyone already knows about the golden cross in stocks, which occurred on January 31. A golden cross occurs when the 50-day moving average crosses above the 200-day moving average. This is a bullish technical momentum indicator. Not as many people are talking about the death cross in the CBOE Volatility Index, aka the VIX, aka the 'fear index.' A golden cross is the exact opposite of a death cross, which occurs when the 50-day moving average crosses below the 200-day moving average. The VIX death cross occurred on January 24.
http://jlne.ws/yjlL4Q

VIX Tumbles on "Greece Is Good." (VXX, XIV, TVIX)
Wall Street Sector Selector
February 13, 2012 7:06 pm
VIX, the CBOE “fear” indicator, dropped like a rock today as fear left the market over yet another new deal for Greece. After spiking some 8% on Friday in response to no deal on Greece going into the weekend, VIX reversed course today t give back nearly all of Friday’s impressive gains.
http://jlne.ws/zil8V5

Futures Flat as Moody's Ruins the Mood, Apple and Rackspace in Focus
Forbes
Futures on the Dow Jones Industrial Average (DJIA) are trading flat-to-lower versus fair value this morning, pointing toward a weak start to the regular session. Despite round of positive economic data out of Europe and Asia, a round of downgrades from Moody’s Services has Wall Street on edge...
Call volume once again rose to the forefront on Monday, with traders reacting to solid day of trading in the equities market. Overall, 2.1 million calls and nearly 2 million puts traded on the Chicago Board Options Exchange (CBOE) yesterday, resulting in a single-session CBOE put/call volume ratio of 0.88. For comparison, the ratio’s 10-day moving average rests at 0.86.
http://jlne.ws/zlt9Tu

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/wqWfFs

February 14, 2012: Largest option buying in equities so far
David Russell, optionMonster
Nearing the halfway mark in today's session, here are the individual equity names with the most call and put buying on optionMONSTER's ActionTracker data system.
Pfizer (PFE): A block of 5,000 September 23 calls was purchased for $0.53 as investors look for upside in the stock. PFE rose 0.26 percent to $21.35.
PowerShares DB U.S. Dollar Index Bullish Fund (UUP): More than 8,000 March 22 calls were purchased, mostly for $0.26 and $0.27, as investors looked for upside in the greenback. UUP rose 0.45 percent to $22.13.
Bunge (BG): Call volume surged in the agricultural processor as investors looked to capture its quarterly dividend. The activity has no directional bias. BG rose 1.28 percent to $64.77.
http://jlne.ws/wB8BRV

EXCHANGES

Electronic Oil Market Trades Resumed After Halt
Dow Jones Newswires Published February 13, 2012
NEW YORK – A technical glitch shut down CME Group Inc.'s (CME) electronic oil-trading platform for more than a hour Monday, throwing end-of-day trading into disarray and sending traders scrambling to place trades on the New York Mercantile Exchange floor. The shutdown shortly after 2 p.m. EST halted electronic trading of the world's biggest benchmark oil contract and roiled what had been a relatively a quiet, low-volume session. Prices rose 50 cents a barrel from levels earlier.
The shutdown was caused by "technical issues," according to CME. The Globex trading platform resumed at 3:15 p.m. EST.
"The issue has been fixed and the market is back up and running," a CME spokesman said.
http://jlne.ws/wZxwcu

S&P Lowers CME Group's ICR
By: Zacks Equity Research
February 13, 2012
Last week, ratings agency Standard & Poor’s Ratings Services (S&P) downgraded the long-term issuer credit rating (ICR) of CME Group Inc. (CME) to “AA-” from “AA”. Additionally, S&P gave a “Negative” outlook to the rating, thereby indicating the possibility of a further downgrade in the near future. The move came on the back of S&P’s concern over the $100 million fund announced by CME to protect the interest of farmers and ranchers affected by the crash of MF Global.
http://jlne.ws/yWiuOD

Deutsche Boerse sees 2012 revenue at 2008 levels
Reuters
Tue Feb 14, 2012
* Boerse no longer focused on mergers, takeovers
* May appeal against Brussels ruling on NYSE deal
* Boerse now focussed on organic growth
* Shares rise 4.4 percent
FRANKFURT, Feb 14 (Reuters) - Deutsche Boerse Chief Executive Reto Francioni attempted to placate shareholders with higher payouts and an optimistic outlook for 2012, renewing a commitment to organic growth after the failed takeover of NYSE Euronext. The operator of the Frankfurt Stock Exchange proposed a special dividend of 1 euro in addition to a regular dividend payment of 2.30 euros a share, adding the increase was sustainable and may lead to further payouts going forward.
http://jlne.ws/y7l1kr

BSE futures and options trade takes a jump
Jayanta Mallick, Business Line
Market-making scheme boosts volume manifold
Kolkata, Feb 14: The BSE derivatives volume and turnover have finally taken wing after waiting for over a decade of segment's official launch on June 9, 2000. On Wednesday in all some 13.16 lakh contracts were traded and total derivatives turnover of the exchange was at Rs 32,418 crore, BSE's highest. The turnover, still way down against NSE's Rs 1,03,255 crore on Wednesday, but there are strong signs that BSE in the past few days is reducing the gap fast.
http://jlne.ws/A2zCou

STRATEGY

Preparing for a Stock-Market Retreat
By STEVEN M. SEARS, Barrons.com
Options strategists offer up various ways to position for a correction in stocks.
As the stock market has moved higher, options strategists are sending a warning signal about stocks that is not readily apparent in the subdued reading of the Chicago Board Options Exchange Volatility Index (VIX), or more esoteric measures of investor fear and greed. Conversations with strategists, coupled with their trading ideas and notes from trading desks, show that many on Wall Street are growing skeptical of the stock rally even though VIX remains at just below 20, a sign of investor complacency.
Derivative strategists are increasingly advising clients to reduce the risk of owning stocks by replacing shares with bullish call options. This takes advantage of the options market's relatively low volatility levels – and the relatively cheap price of options -- and lets investors reduce the risk of owning stocks without missing further advances.
http://jlne.ws/crFOL6

February 14, 2012: Stock-repair strategies can be tricky
Chris McKhann | optionmonster.com
Option spreads can be used in a variety of ways, and one that traders use from time to time is known as a stock repair.
I am not a huge fan of such strategies, as I believe in more fundamental risk practices (and, for that matter, I usually don't own stock). But for those who are interested in learning more about them, stock repairs are reasonably simple strategies that involve combining a call spread with a covered call. A hypothetical example: Suppose you bought 1,000 shares of XYZ stock at $100, and it is now down to $80. You had a 20 percent loss, but to make back all of your money you would need a 25 percent gain.
http://jlne.ws/zKjPs6

VIX’s Cup Runneth Over

2012-02-13T14:34:00.002-06:00

LEAD STORIES

VIX’s Cup Runneth Over
By Brendan Conway, Barrons.com
Even casual observers of the CBOE Volatility Index — that’s the market’s so-called “fear index” — know at least a little about the legion of trading vehicles that the index has spawned. There are at least 45 U.S. ETFs or exchange-traded notes with the words “VIX” or volatility” in the title. To judge by volume and fund flows, this year’s market could be a useful test of which volatility products are really wanted and needed, and which won’t catch on. The $1.1 billion heavyweight in this area, which the ETF reaper will probably spare, is usually known by its ticker alone, VXX. That’s because iPath S&P 500 VIX ShortTerm Futures exchange-traded note (VXX) is such a mouthful.
http://jlne.ws/zQuLbR

Expansion of the German equity option product suite
Deutsche Börse Group Press Release
Eurex: The international derivatives market Eurex Exchange introduced new equity options on 17 shares last Friday, 10 February 2012. 14 of the new options are based on shares which belong to the German mid-cap index MDAX®. This latest offering completes Eurex’s lineup of equity options on MDAX companies. In a further move, an additional 17 equity options based on individual shares in the TecDAX® index will be introduced on 24 February. This expansion will allow Eurex Exchange to offer equity options on all constituents of the German blue-chip indices DAX®, MDAX and TecDAX for the first time.
http://jlne.ws/xS0hyt

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg Feb. 13
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/yQGQBM

February 13, 2012: Russell 2000 is hit the hardest in selloff
Chris McKhann, optionMonster
tradeMONSTER
The indexes all closed lower on Friday, and the VIX is back over the 20 level for the first time this year.
The Russell 2000 was the hardest-hit of the indexes. It reached its low near the end of the day and finished down 1.4 percent to 813.33. The Nasdaq 100 and S&P 500 hit their lows shortly after the open, retesting them late in the day, and climbed into the close. The NDX was down 0.65 percent on the session to 2547.32, and the SPX fell 0.69 percent to 1342.64. The CBOE Volatility Index (VIX) was up 11.6 percent at the end of the day to 20.79. Interestingly, it hit an intraday high of 21.98 about 45 minutes before the close and then gapped lower.
http://jlne.ws/yEx20N

EXCHANGES

CME to shrink board of directors
Crain's Chicago Business
(Reuters) — CME Group Inc.'s super-sized board of directors is about to go on a diet, but the results are going to take a while to show. The giant futures exchange operator, which owns the 164-year-old Chicago Board of Trade and offers trading on assets from oil to interest rates, has the largest board at any U.S. publicly traded company. Despite changes like electronic trading that have swept the exchange industry in the past decade, CME's board is a throwback to the days when futures markets were private clubs run by their traders. Ten of the board's 32 members are there to represent the Board of Trade, beneficiaries of a deal made five years ago to grease the way for CME's acquisition of its smaller rival.
http://jlne.ws/xPXXVx

Deutsche Boerse Posts Profit as Exchange Plans Dividend, Buyback
February 13, 2012
By Nandini Sukumar
Feb. 13 (Bloomberg) -- Deutsche Boerse AG, blocked from buying NYSE Euronext by European competition regulators this month, posted a fourth-quarter profit amid lower costs and higher sales while announcing a stock buyback and dividend. Earnings before interest and taxes at Europe’s largest exchange by market value was 228 million euros ($301 million), compared with a loss of 219.3 million euros a year earlier, the Frankfurt-based company said in a statement today. Fourth- quarter revenue increased 4.4 percent to 541.4 million euros, while net income was 141.9 million euros versus a loss of 61.2 million euros in 2010.
http://jlne.ws/wWXtnK

OPTIONS ON FUTURES

Speculators Lift Wagers to Highest Since September: Commodities
February 13, 2012
By Elizabeth Campbell
Feb. 13 (Bloomberg) -- Hedge funds increased bets on rising commodity prices to the highest since September on mounting confidence that growth in the U.S. will strengthen demand. Money managers boosted their combined net-long positions across 18 U.S. futures and options by 13 percent to 929,199 contracts in the week ended Feb. 7, Commodity Futures Trading Commission data show. That’s the highest since Sept. 20. Bullish wagers on copper rose to a six-month high, and soybean holdings jumped by the most this year.
http://jlne.ws/z5Drhp

TECHNOLOGY

ISE Introduces Premium Access Connectivity
New 10 Gigabit Connection Offers Ultra-Low Latency to Subscribers
New York, February 13, 2012 - The International Securities Exchange (ISE) is now offering a Premium Access connection in its primary data center. Premium Access subscribers will connect to ISE over Juniper Networks' high performance, ultra-low latency 10 gigabit Ethernet switches. The introduction of the Juniper switches along with new network cards and a custom load balancing scheme will enable member firms with a direct connection to ISE to reduce their roundtrip network latency by up to 150 microseconds, or approximately 90 percent.
http://jlne.ws/xoTe8j (pdf)

STRATEGY

Buy Options on U.S. Small-Cap Stocks To Avoid European Woes
By STEVEN M. SEARS, Barrons.com
While Europe remains a risk, profit from small-cap U.S. stocks while limiting risk with call options.
The U.S. stock market has continued to move higher even as the European debt crisis drags on. The Greek parliament's approval of new austerity measures to secure a debt bailout may have been greeted by rioting in the streets of Athens, but the European Central Bank's Long Term Refinancing Operation, or LTRO, has stabilized the eurozone banks. As a result of this liquidity injection late last year, global markets' risk perceptions have abated meaningfully. U.S. stocks, in particular, appear insulated for the world's woes, which has pushed sentiment measures to bullish extremes. So, some caution may be in order as the crowd crows about stocks.
http://jlne.ws/wuaTYQ

VIX ETFs Bounce on Greek Jitters as Stocks Near 2011 High

2012-02-10T14:18:00.003-06:00

LEAD STORIES

VIX ETFs Bounce on Greek Jitters as Stocks Near 2011 High
February 10th by John Spence, ETF Trends
VIX-linked exchange traded funds have been moving higher along with stocks all week, so something probably had to give.
The usual relationship between Wall Street’s “fear gauge” and stocks was back in place on Friday with the S&P 500 set for a lower open as the Greek drama drags on. In volatility ETFs, iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) rose 4% in premarket trading. It’s important to remember that volatility-linked products follow VIX futures contracts, rather than the spot price. This difference can impact long-term performance based on whether futures traders are pricing in higher or lower market volatility down the road.
http://jlne.ws/wmLnl1

S&P Indices Announces Changes to U.S. Indices
NEW YORK, Feb. 9, 2012 /PRNewswire/ -- S&P Indices will make the following changes to the S&P MidCap 400 and S&P SmallCap 600 indices:
CBOE Holdings, Inc. (NASD: CBOE) will replace Temple-Inland, Inc. (NYSE: TIN) in the S&P MidCap 400 index after the close of trading on a date to be announced. S&P 500 constituent International Paper Co. (NYSE: IP) is acquiring Temple-Inland in a transaction expected to be completed soon pending final approvals.
http://jlne.ws/A4jHYc

CME Group Developing New Tool to Monitor OI
Press Release
CME Group is developing a new “Options Open Interest Profile” tool which will live on our website. The original version of the tool will focus on interest rate products. But we anticipate that subsequent versions be expanded to include other CME Group products including FX and stock indexes as well. The tool will provide users with the flexibility to focus on specific markets of choice, puts vs. calls, dates, etc.
http://jlne.ws/wbib1J

Nikkei 225 February Options Settle at 9,011.16, Traders Say
By Yoshiaki Nohara, Bloomberg - Feb 9, 2012 6:20 PM CT
Japan’s Nikkei 225 February options settled at 9,011.16, traders said.
The Nikkei 225 Stock Average fell less than 0.1 percent to 8,997.93 as of 9:09 a.m. in Tokyo. The gauge closed at 9,002.24 yesterday.
http://jlne.ws/yLZRpx

CBOE's VIX spikes above 20 as uncertainty rises
NEW YORK (MarketWatch) -- The Chicago Board Options Exchange Volatility Index VIX +10.31% on Friday spiked 10% to rise above 20 for the first time in nearly two weeks. "A 10% move, that's a little unsettling," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research.
http://jlne.ws/whTduT

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Feb 10, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/wuAaRD

EXCHANGES

NYSE Euronext boosted by IT services
By Philip Stafford in London
NYSE Euronext on Friday said growth in technology services had offset weakness in derivatives trading in the final quarter, a trend that underscored the exchange operator’s focus on IT services following its failed merger with Deutsche Börse. The group said turnover in the three months to December 31 rose 2 per cent, or $15m, to $628m. The rise was helped by a 16 per cent year-on-year increase in technology services revenues, to $127m.
http://jlne.ws/z3VvCS

NYSE Sees More Dealmaking In Standalone Strategy
--Further deals eyed as NYSE Euronext looks to grow technology, clearing
--Cost cuts, capital returns central parts of standalone path
--Potential French 'stamp duty' on trades eyed
By Jacob Bunge Of DOW JONES NEWSWIRES
The top executive of NYSE Euronext (NYX) said Friday further dealmaking remains on the table as the Big Board parent looks to bulk up technology and trading services in the wake of its scuttled merger with Deutsche Boerse AG (DB1.XE, DBOEF). Efforts to build market technology into a $1 billion revenue generator by 2015 and expanded trade-processing services in Europe and the U.S. have returned to the forefront for Chief Executive Duncan Niederauer as he outlined a two-year plan that will guide NYSE Euronext's standalone strategy.
http://jlne.ws/AluoHy

REGULATION
Rep. Spencer Bachus faces insider-trading investigation
Haraz N. Ghanbari/ASSOCIATED PRESS - Rep. Spencer Bachus (R-Ala.).
By Scott Higham and Dan Keating, Published: February 9
The Office of Congressional Ethics is investigating the chairman of the House Financial Services Committee over possible violations of insider-trading laws, according to individuals familiar with the case. Rep. Spencer Bachus (R-Ala.), who holds one of the most influential positions in the House, has been a frequent trader on Capitol Hill, buying stock options while overseeing the nation’s banking and financial services industries. The Office of Congressional Ethics, an independent investigative agency, opened its probe late last year after focusing on numerous suspicious trades on Bachus’s annual financial disclosure forms, the individuals said. OCE investigators have notified Bachus that he is under investigation and that they have found probable cause to believe insider-trading violations have occurred.
http://jlne.ws/xoXJQJ

STRATEGY
Profit from emerging market growth with covered call options on metal ETFs
Emerging Money
Options and exchange traded funds are invaluable tools for increasing profits, furthering diversification and hedging. They're especially useful in the metal sectors, and funds like the iPath Dow Jones-UBS Copper ( JJC , quote ), the iShares Global Materials Sector ( MXI, quote ) and the Globe X Aluminum ETF ( ALUM , quote ) have strong connections to emerging markets. China is already the world's largest consumer of copper, iron ore and aluminum. India and Indonesia are also increasing their use of these metals. A very effective way to profit these growing appetites is to write covered call options on exchange traded funds that allow it.
http://jlne.ws/xXeffU

Hot Option Plays: Bull Call Spread Discussed
By OptionsXpress on February 10, 2012
Cusick’s Corner
I was talking about bull call spreads in the Midday and one reader asked to give at an example. Let’s say you decide to enter a bull call spread on XYZ stock trading near $26.00 by purchasing a call option two strikes below the current stock price and then selling a call with a higher strike. Example: if you buy May 22.50 strike calls for $4.20 then this call option gives you the right to buy the stock for $22.50 per share. For the other leg of the spread if you sell May 25 strike calls at $2.00 then this is an obligation to sell the stock for $25 per share in the event the stock rises to, or above, $25 per share. If you take the total cost of the entire spread = $4.20 paid for the 22.5 calls ($420 per contract) and subtract the credit received = $2 for the 25 calls ($200 per contract) then the Maximum Loss Potential = $2.20 per share ($220 per spread contract in real terms). Your maximum profit for this transaction is $0.30 ($30 per spread in real terms) if you hold it until expiration and the stock closes above the $25 strike price. For yield hounds, that’s about 13.6%, and we typically look to do this week or less to expiration.
http://jlne.ws/A58bmc

Cost of ‘tail risk’ protection to soar

2012-02-09T15:06:00.001-06:00

LEAD STORIES

Cost of ‘tail risk’ protection to soar
By Telis Demos and Michael Mackenzie in New York, The Financial Times
Not so long ago, the idea of “tail risk” was alien to many investors. Now, bruised by the 2008-09 financial crisis, fund managers pay to insure their portfolios against market meltdown. And tough, new regulations mean that the cost of that protection could soon soar.
Investors have learnt the hard way about being ill-prepared for extreme events, be it the subprime disaster, political turmoil in the Middle East or eurozone debt crisis. Demand for buying long-dated options and other complex products, such as 10-year variance swaps that compensate for an unexpected future calamity, has grown as a result. The cost of “tail hedging” has retreated from last year’s peak, when anxiety over the eurozone was at its highest, yet premiums remain elevated and investors are worried they could soon climb again.
The fear is that higher capital requirements for banks and the proposed Volcker Rule, which would prohibit banks from engaging in proprietary trading, will limit the ability of Wall Street dealers to support protection against risk and reduce liquidity in products such as variance swaps.
http://jlne.ws/zKF9Y1

Eurex to Roll Out New Trading System
Tom Steinert-Threlkeld, Securities Technology Monitor
Eurex said it will move to an entirely new trading system, starting in December.
The derivatives marketplace owned by Deutsche Boerse Group will take on a trading architecture developed at sister firm International Securities Exchange.
With the new trading system, Eurex will cease to use the its MISS infrastructure and VALUES API interface.
The replacement interfaces will be based upon industry standards such as FIX and FAST protocols. Eurex said there will be a “ high degree of backward compatibility for the new interfaces allowing participants to leave their trading applications unchanged in future releases of the new trading system.’’
The new system features a messaging architecture designed for “minimum latency.” Tools for implementing different strategies and spread trading will also be delivered.
http://jlne.ws/zBWDlH

Traders Bet VIX Won’t Snooze Forever
By Chris Dieterich, The Wall Street Journal
The rally in U.S. stocks has crushed volatility and tamed the market’s fear gauge, but traders are piling into bets that the next VIX move will be higher.
Over the last three weeks, options traders ramped up the number of bets that profit should the Chicago Board Options Exchange Volatility Index, or VIX, rise from its seven-month lows. The number of VIX call options in the market, or open interest, is the highest since August, when a downgrade to U.S. credit collided with euro-zone debt concerns and touched off four months of wildly choppy stock trading, Trade Alert data showed.
http://jlne.ws/ztRdLg

EXCHANGES

CBOE's Fourth-Quarter Profit Up 1.4%
By JACOB BUNGE And MIA LAMAR
CHICAGO—CBOE Holdings Inc.'s fourth-quarter profit edged up 1.4% amid weaker margins and quieter trading volume, although earnings still topped expectations.
Less volatile markets in the fourth quarter put pressure on CBOE's bread-and-butter stock-options trading in the final few months of the year. For the fourth quarter, CBOE's total trading volume totaled 270.9 million contracts, down slightly from volume of 272.8 million contracts recorded a year ago.
William Brodsky, chairman and chief executive of the Chicago Board Options Exchange parent, said on a conference call with analysts that there was "slower-than-usual trading in November and December," but characterized this as a "natural pause" after a period of soaring volatility and trading volumes.
http://jlne.ws/xVffot

CBOE Holdings, Inc. Reports Solid Fourth Quarter And Record Full-Year 2011 Financial Results
Fourth Quarter Financial Highlights
-- Adjusted Operating Revenues Increase 6 Percent to $120.2 Million(1)
-- Adjusted Net Income Allocated to Common Stockholders Increases 10 Percent to $33.2 Million(1); Adjusted Diluted EPS Up 19 Percent to $0.37(1)
-- GAAP Net Income Allocated to Common Stockholders Increases 2 Percent to $31.3 Million; Diluted EPS Up 13 Percent to $0.35 Compared to $0.31 in Prior Year
http://jlne.ws/zHx3S6

BATS Exchange Announces Innovative Primary Listings Pricing, Including Free Listings
NO ANNUAL LISTING FEE FOR COMPANIES WITH ADV EXCEEDING 2M SHARES PER DAY; COMPETITIVE LIQUIDITY PROVIDER PROGRAM LAUNCHES TODAY
BATS Global Markets Press Release
KANSAS CITY, Mo., Feb. 9, 2012 /PRNewswire/ -- BATS Global Markets, a global operator of stock and options markets, today unveiled a unique flat pricing model for its primary listings business, including free listings for companies whose stock or exchange traded product (ETP) trades more than 2 million shares per day.
http://jlne.ws/y8X8Qs

Price war beckons as F&O volumes spurt on BSE
Low transaction cost, incentives & change in expiry cycle add to record rise
Palak Shah / Mumbai Feb 10, 2012
The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) may witness another round of price war, as derivative volumes are picking up on the former's platform.
The BSE has witnessed high trading interest in the options contract of the Sensex, its benchmark index, pitched against NSE’s popular Nifty index. This is due to a 99 per cent lower transaction cost in BSE’s options segment, coupled with incentives and a change in the derivative expiry cycle from the current month.
http://jlne.ws/zysjvi

OPTIONS ON FUTURES

Waiting for a catalyst
Lindo Xulu, Financial Mail, Johannesburg
In the first week of January, 800 contracts were traded on the Safex commodity derivatives market.
However, if the critics are correct it’s unlikely the interest will be sustained unless some of the drawbacks of the product fall away.
Owning an options contract gives an investor the option (but not the obligation) to buy or sell an asset at a certain price in future. On the other hand owning a futures contract provides an investor with the obligation to buy or sell a specific asset and the seller to deliver that asset at a specified future date.
Unlike platinum futures, which have been welcomed by the investment community, platinum options are not that well known and the market is not liquid.
http://jlne.ws/ywwMwh

STRATEGY

As Markets Lurch, Options to Avoid Getting Seasick
By JOHN F. WASIK
WHEN it came to stock market volatility, 2011 was pretty close to the mother of all roller-coaster rides.
The Standard & Poor’s 500-stock index had several daily swings of 2 percent or more in August alone. The Dow Jones industrial average seesawed more than 400 points for four straight days that month. With the sturm und drang of European and American debt woes continuing, we may see more bipolar market oscillations.
The investment climate — even among wealthy investors — has cooled toward stocks that have full exposure to the market’s ups and downs. A recent survey by the Spectrem Group found that “while somewhat more moderate in risk tolerance than in 2009, investors remain more interested in protecting principal than growing their assets.”
http://jlne.ws/A0e4qz

OPTIONS EDUCATION

CBOE Special Feature: SPXPM vs. SPY Options
By Jill Malandrino
Russell Rhoads is an instructor with The Options Institute at the Chicago Board Options Exchange. He is a financial author and editor having contributed to multiple magazines and edited several books for Wiley publishing. In 2008 he wrote Candlestick Charting For Dummies and is the author of Option Spread Trading: A Comprehensive Guide to Strategies and Tactics. Russell also wrote Trading VIX Derivatives: Trading and Hedging Strategies using VIX Futures, Options and Exchange-Traded Notes. In addition to his duties for the CBOE, he instructs a graduate level options course at the University of Illinois - Chicago and acts as an instructor for the Options Industry Council.
Russell: In October of 2011, CBOE's all electronic C2 Options Exchange began trading in index options based on the S&P 500®. The Chicago Board Options Exchange (CBOE) has been the venue for trading SPX options since the early 1980s, but those options are traded in an open outcry format.
http://jlne.ws/zFMQrC

EVENTS

NYSE Euronext to Host Investor Day on Monday, Apr. 2, 2012
NEW YORK, Feb 09, 2012 (BUSINESS WIRE) -- NYSE Euronext (NYX) will host an investor day for the professional investment community on Monday, April 2, 2012, at the New York Stock Exchange, 11 Wall Street, New York, NY. The day's schedule will commence with opening remarks at 1:00 p.m. and is expected to conclude at approximately 5:00 p.m.
Presenters at this conference will include Duncan L. Niederauer, Chief Executive Officer, NYSE Euronext and other members of the company's executive management team.
http://jlne.ws/A5DKa0

Video Interview: Steven Crutchfield, CEO of NYSE Amex Options

2012-02-08T15:46:00.006-06:00

JLN Options editor Sarah Rudolph spoke to Steve Crutchfield, CEO of the options business at NYSE Amex, about the 2012 Security Traders Association of Chicago (STAC) Conference and upcoming trends impacting the options market. Crutchfield, who spoke on a STAC panel titled "Cross Product Exchange Leadership," discussed the Volcker rule and its effect on options, as well as trends in options volumes for 2012. Visit the NYSE Amex website. To see the agenda from this most recent STAC conference, click here.

CBOE Holdings, Inc. Announces Reorganization and Names New Officers

2012-02-08T13:31:00.001-06:00

LEAD STORIES

CBOE Holdings, Inc. Announces Reorganization and Names New Officers
CHICAGO, Feb. 8, 2012 /PRNewswire/ -- CBOE Holdings, Inc. (NASDAQ: CBOE) announced today an organizational realignment, including the consolidation of two major divisions, the creation of new areas of business development, and the appointment of new CBOE officers. The reorganization was designed to better align key business functions and operations with the company's evolving business and market models.
"We are fortunate to have deep in-house expertise to meet today's challenges and opportunities. The reorganization maximizes the talents of a proven team. The areas most impacted, including Business Development, Market Regulation and Systems, reflect our ongoing commitment to providing customer satisfaction, fair markets and shareholder value," said William J. Brodsky, CBOE Holdings Chairman and CEO.
http://jlne.ws/yjfsl9

VIX-Linked ETF Decline Reflects Lower Volatility
February 8th at 7:00am by Tom Lydon, ETF Trends
Exchange traded funds that track CBOE Volatility Index futures are down sharply so far in 2012 on easing Eurozone debt fears and signs the economy will avoid a double-dip recession. The plunge in VIX ETFs reflects much lower volatility as stocks continue to grind higher following last year’s wild gyrations. The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) took a big hit last week, losing about 5.3%. The exchange traded note tracks futures contracts based on the CBOE Volatility Index, a commonly used measure of risk in the markets.
http://jlne.ws/whpWul

OptionsCity wins “Best options trading platform” award
Press Release February 8, 2012
Chicago – OptionsCity Software, Inc. today announced that its flagship trading and market making platform, Metro, has been named “Best options trading platform” by Wall Street Letter in the 2012 Institutional Trading Awards. The awards are determined by an independent panel of industry experts and are judged on the level of innovation and client satisfaction displayed by applicants.
“We are thrilled to be recognized for our innovation and contribution to the trading industry,” said Hazem Dawani, CEO of OptionsCity. "We congratulate Wall Street Letter on their inaugural awards event and thank them for our award." The Institutional Trading Awards recognize distinction among top providers to the trading industry and are presented by The Wall Street Letter, an online provider of "unrivaled in-depth intelligence on the latest trading and technology happenings". OptionsCity was nominated for this award among other highly respected software providers, including ORC, FlexTrade, Bloomberg Tradebook, and Investment Technology Group.

http://jlne.ws/xtlVWe

Simple options thrive in risky world - SuperDerivatives
By Toni Vorobyova, Reuters
LONDON | Wed Feb 8, 2012
Investors want simple derivative products to cushion the pain of stock market losses and have turned their back on complex, custom-built products which were earning a fortune for investment banks, the head of equities at a leading derivatives pricing firm said. The collapse of Lehman Brothers - the largest bankruptcy in U.S. history which left the bank facing billions of dollars in derivatives claims - has burnt many investors, choking off demand for more complex options, according to Mikael Benguigui, head of equities at SuperDerivatives.
http://jlne.ws/yAsCpQ

ISE Named "Best Exchange Client Service" at Wall Street Letter 2012 Institutional Trading Awards
NEW YORK, February 8, 2012 - The International Securities Exchange (ISE) announced today that it received the "Best Exchange Client Service" award at the Wall Street Letter 2012 Institutional Trading Awards. Winners were determined by a panel of independent judges and based on the level of innovation and client satisfaction demonstrated by the nominees.
"ISE is very honored to receive the award for Best Exchange Client Service from Wall Street Letter," said Jeanine Hightower, Business Development Officer. "The customer-facing teams within ISE work every day to meet the needs of our member firms, and we are grateful that our efforts were acknowledged by the judges of this award."
http://jlne.ws/cJ89qN

Overbought market due for a correction
Lawrence G. McMillan - MarketWatch
The volatility indexes continue to decline, although the pace of their retreat has slowed. Like put-call ratios, it is bullish for the broad stock market when these indicators are in a downtrend. That has been the case for a long time (more than three months), and it continues to be the case. It is not clear at what level one could say that VIX has dropped “too far.” However, it has recently traded at its lowest levels since last July — before the market dropped so sharply last August.
http://jlne.ws/yTGOVP

EXCHANGES

CBOE Holdings Declares First Quarter 2012 Dividend
CHICAGO, Feb. 8, 2012 /PRNewswire/ -- CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that its Board of Directors has declared a quarterly cash dividend of $0.12 per share of common stock payable on March 23, 2012, to stockholders of record at the close of business on March 2, 2012.
http://jlne.ws/z7UISw

UPDATE: S&P Lowers Rating On CME Group Amid MF Global Fallout
--S&P cuts rating on CME to double-A-minus from double-A,
--Cites increased financial and credit risk from MF Global fallout
--CME spokesman says exchange group remains happy with its rating
By Jacob Bunge and Ben Fox Rubin Of DOW JONES NEWSWIRES
Efforts by CME Group Inc. (CME) to devise new protections for futures-trading customers in the aftermath of MF Global Holdings' (MFGLQ) collapse have increased CME's financial and credit risk, Standard & Poor's Ratings Services said as it lowered its rating on the firm. The ratings agency on Wednesday also warned of reputational damage to the futures industry and aired concerns around the company's growing profile in handling off-exchange derivatives transactions.
"The rating actions follow several instances of CME Group providing limited financial support to the trading customers of its defaulted clearing members," said Standard & Poor's credit analyst Charles Rauch in a statement.
http://jlne.ws/yH2Tv2

CME Group says energy futures, options volume hits record Tuesday
chicagotribune.com
http://jlne.ws/A0bibU

BSE F&Os hit Rs 12,490 cr
mydigitalfc.com
By Rajesh Abraham Feb 08 2012 , Mumbai
The Bombay Stock Exchange (BSE) has done what National Stock Exchange (NSE) has failed to do.
Since launching its liquidity enhancement incentive programmes (Leips) to lift its derivatives segment in September, its futures and options (F&O) segment crossed Rs 10,000 crore worth turnover for the first time ever on Wednesday. The final figure for Wednesday stood at Rs 12,490 crore. BSE’s rival NSE, where daily F&O turnover is over Rs 1.22 lakh crore at present, took several years to clock an average daily turnover of above Rs 10,000 crore for the first time.
http://jlne.ws/wN8z3n

REGULATION
SEC's Gallagher wants more oversight of brokers
By Sarah N. Lynch, Reuters
WASHINGTON | Tue Feb 7, 2012 8:52pm EST
Congress made a mistake when it stripped away most of the Securities and Exchange Commission's authority to police the holding companies of broker-dealers for risks, according to the SEC's newest commissioner.
In his first formal interview with Reuters since joining the SEC late last year, Commissioner Daniel Gallagher defended the purpose behind the now-defunct oversight regime, which gave the SEC a direct window into the holding company operations of investment banks.
http://jlne.ws/yZPwFt

TECHNOLOGY
Nasdaq OMX ramps up data centre battle
By Philip Stafford in London
Nasdaq OMX, the second-largest US exchanges operator, is ramping up competition to attract trading via complex algorithms by expanding the data feed capacity in the connections at its main US data centre.
The transatlantic operator is planning to upgrade the bandwidth of telecommunications cables within the site to 40 gigabytes a second, from 10 gigabytes. This will cut 7 microseconds off the time it takes investors to trade, currently roughly 100 microseconds. The operator will also offer customers that put their servers at the Nasdaq site in Cartaret, New Jersey, a facility leased from Verizon, a service that could increase the amount of computing power in a rack of servers by 70 per cent.
http://jlne.ws/xEkMvf

Tail-Risk Hedges on Volatility Lure Money Even After Stocks’ January Surge

2012-02-07T15:09:00.000-06:00

LEAD STORIES
Tail-Risk Hedges on Volatility Lure Money Even After Stocks’ January Surge
By Alexis Xydias, Bloomberg
Funds that profit from swings in stock prices are attracting record amounts from investors as money managers seek protection from extreme volatility, even as equities have their best start to the year since 1994.
The JPMorgan Macro Hedge U.S. Source Exchange-Traded Fund aims to rise during market stress and generate returns even if stocks gain, the New York-based bank said in a press release today. The Nomura Voltage Mid-Term Source ETF attracted $165 million in January, its best month for inflows since its inception in 2011.
“There’s been strong demand for volatility-linked products from a very broad client range,” said Mohamed Yangui, London- based head of equities product development and structuring at Nomura Holdings Inc. (8604), whose team developed the Japanese bank’s ETF. “There’s high interest in volatility as an asset class, firstly because the environment remains uncertain, but also because there is now an attractive entry point.”

http://jlne.ws/zM6UxU

Crude Options Volatility Rises as Oil Futures Fall in New York
Bloomberg
By Barbara Powell - Feb 6, 2012 2:40 PM CT
Crude oil options volatility rose as underlying futures fell for the sixth time in seven sessions. Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 26.9 as of 3 p.m. in New York, up from from 26.6 on Feb. 3.
“There was very light volume today,” said Michael Truscelli, a broker at Paramount Options Inc. in New York. “We’re still stuck in a short trading range.”
Crude for March delivery fell 93 cents, or 1 percent, to settle at $96.91 a barrel on the New York Mercantile Exchange. The 30-day range for the contract is $95.44 to $103.74.
http://jlne.ws/wX3s86

February 7, 2012: Index, ETF option volumes near midday
Chris McKhann | optionmonster.com
Total option volume tops 5 million contracts so far today as puts dominate the equity index and ETF contracts, optionMONSTER's data systems show.
The SPDR S&P 500 Fund (SPY) has 721,000 options traded, including 482,000 puts. The CBOE Volatility Index (VIX) is next up with 228,000 contracts, 209,000 of which are calls. The S&P 500 Index (SPX) options, from which the VIX is derived, trade 158,000 times with 132,000 puts. The iShares Emerging Markets Fund (EEM) is the only other ETF to break the 100,000 mark, with 105,000 options traded. Contracts are evenly split between calls and puts.
http://jlne.ws/zbZUmN

EXCHANGES
The Golden Toilet Marches On, Inspires Calls for Development Reform in Chicago
By Kari Lydersen, In These Times
Tomorrow (February 8), Chicago residents will promenade into Mayor Rahm Emanuel’s office with the golden toilet that many credit for the announcement last week by the CME Group that it will forgo $33 million in tax increment financing (TIF) funds awarded by the city in 2010 to rehab bathrooms and build a fitness center at the Chicago Mercantile Exchange.
The labor-community group coalition Stand Up! Chicago and the Grassroots Collaborative, which is organizing tomorrow’s march, count it as a victory that the CME Group will not collect the funds, which a CME spokesman said were never actually accepted or received. Now residents are demanding that the $33 million be spent on creating jobs and community services in the low-income and working-class neighborhoods that the TIF program was meant to serve.
http://jlne.ws/zfQNpz
Forbes Earnings Preview: NYSE Euronext
Expectations have dropped for NYSE Euronext‘s (NYX) fourth quarter results in the month leading up to the company’s earnings announcement slated for Friday, February 10, 2012. The consensus analyst estimate has dropped from 57 cents a share to the current estimate of earnings of 49 cents a share.
What to Expect:
Analysts are estimating a 6.5% increase from the year-ago quarter, when NYSE reported earnings of 46 cents per share.
http://jlne.ws/Az0meC

February 2012 InBOX
This is the February issue of InBOX, your news source from inside the BOX Options Exchange. This monthly publication will provide convenient summaries of recent developments at BOX.
http://jlne.ws/wBW8ZY

REGULATION

Industry opposes CTT proposal on commodity futures, options
By S Ronendra Singh, Financial Chronicle (India)
Feb 07 2012 , New Delhi
Commodity transaction tax (CTT) a levy on commodity futures and options, is unlikely to be imposed in the forthcoming budget as industry bodies mounted pressure against it saying this would depress the market where the volumes are falling. Industrial bodies such as Assocham, Ficci, The Delhi Bullion and Jewellers Welfare Association and Commodity Participants Association of India (CPAI) have written letters to the finance minister Pranab Mukherjee raising concerns against the proposal to impose CTT on transactions in the commodity exchanges.
http://jlne.ws/zqCraC

TECHNOLOGY
Nasdaq Increases Cabinet Power, Access and Bandwidth in Colo Site
Wall Street & Technology
The exchange will offer Super Cab, a cabinet providing up to 17 killowats to operate and cool trading equipment, and will soon roll out 40 Gigabyte connectivity to its US markets and data feeds.
Today Nasdaq OMX is announcing two new access services—Super Cab and 40 Gigabit Client Connectivity as part of a strategy to provide its customers with the highest cabinet power, fastest speed and highest bandwidth available in the exchange’s colocation facility. Super Cab is a cabinet with maximum of 17 kilowatts of power that can be used by customers to run their trading equipment in the exchange’s Cartaret, N.J. data center. Previously, the highest kilowatt cabinet was 10, which Nasdaq OMX said is higher than the rest of the industry now offering up to eight kilowatts.
http://jlne.ws/wkpmfs

STRATEGY
Getting the Most Out of a Rallying Stock Market
By STEVEN M. SEARS, Barrons.com
Investors can take advantage of falling options prices to improve returns.
When VIX is low, it's time to go. When VIX is high, it's time to buy.
Many traders use that market adage on the Chicago Board Options Exchange's Volatility Index (VIX) to calibrate options and stock trading decisions. When VIX is low, as it is now on a relative basis in the midst of a rallying stock market, it means that investors are basically complacent. At such times history shows the stock market is poised for a short-term correction. That's because investors are often too bullish about the near future so they spend much of their money buying stocks. When that happens, stocks often decline because investors have little money left to make additional purchases.
http://jlne.ws/yhs8tg
A Bar May Be the Place to Understand Markets: Buchanan
Mark Buchanan, Bloomberg February 7, 2012
The aftermath of the Lehman Brothers Holdings Inc. bankruptcy in 2008 was a scary time: One measure of stock-market volatility, known as the VIX or the "fear index," reached a peak daily closing price of more than 80, compared with about 18 today. Scarier is the knowledge that we'll be there again sometime. That's how markets go: Unexpected chaos is the rule.
http://jlne.ws/wsthEn

*Game theory and volatility

Vix trading: Tail wagging the dog?

2012-02-06T14:07:00.004-06:00

LEAD STORIES

Vix trading: Tail wagging the dog?
Tom Osborn, Financial News
Could investors using Vix index products to profit from market volatility, rather than to insure against equity losses, be dictating the volatility of individual S&P 500 stocks?
The Vix index, developed jointly by S&P and US options exchange operator CBOE, offers a gauge of the likely level of future movement in S&P 500 stocks, known as their implied volatility. More colloquially, its known as Wall Street’s Fear Gauge. The index is highly inversely correlated to the S&P 500 leading equity index, usually rocketing when the index falls, giving investors an imperfect hedge against equity losses.
But a new analysis from US securities research firm Tabb Group examines market claims that the huge growth in Vix index trading could be dictating the level of implied volatility in individual S&P 500 stocks, rather than movements in the stocks themselves driving the level of the index as one would expect.
http://jlne.ws/wM9OL1

TABB Says Trading of VIX Products Has Grown at a 5-Year CAGR of 130%, Introducing Lucrative Arbitrage Opportunities
New Research Says that VIX ETPs May Be Influencing the Price of the Index Products They are Designed to Track
NEW YORK & LONDON, Feb 06, 2012 (Press Release) -- Traders tell TABB Group that VIX exchange-traded products (ETPs) have been a key driver behind the trading of VIX futures and options, expanding at a five-year compound annual growth rate (CAGR) of 130%, quite possibly influencing the price of the index the products they have been designed to track. "Although this may be a 'tail wagging the dog' situation," says Henry Chien, author of new research published today, "VIX Trading: The Structure of Uncertainty," "this opens the door to a number of lucrative arbitrage opportunities."
Based on the VIX ETP market's year-end assets, says Chien, a New York-based TABB research analyst, levered and inverse ETPs accounted for 13% of all VIX ETP notional value traded in 2011, with the VIX product set of futures, options and ETPs trading $3.4 billion average in daily notional value. During this period, the S&P 500 volatility market reached an estimated 202 million average daily notional Vega (gross): SPX Options (75 million); VIX futures (48 million); VIX Options (39 million); VIX ETPs (30 million); and SPX Variance Swaps (10 million).
http://jlne.ws/xzvVxL

Fed’s Zero-Interest Rate Pledge Zaps Market Volatility
InvestorPlace
By Stutland Volatility Group
Last week’s Federal Reserve announcement of three more years of its Zero-Interest-Rate Policy (ZIRP) has pushed an already-low-volatility environment even lower. According iVolatility.com, 20-day historical volatility (7.44%) made a new 52-week low on Friday. There was a great deal of chatter in the media about the Volatility Index (CBOE:VIX) closing below 18 for the first time seven months. However, based on current market conditions, the VIX is still relatively overvalued.
http://jlne.ws/zWTaNa

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/z3CIuP

February 6, 2012: Index, ETF option volumes near midday
Chris McKhann optionmonster.com
tradeMONSTER
Total option volume is light with 4.5 million options traded so far today, while puts dominate the indexes and ETFs, according to optionMONSTER's data systems. The SPDR S&P 500 Fund (SPY) has 544,000 options traded, 380,000 of which are puts. The iShares Russell 2000 Fund (IWM) is next up with 174,000 contracts, as puts outpace calls more than 2 to 1.
http://jlne.ws/xYDU4K

EXCHANGES
BATS Exchange Receives SEC Approval for Market Maker Program
Wall Street & Technology
BATS Exchange received approval from the U.S. Securities and Exchange Commission to implement its new Competitive Liquidity Provider (CLP) program for its exchange listings business.
The BATS CLP Program was designed for BATS’ new U.S. primary listings business as a rewards-based program, which is structured to incent market makers to make tighter quoted spreads with increased liquidity for each listing on BATS.
http://jlne.ws/yXnCVs

NYSE Euronext CEO: Technology Acquisitions Possible, "Mega-Mergers" Unlikely
NYSE Euronext plans to focus on smaller technology deals, such as five of its last six acquisitions, after its failed $7.4 billion merger with Deutsche Boerse.
By Reuters
ORLANDO - NYSE Euronext plans to focus on smaller deals and returning capital to its shareholders after its failed $7.4 billion merger with Deutsche Boerse, the company's chief executive said on Friday.
"I would not expect us, nor anyone else in the industry, to do a mega-merger any time soon," said Duncan Niederauer, chief executive of NYSE Euronext. "I think everyone is going to kind of take a pause and reassess the landscape. European anti-trust authorities on Wednesday blocked the merger, which would have created the world's biggest stock exchange operator, making it the fourth among a series of large exchange deals to be blocked over the last year.
The European Commission blocked the deal, which had already been approved by U.S. regulators, saying that the combined entity's "near-monopoly" would make it hard for new players to compete.
http://jlne.ws/wLOoTx

Market Data Technology Helps Nasdaq Core Profit Top Expectations
Although stock market volumes declined, Nasdaq OMX Group's core profit topped analysts' expectations in the fourth quarter with the help of market data and technology business lines.
By Reuters
Nasdaq OMX Group Inc's core profit topped analysts' expectations for the fourth quarter, boosted by a rise in revenue from market data and technology, which helped offset a soft trading environment.
Stock market volumes declined from the elevated levels of the prior quarter as volatility eased and investors moved to the sidelines. But the parent of the Nasdaq stock market has diversified its revenues through a number of small "bolt-on" acquisitions over the years, and has reaped the benefits.
http://jlne.ws/wvvEzA

OPTIONS ON FUTURES

ICAP plc : ICAP enters Australian Agricultural and Soft Commodities Broking Market
Press Release
Sydney, 6 February 2012 - ICAP, the world's leading interdealer broker, announces that it is entering the Australian agricultural and soft commodities market in February with a new team. The team of three brokers, led by Gary Booth, was formerly at MF Global.
Based in Sydney, ICAP will broker OTC and exchange-traded agricultural products predominantly grains, wool, cotton and sugar to grain handlers, producers, exporters, trading houses, banks and hedge funds. The team will also offer broking services in cotton, soya beans, corn, milk cocoa, coffee, canola and sorghum.
http://jlne.ws/AqbJd0

EVENTS

CBOE Holdings, Inc. to Present at the Credit Suisse Financial Services Forum on Friday, February 10
CHICAGO, Feb. 6, 2012 /PRNewswire/ -- CBOE Holdings, Inc. (Nasdaq: CBOE) today announced that Edward T. Tilly, President and Chief Operating Officer, will present at the Credit Suisse Financial Services Forum in Miami, Florida on Friday, February 10, 2012, at 9:30 a.m. Eastern time.
The presentation, to be broadcast live over the Internet, can be accessed at www.cboe.com under Investor Relations, Events and Presentations. Approximately 24 hours after the live presentation, an audio Webcast will be available for replay for three months at the same address.
http://jlne.ws/dqtww6

Banks, VIX Merit ‘Positive Attitude’ on Stocks: Chart of the Day

2012-02-03T14:57:00.003-06:00

LEAD STORIES

Banks, VIX Merit ‘Positive Attitude’ on Stocks: Chart of the Day
Bloomberg
“A positive attitude toward equity investing is now in order” because U.S. bank stocks are doing relatively well and volatility is fading, according to Donald Coxe, a strategy adviser to Bank of Montreal.
The CHART OF THE DAY combines three indicators that Coxe used to draw this conclusion in his latest monthly report. The top panel tracks the ratios of two KBW Inc. bank indexes -- one for the largest U.S. lenders and the other for regional banks -- to the Standard & Poor’s 500 Index. The bottom panel depicts the Chicago Board Options Exchange Volatility Index, or the VIX.
http://jlne.ws/z3mNyk

Pisani: VIX Volatility Index Flashing All-Clear — or Warning Sign?
CNBC.com Market News
The CBOE Volatility Index (VIX) closed below 18 for the first time since July 22, 2011. Sounds like the markets aren't too worried about anything, right?
Hmm.
The VIX (which measures implied volatility, how much the market might move over the next 30 days) is at 17.98. The historic volatility (how much the market has actually moved over the last 21 trading days) is at 8.5, according to VolX. That is unusual, says Mark Sebastian at Option Pit, a consulting firm that helps hedge funds construct options trades.
http://jlne.ws/yUXnla

CME Group Plans Guarantee Fund
WSJ.com
CME Group Inc. launched a fresh effort to rebuild market confidence damaged by the collapse of MF Global Holdings Ltd., creating a $100 million insurance fund to protect farmers and ranchers. The Chicago-based exchange operator was among those responsible for overseeing MF Global and faced widespread criticism from clients and lawmakers when the brokerage failed. Funds in customer accounts have been frozen amid a probe of the collapse, and investigators are still looking for an estimated $1.2 billion. CME's establishment of the fund, which will be a permanent fixture of its markets, underscores the tricky balance the company must maintain between running a profitable business and regulating major participants of its markets.
http://jlne.ws/ylr6p2

CME Jumps 6% After Moves To Limit MF Global Fallout
By Murray Coleman, Focus on Funds - Barrons.com
Shares of CME Group (CME) are trading up more than 6% Thursday after the exhange operator moved to overcome fallout from MF Global’s (MFGLQ) failure and attract more commodities related business. The world’s largest futures market operator says it’ll put into place a new $100 million guarantee fund for farmers and ranchers. It also plans to provide up to $25,000 per account if customers suffer losses from the insolvency of a CME clearinghouse member or other market participant. “The CME is scrambling to get rid of the black eye left from the MF Global fiasco,” one broker told Dow Jones Newswires.
http://jlne.ws/zRkXCv

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/zhTTMG

EXCHANGES

Credit-default-swap futures seen as inevitable
MarketWatch
The technical issues still to be resolved are not trivial. One, for example, is how the futures contract would be settled, or resolved, if one of the underlying bonds defaulted. The current thinking is to have a contract that trades like a future on an exchange, but settles like a swap, which in the case of physical settlement would mean one party delivering an actively traded CDX index contract at maturity.
To be sure, earlier efforts to list credit derivatives struggled. The Chicago Board Options Exchange last year launched listed credit-default options--something it had tried years earlier--but despite a few trades being executed, these have not yet taken off in a big way. Eurex AG tried listed CDS several years ago, but also met with little success.
http://jlne.ws/x0KQSB

TECHNOLOGY

Barclays revamps its algorithms and smart order router to bring in business
Traders Magazine, February 2012
John D'Antona Jr.
Keep it simple. That is the mantra at Barclays Capital as it emerges from a yearlong revamp of its electronic trading products and desk. And with this new simplicity, the bank hopes to increase profits and raise its profile in the equities trading business. Barclays is employing a three-pronged strategy to achieve its goal of moving up from the middle of the pack and into the top echelon of broker-dealers, say Bill Bell, head of electronic distribution Americas, and Bill White, head of electronic trading. The strategy is to deploy its smart order router globally, grow its dark pool Barclays LX and simplify its algo offerings.
"We wanted to make our team global-take the solid U.S. experience that our clients were getting and make it universal," Bell said.
http://jlne.ws/Auwm9W

ETFs Are Going BATS … and Why You Should Care!
ETF Daily News
Ron Rowland: The ETF marketplace changed last month. You didn’t notice? Don’t worry, you’re not alone. Today I’ll tell you all about it. You already know that “exchange traded funds” trade on an exchange. That’s what distinguishes them from old-fashioned mutual funds. But what exchange trades them, and where is it?
For some new iShares, the answer isn’t New York or Chicago. Their trading hub is Lenexa, Kansas. Let me explain …
Exchange Floors No Longer Needed
For most people, the term “stock exchange” brings to mind images of noisy rooms filled with men in colorful jackets, waving their arms and making cryptic hand motions. At one time, this is exactly how trading got done — and the apparent chaos was actually very efficient. But now, even the nimblest floor traders can’t compete with the speed and accuracy of modern computers.
An “exchange” isn’t a physical place anymore. It’s a mechanism by which buyers and sellers find each other. Nowadays, it happens in milliseconds.
http://jlne.ws/zTJmga

STRATEGY

February 3, 2012: Russell 2000 attracts big call spreads
The Russell 2000 Fund gapped higher at the open this morning, and some big call spreads have helped drive its option volume over 270,000 contracts--more than its entire daily average--less than an hour into the session.
The IWM is up 1.9 percent to trade at $82.69 after gapping to its highest level since July 26. The fund hasn't closed below its 10-day moving average since Dec. 16. The trend higher has been accelerating and the curve steepening.
http://jlne.ws/xhRGfw

STOCKS NEWS US-EEM ETF big put trades appear to be hedge
XE.com
More than a half million puts have traded on the iShares MSCI Emerging Markets through midday on Friday, Trade Alert data showed. Some option investors appear eager to protect their equity positions in emerging markets against any steep, unexpected drop in asset values. The fund tracks the equity performance of emerging markets such as Brazil, Russia, India and China. The shares rose 62 cents to $43.78 and 'have rallied 15.4 percent year-to-date, amid diminishing concerns about the impact to the global economy from the European debt mess,' said WhatsTrading.com options strategist Frederic Ruffy.
http://jlne.ws/yHUnSr

BOX Options Venue Files With SEC for Its Own Exchange License

2012-02-02T14:21:00.004-06:00

LEAD STORIES

BOX Options Venue Files With SEC for Its Own Exchange License
By Nina Mehta, Bloomberg - Feb 1, 2012 3:11 PM CT
BOX Options Exchange LLC, owned by the operator of the Toronto Stock Exchange and seven brokers including Citadel LLC and Interactive Brokers Group Inc., filed to become a U.S. securities exchange. TMX Group Inc. (X), which owns 53.8 percent of BOX, will limit its equity stake in the self-regulatory organization, the entity registered with the U.S. Securities and Exchange Commission that will operate the market, to 40 percent and its voting share to 20 percent, BOX Chief Executive Officer Anthony McCormick said in a phone interview. The Toronto company will continue to own the same portion of the BOX parent, he said.
http://jlne.ws/yzubiE

Deutsche Bank Told to Pay $19.7 Million Over Currency Option
By Karin Matussek, Bloomberg
Edmund Shing, an equity strategist at Barclays Plc, discusses investment strategy, growing dividend yields and domestic consumption in China. He speaks with Mark Barton on Bloomberg Television's "The Pulse."
Deutsche Bank AG (DBK), Germany’s biggest bank, was ordered to pay 15 million euros ($19.7 million) in a lawsuit over a currency option product it sold to a client. The Frankfurt Regional Court today ruled partly in favor of German travel company Schauinsland-Reisen GmbH, which had sought 30 million euros. The judges ruled the company was experienced in using options to hedge currency risks, so it was partly responsible for its losses, court spokesman Arne Hasse said.
http://jlne.ws/x9Zo1D

FX options herald challenge to Swiss franc peg
Thu Feb 2, 2012
* Some investors take aim at euro/Swiss peg via options
* Drop below 1.20 francs per euro will be temporary
* SNB expected to intervene and defend peg
By Anirban Nag
LONDON, Feb 2 (Reuters) - Some investors are betting the Swiss National Bank's resolve to cap the franc's rise will be challenged soon, with expectations of a massive injection of European Central Bank funds keeping the safe-haven Swiss currency buoyant. Traders say demand is rising for short-dated downside options - bets the euro will fall against the franc - on the common currency dropping below the 1.20 franc floor.
http://jlne.ws/ysjqwb

ISE Reports Business Activity for January 2012
NEW YORK, February 1, 2012
ISE is the second largest equity options exchange in January with market share of 18.7%, excluding dividend trades.
Dividend trades made up 8.8% of industry volume in January 2012. The International Securities Exchange (ISE) today reported average daily volume of 2.7 million contracts in January 2012. This represents a decrease of 18.6% compared to January 2011. Total options volume for the month was 53.8 million contracts. ISE was the second largest U.S. equity options exchange in January with market share of 18.7%*.
http://jlne.ws/zm5327

CBOE Holdings Reports January 2012 Trading Volume
CBOE Holdings, Inc. Press Release
CHICAGO, Feb. 1, 2012 -- /PRNewswire/ -- CBOE Holdings, Inc. (NASDAQ: CBOE) today reported that January trading volume for options on the Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2), combined, totaled 90.36 million contracts. January average daily volume (ADV) was 4.52 million contracts, a 15-percent decrease from January 2011 ADV of 5.29 million contracts and a 27-percent increase from December 2011 ADV of 3.55 million contracts.
http://jlne.ws/wCVMMR

CBOE January Trading Volume Falls 16%; Market Share Slides
WSJ.com
CBOE Holdings Inc. (CBOE) average daily trading volume of options at its namesake exchange fell 16% in January compared with a year earlier, while its market share continued to slide.
January's average daily options volume of 4.32 million contracts fell from 5.13 million a year earlier but was up from 3.36 million in December. CBOE's market share of total U.S. options-industry volume in January was 25.7%, down 1.4 percentage points from a year earlier and up 3.7 points from the month before.
The parent of the Chicago Board Options Exchange and many other exchange operators have generally benefited from higher trading volumes resulting from the macroeconomic troubles in the U.S. and Europe. Fears over Greece and the euro zone's sovereign-debt crisis as well as worries about U.S. growth have prompted investors to adjust their positions and hedge for risk.
http://jlne.ws/A77UBg

CBOE Futures Exchange Experiences Busiest January Ever, Trading Volume Up 4% Over 2011
New CBOE Emerging Markets ETF Volatility Index Security Futures Listed During Month
CHICAGO, Feb. 1, 2012 /PRNewswire/ -- The CBOE Futures Exchange, LLC (CFE) today announced that trading volume during January 2012 totaled 811,283 contracts, an increase of four percent from the 778,157 contracts traded in January 2011. This was the busiest January in CFE history and it ranks as the tenth most-active trading month ever at the exchange. Average daily volume (ADV) at CFE during January 2012 was 40,564 contracts, also up four percent from the 38,908 contracts traded per day a year ago. January 2012 marked the twenty-eighth consecutive month that CFE monthly volume posted a year-over-year gain.
http://jlne.ws/dqtww6

BATS Global Markets Gains European Market Share In January
REMAINS LARGEST EUROPEAN EQUITIES MARKET OPERATOR WITH 25.9% BY OVERALL VALUE TRADED; ALSO EARNS 11.1% U.S. EQUITIES MARKET SHARE
KANSAS CITY, Mo. and LONDON, Feb. 2, 2012 /PRNewswire via COMTEX/ -- BATS Global Markets (BATS), a global operator of stock and options markets, today reported increased European market share in January and strong equities matched market share in the U.S.
BATS reported 11.1% U.S. equities matched market share compared to 10.4% a year ago. In Europe, BATS Europe and Chi-X Europe, which BATS is combining to form BATS Chi-X Europe, recorded consolidated market share of 25.9% compared to 25.4% in December 2011 and 23.8% a year ago. BATS Options reported 3.0% market share compared to 1.3% a year ago.
BATS operates two stock exchanges in the U.S., the BATS BZX Exchange and BATS BYX Exchange; BATS Options, a U.S. equity options market; and BATS Europe and Chi-X Europe, which operate FSA-authorized multilateral trading facilities.
http://jlne.ws/zuYl8T

BATS January Equities Market Share Flat, But Options Rise
Traders Magazine Online News, February 2, 2012
BATS Global Markets reported its U.S. equities matched market share totaled 11.1 percent in January, virtually unchanged from 11.2 percent in December, but up from 10.4 percent a year ago. The exchange operator saw an average daily matched volume of 766.6 million shares. In December, BATS saw an average daily matched volume of 710.7 million shares.
BATS Options saw its matched market share come in at 3.0 percent in January, up from the 2.1 percent level achieved in December, and up from 1.3 percent one year ago. Average daily matched volume was 483,050 contracts. BATS Options' highest one-day matched contract volume for the month was 738,467 contracts, reported on January 20.
http://jlne.ws/AsZQqA

NASDAQ OMX Reports Fourth Quarter and Full Year 2011 Results
FY 2011 Non-GAAP Diluted EPS Grows 27% Over Prior Year
2011 Full Year Net Exchange Revenues and Earnings Reach Record Highs
Press Release
The NASDAQ OMX Group, Inc. ("NASDAQ OMX") (Nasdaq:NDAQ) reported strong results for the fourth quarter of 2011. Net income attributable to NASDAQ OMX for the fourth quarter of 2011 was $82 million, or $0.45 per diluted share, compared with $110 million, or $0.61 per diluted share, in the third quarter of 2011, and $137 million, or $0.69 per diluted share, in the fourth quarter of 2010. For the full year of 2011, net income attributable to NASDAQ OMX was $387 million, or $2.15 per diluted share. Included in the fourth quarter of 2011 results are $44 million of pre-tax expenses associated with debt refinancing, the impairment of an available-for-sale investment security and merger and strategic initiatives.
http://jlne.ws/xhTRe0

Nasdaq CEO on Earnings, Facebook, NYSE-Deutsche Deal Blocked
CNBC
By: Lulu Chiang CNBC Senior Producer
Nasdaq OMX posted its second-best quarter ever on a non-GAAP basis Wednesday, in a declining volume environment.
Nasdaq CEO Bob Greifeld told Maria Bartiromo in a CNBC exclusive interview that today’s results “showed the strength of our business model where we diversified away from a transaction-based business model.”
Greifeld has worked hard to diversify Nasdaq OMX’s [NDAQ 24.60 -0.17 (-0.69%) ] business.
“One of our most successful new ventures is in the U.K. The U.K power market with three of the six largest providers now contributing every day to our options. That grew 100 percent quarter on quarter. So, fairly remarkable," said Greifeld.
http://jlne.ws/AllvF0

EXCHANGES

Investing In Commodities: Detailing The Top Commodity Exchanges
ETF DAILY NEWS February 2nd, 2012
Jared Cummans: Commodity investing has become increasing popular in recent years as the exchange traded world has opened this once elusive asset class wide open. Still, one of the most effective ways to maintain exposure to your favorite hard asset remains through futures contracts. For the average investor, futures are typically too complex; they can be extremely dangerous, hard to understand, and require a specified account just to trade them. As such, many turn to futures-based ETFs and ETNs to gain their desired positions. While these products can be sound investments, investing in the futures yourself remains the most direct and potentially most profitable way to make a play on the commodity space [see also The Ten Commandments of Commodity Investing].
http://jlne.ws/xrloP8

Warsaw Stock Exchange Derivatives Market In January 2012
Date 02/02/2012
* The total volume of trading in all derivatives was 878.2 thousand instruments in January
* The number of open interest was 180.1 thousand instruments at the end of January.
WIG20 futures
* The volume of trading in WIG20 futures was 767.5 thousand contracts in January;
* The number of open interest in WIG20 futures was 121 thousand contracts at the end of January.
Options
* The volume of trading in WIG20 index options was 35.4 thousand options in January;
* The volume of trading in the last 12 months (February 2011 – January 2012) was 846.5 thousand options;
* The number of open interest in WIG20 options was 34.3 thousand options at the end of January.
http://jlne.ws/yYchAg

UPDATE: CME Jan Daily Trading Volume Down On Year, Up From Quiet Dec
WSJ.com
--Exchanges see gains in daily volume in January after light December
--CME daily volume down 5.4% year over year
--ICE daily volume falls 5.7% from year ago
By Mia Lamar Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--CME Group Inc. (CME) reported its daily exchange trading volume was lighter in January than a year earlier but gained over a quiet December, a view echoed Thursday by rival IntercontinentalExchange Inc. (ICE). For January, CME said its daily volume averaged 11.6 million contracts, down 5.4% from a year earlier although up 21% over December.
http://jlne.ws/yKvkp4

Commodity transaction tax to hit volumes: Traders, chambers
Dilip Kumar Jha / Business Standard / Mumbai Feb 03, 2012
The finance ministry’s proposed move to again impose a Commodities Transaction Tax (CTT) is likely to drive volumes to foreign exchnages, say traders and analysts.
The Union food ministry has already represented to the finance ministry against the proposal, saying it would harm development of the commodites futures market. It is believed the finance ministry may levy a CTT of 0.017 per cent (Rs 17 for every Rs 100,000 of transactions) in the budget proposals for 2012-13, initially for non-agricultural commodity futures.
http://jlne.ws/A6Gjw2

UPDATE: Deutsche Boerse, NYSE Euronext Abandon Merger Deal
--EUR250 million breakup fee won't be paid because regulators scuppered the deal
--More than $150 million spent by both companies pursuing the deal
--Ending merger agreement gives both Deutsche Boerse, NYSE Euronext greater freedom
--Companies remain precluded from doing large-scale deals for nine months
By Jacob Bunge Of DOW JONES NEWSWIRES
Deutsche Boerse AG (DB1.XE, DBOEF) and NYSE Euronext (NYX) on Thursday officially ended their year-long merger push, abandoning their agreement after the European Union on Wednesday blocked the deal.
Both exchange companies agreed to a "mutual termination" of the merger plan. Neither party is on the hook to pay the EUR250 million break-up fee carried by the deal terms, on account of the merger falling apart due to regulatory pushback. On Wednesday, the European Commission formally rejected the $17 billion combination on grounds that it would create a "quasi-monopoly" over European exchange-traded derivatives markets.

NYSE Euronext (NYX) Shares Downgraded to “Sell” by Societe Generale Analysts
LocalizedUSA
NYSE Euronext (NYSE: NYX) was downgraded by research analysts at Societe Generale to a “sell” rating in a report issued on Thursday.
Separately, analysts at BMO Capital Markets downgraded shares of NYSE Euronext from an “outperform” rating to a “market perform” rating in a research note to investors on Thursday. Analysts at RBC Capital (NYSE: RY) upgraded shares of NYSE Euronext to a “buy” rating in a research note to investors on Tuesday. Also, analysts at Credit Agricole upgraded shares of NYSE Euronext to a “buy” rating in a research note to investors on Tuesday.
http://jlne.ws/wPvWs6

STRATEGY

VXX Down, XIV Up: How Long Can Shorting Volatility Work?
Focus on Funds - Barrons.com
By Murray Coleman
Volatility, as measured by the market’s “fear gauge,” bodes well for U.S. equities this year. At least that’s what MKM Partners’ derivatives strategist Jim Strugger told clients today. “While we’re not convinced that all of 2012 will be so rosy, we do expect the trough phase of the volatility cycle to stretch over the first half, providing a constructive backdrop for stocks,” he wrote.
When volatility as measured by the Chicago Board Options Exchange’s Market Volatility Index (VIX) falls sharply, it’s usually taken as a positive sign for stocks. In early January, Strugger told clients that last year’s five-month long high-volatility shock likely ended in mid-December.
http://jlne.ws/y7ImT2

Options Trading: Longer-Dated Puts May Be Cheaper, But There's A Catch
Minyanville.com
By Wayne Ferbert Feb 02, 2012
Unless you really are committed to holding a position for one year or more, avoid going out too far with your puts.
Among the long-term positions that my firm manages, the most popular tactic we use to hedge is the collar. As a refresher, that is when you own a stock/ETF and pair it with a short call and a long put. The put represents your downside protection. The call effectively limits your upside in exchange for some income. In a lot of ways, we manage our collars as if they were two tactics: a covered call position along with a married put. Effectively, that is exactly what they are. When I say we "manage" them this way, what I mean is that we typically leg in to each position on its own. We look to buy the put protection separate from selling the calls. In fact, often, we leg in to these positions on separate days.
http://jlne.ws/yuFQeF

OPTIONS EDUCATION

Pros And Cons Of Options Vs. Futures

Seeking Alpha
By Chris McKhann, optionMONSTER February 2, 2012
For retail investors looking to broaden their horizon, the first step is usually options because they can be traded in the same account as equities. Many then take the next step into futures, but the two markets present very different opportunities and challenges--some of which have come to the forefront recently with the collapse of MF Global.
Futures trading originated in many respects as a way to hedge commodity prices. While that is still a key function, retail futures traders can now speculate on the price movements of a wide array of assets, including oil, gold, currencies, equities, and volatility.
http://jlne.ws/zIyE0v

Five Minutes with John Goode, CIO of Boston Options Exchange (BOX)

2012-02-01T16:02:00.001-06:00

Five Minutes with John Goode, CIO of Boston Options Exchange (BOX)

John Goode, the CIO of the Boston Options Exchange (BOX), recently participated in a panel on technology challenges for the derivatives industry at the Security Traders Association of Chicago’s Midwinter Conference. He spoke with JLN Options editor Sarah Rudolph about how BOX is addressing some of those challenges and expanding its technology offerings.

Q: On the panel at the STAC conference, you mentioned a couple of new developments coming up from BOX, but you did not elaborate on them. What are the two new technology releases you mentioned?

A: 2012 is going to be a busy year for BOX. We have three things we are concentrating on. The first is our PIP price improvement auction, which is our bread and butter – it’s what really differentiates us as an exchange. It enables retail traders to get a better price in our market than almost anywhere else.

The PIP is currently set at one second. In the next couple of weeks we expect approval from the SEC to reduce that time, and we expect to lower the PIP to 100 milliseconds. That will allow participants to get quick price improvement and allow the sponsors of price improvement to do more of them. It also increases the opportunity to use the PIP in a more volatile market. A second is an eternity in our business. 100 milliseconds is a bit more realistic, more appropriate for a market maker or a prop trader. So we expect more PIPs and better price improvements on BOX.

Q: You also mentioned BOX’s launch of a complex order book (COB)?

A: Yes, that is another one of our three major projects. Our complex order book is coming out in October, pending SEC approval. It will enable customers to do PIPs on complex orders, which is something new to the market. Our COB and underlying leg books are tightly coupled together in software and hardware, unlike others. It’s really all one book to us. It enables implied prices, in both directions with implieds at both the strategy and leg levels. We’re expecting a very vibrant and active complex order market with these improvements.

About 18 months ago we switched our focus to retail customers. A lot of direction for that segment is going towards complex orders or spreads. There has been an emphasis by broker-dealers to train the retail investor on spreads, so they can drive profitability with downside protection. We expect our COB market to be about 30 percent of the market. I’ve been saying I think we’ll double our market share. It’s the last piece of major functionality that BOX does not have. So now we’ll be full service and can compete.

We will also be working on upgrading performance. Early this year we will be re-architecting our software, streamlining some of the components within the software architecture that will lead to an increase in speed. We expect latency to drop even more. We are currently at 300 microseconds for quotes, 600 microseconds for orders. Now the entire exchange, from order to trade execution, will be done in less than 200 microseconds. Our capacity numbers will go up again too.

Q: The last time we spoke, BOX had recently upgraded to Red Hat Linux Realtime, and Fusion-IO Solid State Drives. Have there been any further upgrades more recently – or the need for them?

A: Red Hat, Intel, HP and Fusion-IO are key components. For 2012, Intel has new CPU chips coming out, HP has new servers, Fusion-IO has released new solid state drives. We’re currently planning our 2012 upgrades and will be taking advantage of these new and improved technologies.

The last thing in our technology evolution is moving our disaster recovery data center to 350 Cermak [in Chicago]. Equinix is our data center partner. They do our primary data center at NY4 in Secaucus and have been a great provider. Having DR at 350 Cermak will be easier for our participants and allow us to rework our network topology and increase its bandwidth.

Q: Have high frequency traders impacted your business?

A: We do have high frequency traders on BOX. It depends on what sort of model they are running. In general, liquidity makers looking to put quotes out are probably going to go to another exchange. But when it comes time to take liquidity, they are doing a type of spread, and in that case BOX is a good destination for them. We have the quote size and are on the NBBO. We have the bandwidth and the low latency to be a good provider.

Q: Regulation was another topic that came up at the STAC conference. Do you see a danger of over-regulation in the US options business?

A: The options business is evolving just like any of the other trading businesses. As everything gets faster, the challenge becomes how do we make sure we’re picking the appropriate regulations to put in place? Will we spend too much time regulating things that aren’t that important and neglecting others that are? We could over regulate or under regulate. We must be sure we have our self regulatory organizations in place and work with the SEC and the CFTC to make sure we build the appropriate regulatory framework at their levels.

THE OPTIONS INDUSTRY COUNCIL ANNOUNCES JANUARY VOLUME DECLINED 11 PERCENT

2012-02-01T14:22:00.003-06:00

LEAD STORIES

THE OPTIONS INDUSTRY COUNCIL ANNOUNCES JANUARY VOLUME DECLINED 11 PERCENT
CHICAGO (February 1, 2012) - The Options Industry Council (OIC) announced today that 335,399,999 total options contracts changed hands in January, which is down 11.38 percent compared to January of last year when 378,480,506 contracts were traded. Although volume is down compared to last year, January 2012 is the third highest January by volume on record. Average daily volume for the month came in at 16,770,000 contracts, 11.47 percent less than the 18,942,025 contracts traded during January 2011. Equity options volume (options on individual stocks and ETFs) in January saw 313,363,017 contracts exchanged, 11.68 percent less than in January 2011 when 354,795,514 contracts were traded. On average, 15,668,151 contracts were traded each day throughout January compared to last year when an average of 17,739,776 contracts were traded daily, representing an 11.68 percent decrease.
http://jlne.ws/wH7k4Q

OCC Cleared Contract Volume Declined 12% in January
CHICAGO (February 1) OCC announced today that total cleared contract volume January reached 337,222,938 contracts, a 12 percent decline from the January 2011 volume of 381,558,077 contracts. Despite this decline, January 2012 is now the third highest January volume on record.
Options: Exchange-listed options trading in January reached 335,399,999 contracts, an 11 percent decline from January 2011. Equity options trading volume fell 12 percent from the previous January with 313,363,017 contracts. Index options trading decreased 7 percent from the previous January with 22,036,982 contracts. Average daily options volume for the month of January was 16,770,000 contracts.
Futures: Futures cleared by OCC reached 1,822,939 contracts in January, a 41 percent decline from January 2011. Equity futures volume reached 301,804 contracts, an 82 percent increase from the previous January. Index and other futures volume fell 48 percent from January 2011 with 1,521,113 contracts. OCC cleared an average of 91,147 futures contracts per day during the month of January.

EU Blocks "Near-Monopoly" of D.Boerse-NYSE Merger
By Reuters February 01, 2012
EU regulators have blocked the tie-up of exchange operators Deutsche Boerse and NYSE Euronext to stop them taking a stranglehold on the European futures market. Deutsche Boerse and NYSE Euronext, which unveiled the $7.4 billion plan to create the world's biggest stock exchange as long ago as February last year, said they would unwind the deal, the sector's fourth failed tie-up attempt in a year.
http://jlne.ws/yB5Xzd

NYSE Says Appeal of EU’s Deutsche Boerse Ruling Is an Option
Businessweek February 01, 2012
By Nandini Sukumar
Feb. 1 (Bloomberg) -- NYSE Euronext Chief Executive Officer Duncan Niederauer said the exchange operator is considering whether to appeal against European regulators’ veto of its merger with Deutsche Boerse AG.
An “appeal is an option going forward,” Niederauer said in a phone interview today, while he’s in “no rush” to make a decision. Both exchanges said today that they will focus on standalone strategies and are negotiating to terminate the takeover deal.
http://jlne.ws/yXAgTr

OCC Announces retireMent of Bill Navin, NAMES JAMES BROWN NEW GENERAL COUNSEL
Press Release
CHICAGO (February 1) OCC announced today the retirement of Bill Navin, Executive Vice President, General Counsel and Chief Legal Officer of OCC. Mr. Navin joined OCC in July 1999, but was previously OCC’s outside counsel at Schiff Hardin & Waite. As a Schiff partner, Mr. Navin represented OCC since its inception in 1973.
“Bill has truly been part of our team since the very beginning. We sincerely appreciate his years of guidance, dedication, and leadership and wish him the best in his retirement,” said Wayne Luthringshausen, OCC Chairman and CEO. OCC also announced that James E. Brown has joined OCC as Executive Vice President and General Counsel to succeed Mr. Navin. Mr. Brown comes to OCC from Schiff Hardin LLP, where he has served since 1983.

http://jlne.ws/waIgq0

Market Volatility: What Do ETFs Have To Do With It?
January 31st at 3:04pm by Tom Lydon, ETF Trends
Exchange traded funds have been accused of being the reason for some of the wild market swings that occur. Are these funds the real culprit behind market volatility?
ETFs have gained popularity over the years, due to their diversification benefits and low cost. The flexibility to trade a basket of stocks throughout the day is enticing for many. According to Investment Company Institute data, there are more than 1,110 ETFs trading in the U.S., up from about 200 that traded in 2005, reports Scott Cendrowski for CNN Money. Furthermore, ETFs now account for 30% of trading volume on U.S. exchanges.
http://jlne.ws/AusQhe

VIX, VIX ETFs Fail at Resistance (VXX, XIV, TVIX)
Wall Street Sector Selector
After making a push higher and challenging significant resistance at 20, VIX, the CBOE S&P Options Volatility Index, commonly known as the “fear index,” fell back as stock prices held up under renewed selling pressure. Stock prices tend to move inversely to VIX and the VIX is widely viewed as a reliable predictor of stock market prices.
http://jlne.ws/ynXgUH

Interactive Brokers Group Reports Brokerage Metrics for January 2012
MarketWatch
GREENWICH, Conn., Feb 01, 2012 (BUSINESS WIRE) -- Interactive Brokers Group, Inc., an automated global electronic broker and market maker, today reported its Electronic Brokerage monthly performance metrics for January. Highlights for the month included:
-- 418 thousand Daily Average Revenue Trades (DARTs), flat to prior year and 12% higher than prior month.
-- Ending customer equity of $27.1 billion, 19% higher than prior year and 8% higher than prior month.
http://jlne.ws/y0OZPJ

EXCHANGES

Nasdaq Profit Ahead of Expectations
Advanced Trading (By Reuters) February 01, 2012
Nasdaq OMX Group Inc's quarterly profit declined due to a number of expenses, but when stripping out the one-time charges, the Nasdaq stock market parent beat analysts' expectations.
Nasdaq earned $82 million, or 45 cents per diluted share, in the fourth quarter, down from $137 million, or 69 cents per share, a year ago. Excluding one-time items, it earned 63 cents a share, compared to 55 cents in the year prior quarter. Revenue rose 6 percent to $422 million. Analysts on average expected the New York-based company to earn 61 cents per share, excluding items, on $417.16 million in revenue.
Total market share of U.S. equity options was 27.2 percent, compared to 31.4 percent in the fourth quarter of 2010.
http://jlne.ws/xKlYhF

The Spanish Stock Exchange Traded €69.99 Billion In January
Date 01/02/2012
* The number of equity trades in January reached 3.8 million, up 38% from the previous month of December
* Trading in Options on Stocks reached 2.97 million contracts, slightly above the figure posted in January 2011
* Corporate Debt trading reached €392.02 billion, down 31.5% year on year. However the number of trades increased more than fivefold compared to the same month in 2011.
http://jlne.ws/ziLSAw

For Exchange CEOs, a Misjudgment and New Goals
WSJ.com
By JACOB BUNGE And ULRIKE DAUER
A year ago, Duncan Niederauer took the biggest gamble of his career: He would be remembered either as the gutsy executive who turned the New York Stock Exchange into the crown jewel of the world's biggest exchange company, or as the man who handed control of the storied Big Board to foreigners.
Now, it turns out he will be neither.
The European Union officially nixed the planned merger of NYSE Euronext and Deutsche Börse on Wednesday, torpedoing a deal that would have put the 52-year-old Mr. Niederauer in the driver's seat of a company trading more shares and derivatives than any other.
http://jlne.ws/xVcI8L

The Rationale Behind NYSE’s & Deutsche Boerse’s Desire To Merge
By Jacob Bunge, Deal Journal - WSJ
European antitrust regulators just nixed the NYSE Euronext/Deutsche Boerse merger, warning that combining the exchanges’ European derivatives businesses would have created competition concerns.
Here’s a refresher on what the companies had hoped to achieve with the deal:
DERIVATIVES POWERHOUSE: The combination would have created a European futures and options market to rival U.S.-based CME Group in terms of trading activity. Together exchanges run by NYSE Euronext and Deutsche Boerse account for about 93% of regional derivatives traded on-exchange, a concentration that proved too high for EU antitrust regulators.
http://jlne.ws/y8pPiM

REGULATION

SEC Charges Jeffrey and Robert Wolfson With Short Selling Violations
Citybizlist Washington DC
The Securities and Exchange Commission today charged two brothers living in Chicago and New York with naked short selling for failing to locate and deliver shares involved in short sales to broker-dealers.
Short sellers sell borrowed shares in hopes of profiting from declining prices. While short selling is legal, SEC rules require short sellers to locate shares to borrow before selling them short, and they must deliver the borrowed securities by a specified date. Market makers are excepted from the locate requirement when selling short in connection with bona-fide market making activities in the security for which the exception is claimed. Naked short selling occurs without having borrowed the securities to make delivery...
According to the SEC's order, the Wolfsons engaged in two types of transactions from July 2006 to July 2007 in violation of Regulation SHO. The first type of transaction - a "reverse conversion" or "reversal" - involves selling stock short and simultaneously selling a put option and buying a call option on the stock.
http://jlne.ws/wCCevz

ECHNOLOGY

Bloomberg Open Sources Its Market Data Distribution Technology
By Greg MacSweeney, Wall Street & Technology
The market data provider's Open Market Data initiative allows any developer to use API without restrictions.
Following up on its 2009 release of Bloomberg's Open Symbology (BSYM), a system to identify securities across global asset classes, Bloomberg LP is opening its market data interfaces to anyone, without cost or restriction.
The market data provider's application programming interface (API), known as BLPAPI (Bloomberg LP API), is already used by Bloomberg, its clients and other technology providers to build connections between financial firms' applications and Bloomberg's market data and applications. The company hopes the release will spur innovation and increase collaboration. Today any technology professional, or even students at a university, can access BLPAPI to quickly build connections to market data feeds.
"We are essentially taking the programming interface that we use extensively already and we are putting an MIT-style license around it," said Shawn Edwards, chief technology officer of Bloomberg LP in an interview."
http://jlne.ws/AvjU27

SunGard Extends its SaaS-based Valdi Market Access Offering to Ljubljana Stock Exchange, Slovenia
Ljubljana, Slovenia (PRWEB press release) February 01, 2012
SunGard has extended its SaaS*- based, Valdi market connectivity service with the addition of the Ljubljana Stock Exchange (LJSE). SunGard’s Valdi Market Access Service helps exchange members and their direct market access (DMA) clients access and trade on global exchanges from any Valdi workstation or FIX application. SunGard’s Valdi will help Slovenian institutions and remote exchange member firms access and trade LJSE-listed products simply and more cost-effectively.
http://jlne.ws/zjxpfB

STRATEGY

Strategy sees retailers trapped in range
Chris McKhann, tradeMONSTER
As shares of the SPDR Retail Fund trade near their highs, a near-term combination strategy dominates the unusual option activity today.
The XRT exchange-traded fund is up 0.75 percent to trade at $55.57. It has closed higher than this a few of times in the last week but is just under the fund's intraday high of $56.44 set in July. Shares have been trending higher in the last five months from a 52-week low of $43.50. The big trade of the day consisted of 20,000 options, already more than its total daily average. optionMONSTER's systems show that 10,000 February 55 puts and 10,000 February 56 calls changed hands for $0.74 and $0.70 respectively. Both appeared to have traded at the bid prices, so this appears to be a short strangle looking for shares to remain range-bound.
http://jlne.ws/zA9QYp

Mastering Volatility
By Ronald Delegge, ETFguide.com
From the February 2012 issue of Research Magazine
Although the u.s. stock market took has taken investors for a wild ride over the past year, it has largely remained unchanged. It’s enough to drive risk-adverse clients up a tree. After reaching a 50-year high in volatility, the S&P 500 (SPY) delivered flat performance in 2011 while the Dow Jones Industrial Average (DIA) gained 5.5 percent.
What can advisors do to hedge volatility? How can they calm their client’s nerves? Are VIX ETPs the answer?
http://jlne.ws/zydWjk

Put the Fire Back in Amazon Shares
By STEVEN M. SEARS
Generate some decent income from the online retailer's weakened stock with a sensible options trade.
Investors disappointed by Amazon.com's latest earnings report can use a simple options strategy to enhance returns. By selling calls against existing shares, investors can get the options market to pay them for waiting for the stock to recover from a sales miss that has sent the shares down almost 9%, to $176.98, in midmorning trading Wednesday. After the closing bell Tuesday, Amazon (ticker: AMZN) reported revenue for the fourth quarter that was below analysts' estimates. And though profit exceeded expectations, concerns remain that Amazon is spending too much money to develop hot products like the Kindle Fire tablet.
http://jlne.ws/wmoRjo

Low Volatility Favors Investors Right Now

2012-01-31T14:57:00.002-06:00

LEAD STORIES

Low Volatility Favors Investors Right Now
Plus, 2 tricks for using the VIX in your trading
Jan 31, 2012
By Adam Warner, InvestorPlace
News Flash: The CBOE Volatility Index (CBOE:VIX) has had a pretty severe drop these past few months. By some measures, this is as fast as it has ever declined. In fact, the VIX has pared nearly 2/3 of its “value” in less than four months. I use the term “value” loosely, though, as the VIX is not a stock or a commodity or any sort of hard asset. It’s a statistical calculation — essentially a measure of the price investors will pay for portfolio protection. The VIX has no fair value, just simply a market value. And right here, right now — investors have placed a lot less value on that protection than they did just a few short months ago.
Is a Low VIX Cause for Celebration … or Alarm?
So what does a low VIX mean for you? Should you worry that other investors are not all that worried any more? Or should you gain extra confidence now that investors appear to be bubbling with confidence?

http://jlne.ws/ztF4iZ

Brace Yourselves. The Euromoney FX Poll Is Open
By Katie Martin, The Source - WSJ
Last Thursday morning in London an announcement went out over the speaker system of a large bank’s foreign-exchange trading floor.
“OK everyone, the Euromoney poll is now live…” it began. Moments later came the sound of a grown man screaming in mock agony, horribly aware of the pressure he will face in the coming weeks to extract votes from his clients. The scene is likely to have been repeated on every major currencies-dealing floor in the City that day, as banks brace for the biggest annual public-relations (and ego) war at the heart of a global $4 trillion-a-day market. First launched in 1979, the annual poll run by Euromoney magazine has become the de-facto benchmark of banks’ market share–the Oscars of the FX industry. Voting this year closes March 2, and the results are published in May...
Competition is turning to extremes. The head of operations at one large retail FX-trading venue, who didn’t wish to be named, said that this year, one bank sent its global head of foreign-exchange options on an overseas trip to visit him and try and secure his vote–the first time anyone has gone to such lengths.
http://jlne.ws/yuB5CS

Largest option buying in equities so far
by David Russell from optionMONSTER
Nearing the halfway mark in today's session, here are the individual equity names with the most call and put buying on optionMONSTER's ActionTracker data system.
Thoratec (THOR): More than 5,000 April 32 calls were bought for $1.60 to $1.70 as investors positioned for upside in the stock. THOR fell 4.04 percent to $29.72.
http://jlne.ws/xHwVqd

EXCHANGES

Maple Group and TMX Group Announce Extension of Offer to TMX Group Shareholders to February 29, 2012
MAPLE GROUP ACQUISITION CORPORATION Press Release
TORONTO, Jan. 31, 2012 /CNW/ - Maple Group Acquisition Corporation ("Maple"), a corporation whose investors comprise 13 of Canada's leading financial institutions and pension funds, and TMX Group Inc. (TSX: X) today announced the extension of Maple's offer to acquire a minimum of 70% and a maximum of 80% of the shares of TMX Group to 5:00 p.m. (Eastern Time) on February 29, 2012, unless further extended or withdrawn. The Maple offer is part of an integrated acquisition transaction, valued at approximately $3.8 billion, to acquire 100% of TMX Group shares. The TMX Group Board of Directors continues to unanimously recommend that shareholders accept and tender their shares under the Maple offer.
http://jlne.ws/wEyzFt

Nasdaq OMX makes clearing house pledge
By Philip Stafford in London
Nasdaq OMX has moved to reassure investors trading on its exchange in Europe that their funds cannot be touched by administrators in the event of a broker default. The transatlantic exchanges operator put the pledge at the heart of an overhaul of its clearing default fund. The group is switching to a member-financed default fund for its Nordic business on March 1 in preparation for sweeping incoming European legislation that will elevate the role of clearing houses in safeguarding the world’s financial system.
http://jlne.ws/xOMhWO

NASDAQ OMX had the Lowest Relative Performance in the Specialized Finance Industry
FINANCIAL NEWS NETWORK ONLINE
By Mallory Stone in Fast Lane, Financial News Network
Here are 5 stocks in the Specialized Finance industry ranked by performance. We compiled the trading activity from yesterday and then analyzed the industry looking for stocks that were underperforming. This is what we found:
NASDAQ OMX (NASDAQ:NDAQ) ranks first with a loss of 2.65%; NYSE Euronext (NYSE:NYX) ranks second with a loss of 1.81%; and Moody's (NYSE:MCO) ranks third with a loss of 1.65%.
http://jlne.ws/wUlZYb

NYSE-Deutsche Börse merger: Commission veto likely
By Eric van Puyvelde Tuesday 31 January 2012
It seems most likely that on 1 February the European Commission will veto – under the EU’s merger control regulation – the merger between Deutsche Börse and NYSE Euronext. NYSE Euronext groups the New York, Paris, Brussels, Amsterdam and Lisbon exchanges. If the merger took place, Deutsche Börse shareholders would have 60% of the holding, while NYSE shareholders would have 40%. NYSE would become the world’s largest stock market operator in all market activities (cash, derivatives, delivery versus payment, custodial services and market data). Over the last weeks, the leaders of the two financial firms took many steps and made many declarations to demonstrate their determination to see the project through. But the Commission is concerned about overlaps in the stock options sector in Europe and in stock-index futures and interest rates.
http://jlne.ws/x7ASh8

OPTIONS ON FUTURES

Crude Options Volatility Declines as Futures Slip a Second Day
By Barbara Powell, Bloomberg - Jan 30, 2012
Crude oil options volatility declined after underlying futures fell for a second day as European leaders sparred with Greece over a debt reduction program to keep the region’s financial crisis from spreading.
Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 27.6 as of 3:30 p.m. in New York, down from 27.7 on Jan. 27.
Crude for March delivery fell 78 cents to settle at $98.78 a barrel on the New York Mercantile Exchange, the lowest settlement since Jan. 20.
http://jlne.ws/AhPW1k

Bursa Malaysia Readies New Clearinghouse For 1Q Launch
Written By Jacob Bunge, Dow Jones Newswires
Published January 31, 2012
PALM BEACH, Fla. -(Dow Jones)- Bursa Malaysia Bhd (1818.KU) is preparing to launch a new trade-clearing facility for its derivatives markets that will enable the Kuala Lumpur exchange to offer a broader range of contracts, according to a senior executive. The firm anticipates the new clearinghouse, built on technology supplied by Korea Exchange, to start operations in the first quarter, said Sree Kumar, general manager of business development for Bursa Malaysia. Bringing the new facility online will enable Bursa Malaysia to offer options on crude palm oil, its most heavily traded commodity market, as well as options on the country's main stock index and new futures contracts denominated in foreign currencies.
http://jlne.ws/AwByv7

STRATEGY

Using Options to Play Facebook's Public Debut
By Steven M. Sears, Barrons.com
MONDAY, JANUARY 30, 2012
The best way to invest in the most-anticipated IPO since Google's may not be in the stock itself.
Facebook's expected initial public offering will be hot, but the best trade may be on the company's options. Six days after the shares start trading, as specified by options industry trading rules, exchanges will list puts and calls on Facebook's shares. Investors can leverage the Facebook stock hysteria by using options -- especially bearish put options -- to play the stock in what could be the largest initial public offering ever floated on the stock market. Facebook is expected to reveal the size of the offering when it files papers with the Securities and Exchange Commission in two days. And that will set off a mad dash at exchanges, and especially brokerage firms, as investors jockey to get a piece of the deal.
http://jlne.ws/wFtOLr

A Cautious Bet on Riverbed Technology
By STEVEN M. SEARS, Barrons.com
How to use options to profit from even a modest rally in the fallen networking stock.
Pity the investors who went long on shares of Riverbed Technology. The networking-equipment provider's shares have fallen 20% in the past week following a first-quarter earnings report that disappointed Wall Street.
Analysts who follow Riverbed (ticker: RVBD) have since been locked in a bull-bear debate over the company's merits. Such disagreement often helps stocks because it blends and balances extreme optimism and pessimism, which can coalesce to create opportunities for stocks to rise.
To better balance the risk, and potential reward, in a fluid market condition, investors should consider an options trade that lets them control Riverbed Technology's stock for a little bit of money while also limiting the risk.
http://jlne.ws/wmoRjo

VIX - Options Volatility Sonar: Tuesday Recap And Amazon Earnings Special
Seeking Alpha
by: Erick McKitterick January 31, 2012
Tuesday, S&P futures traded up very nicely into the U.S. opening bell. The market was off to the races until the consumer confidence number mentioned in yesterday's article put the brakes on the rally. S&P ETF (SPY), Nasdaq ETF (QQQ) and the Russell ETF (IWM) all put the brakes on as they traded back down to flat to slightly positive. The CBOE Volatility Index (VIX) spiked hard after the abysmal CB consumer confidence number showed a reading of only 61.1 which missed forecasts by a mile at the 68.2 level. This is the worst number miss since August of 2011.
http://jlne.ws/wBrfC9

EVENTS

Live Webinar: Trading the New ICE Weekly Sugar, Coffee and Cotton Options

Thursday, February 2
1:30 PM CT/2:30 PM ET
Please join ICE as it presents an overview of its new weekly options on sugar, coffee and cotton futures and a session with Mark Longo of OptionsInsider.com on how you can incorporate these short-dated instruments into your trading.
For information, contact: webinar@theice.com

AFP: Tie-up with NYSE Euronext not vital for Deutsche Boerse

2012-01-30T14:47:00.001-06:00

LEAD STORIES

AFP: Tie-up with NYSE Euronext not vital for Deutsche Boerse
By Etienne Balmer (AFP) – 1 day ago
FRANKFURT — The proposed merger of Deutsche Boerse and NYSE Euronext -- which now looks almost certain to fail -- is not vital for the German company's survival, say analysts and industry experts. According to NYSE Euronext chief executive Duncan Niederauer, there is only a "glimmer of hope" that the tie-up, which would create the world's largest market operator, will be approved by European competition authorities.
EU competition authorities opened a probe into the deal in August over concerns that the merged company would control 90 percent of the European derivatives market.
http://jlne.ws/AyoV2Y

U.S. Stock Futures Slide on Greece Debt Concerns; Thomas & Betts in Focus
Forbes
Options volume remained mildly bullish on Friday, with calls maintaining their edge over puts on the session. Overall, the Chicago Board Options Exchange (CBOE) saw 1.98 million calls trade compared to 1.7 million puts. As a result, the single-session CBOE total put/call volume ratio finished at 0.88, down moderately from Thursday’s reading of 0.98.
http://jlne.ws/xqET2Q

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Jan 30, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/AuKlqz

EXCHANGES

Nasdaq Earnings Preview: What We're Watching
January 30th, 2012 by Trefis Team
Nasdaq OMX (NASDAQ:NDAQ) is going to announce its fourth quarter earnings on Wednesday, February 1, 2012. Last quarter, the company benefited from the increase in trading volume and reported an all time high revenues of $438 million. In the fourth quarter, however, the company will be hard-pressed to match the third quarter’s trading surge as fears over the debt crisis in Europe coupled with the slowdown during the holidays weighed on the trading revenues. Nasdaq OMX provides trading, exchange technology, securities listing and public company services and competes with CME Group (NASDAQ:CME), NYSE Euronext (NYSE:NYX), IntercontinentalExchange (NYSE:ICE) and CBOE Holdings (NASDAQ:CBOE).
http://jlne.ws/woO0nl
ICE Brent Crude Benchmark Reaches Open Interest of One Million Contracts
LONDON, Jan. 30, 2012 /PRNewswire via COMTEX/ -- IntercontinentalExchange /quotes/zigman/373487/quotes/nls/ice ICE -0.82% , a leading operator of global regulated futures exchanges, clearing houses and over-the-counter (OTC) markets, announced today that the benchmark ICE Brent Crude futures contract reached a new record open interest level of 1,001,286 contracts on 26 January, 2012.
http://jlne.ws/xZyG4V

TECHNOLOGY

Scaled Dynamics, Inc. Joins CQG’s Certified API Partner Program
Press Release January 30, 2012 – Scaled Dynamics, Inc. is proud to announce that it has joined CQG’s (www.cqg.com) Certified API Partner Program. Scaled Dynamics’ GateKeeper application, a multi-platform front-end trading interface, will offer a full suite of automated trading tools utilizing CQG’s market data and order entry. Consultants are also available to build custom-tailored solutions for individual execution or risk management needs.
“We are pleased to welcome Scaled Dynamics to our API partner program,” said Mark Fischer, CQG’s Vice President of Product Management. “The combination of Scaled Dynamics’ ability to deliver a range of custom trading solutions together with CQG’s extensive exchange connectivity is a win for traders seeking flexibility and global reach.”
http://jlne.ws/AacyKf

STRATEGY
An Options Strategy Beats the S&P
By STEVEN M. SEARS, Barrons.com
Writing covered calls would have increased performance smartly over the past five years, Goldman finds. A baker's dozen stocks that could benefit.
Only fools and suckers do nothing but hope that stock prices rise. But too many investors have recently lost too much money doing just that.
All across America, people are receiving annual investment reports and many are having glum talks with brokers about why their stock portfolios barely budged in 2011. Those people, especially retirees and those on the cusp of what was once dubbed the Golden Years, lost an all-important year of returns.
THE TYPICAL STOCKBROKER'S EXPLANATION—that the Standard & Poor's 500 ended the year roughly where it began—is of little solace to those who depend on investment portfolios to help finance their retirement.

http://jlne.ws/wn0dP1

Complete Volatility Review
By Mark Sebastian TheStreet
This complimentary article from Options Profits was originally published on January 23 at 7:38am EST.
At some point I am going to stop being bearish on the volatility complex. However, that time has not come yet. While this week we saw, for the first time in a long time, the CBOE Volatility Index (VIX) end slightly higher, and the SPX end slightly lower I don't think it is much cause for alarm. Let's examine the market's movement instead of the market's direction.
http://jlne.ws/yOsvMZ

OptionsXpress Benefits from Complex Orders

2012-01-27T14:28:00.004-06:00

LEAD STORIES

OptionsXpress Benefits from Complex Orders
Peter Chapman, Traders Magazine Online News, January 27, 2012
The options industry recorded double digit growth last year, and at least one broker credited the use of sophisticated strategies for its good fortune.
OptionsXpress, bought by Charles Schwab & Co. in September, saw the number of options trades done by its 400,000 customers jump by 10 percent last year. Multi-leg strategies that establish directionally neutral positions increased in popularity, while those that are bullish or bearish saw less use.
"We have seen an increase in the use of more advanced strategies," Nina Milovac, the director of OptionsXpress' educational efforts, said at a recent industry conference. "The biggest increase was in the butterfly strategy."
The retail broker handled 27 percent more butterfly trades in 2011 versus 2010, Milovac said. The spread trade is constructed with four options-either all calls or all puts. Two options are bought. Two are sold. A directionally neutral position is achieved. Overall, OptionsXpress' highly active customers boosted their use of spread trades by 18 percent over the previous year. Spreads include butterflys, condors, diagonals, verticals, ratios, boxes, calendars, and others.
http://jlne.ws/ygHVgr

*OptionsXpress is not the only entity affected by this increase in complex strategies. JLN Options has upcoming interviews with Steven Crutchfield, CEO of NYSE Amex Options, and John Goode, CIO of BOX, on the need for Complex Order Books to handle these trades.

Regulators Eye Exchange Technology
By JACOB BUNGE, WSJ.com
The technology used by U.S. stock exchanges faces tougher scrutiny from regulators following several high-profile breakdowns over the past year that snarled trading, according to people familiar with the matter. The Securities and Exchange Commission is drawing new standards for trading systems that would give the agency more powers to step in when problems occur. The vulnerability of U.S. stock trading to problems in increasingly interdependent electronic systems was highlighted by the May 2010 "flash crash," which sharpened the SEC's focus on technology.
The May 2010 'flash crash'—as seen from the floor of the Big Board—pushed regulators to propose new powers to address trading problems.
Exchanges run by Nasdaq OMX Group Inc. and Direct Edge Holdings suffered big technology glitches over the past year that forced them to make up millions of dollars in losses to customers. Minor problems, such as a server outage that affected trading data for some stocks on the New York Stock Exchange this week, are more common.
http://jlne.ws/w4Ud2I

VIX - Options Volatility Sonar: Thursday Recap
Seeking Alpha
Thursday followed up the amazing day we had on Wednesday with S&P futures trading higher on the backs of a great report out of Caterpillar (CAT). Caterpillar beat the street by a mile and raised its revenue outlook for 2012 now expecting revenue of 68 to 72 billion and expects to earn around 9.25 per share. Other companies beating expectations were Bristol-Meyers (BMY), Time Warner (TWX), and 3M (MMM). Once again it appears the long volatility trade was wrong again as The CBOE Volatility Index (VIX) continued its march toward 17. Then the rally began to fade with the VIX perking up but VIX futures were actually down as depicted below.
http://jlne.ws/yt3qyp

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Jan 27, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/yZ0Jvh

EXCHANGES

NYSE Chief Sees Other Options Should Deutsche Boerse Deal Fail
Businessweek
January 27, 2012
By Nandini Sukumar and Erik Schatzker
Jan. 27 (Bloomberg) -- NYSE Euronext, awaiting a final decision from the European Union on its merger with Deutsche Boerse AG, has other acquisition opportunities, Chief Executive Officers Duncan Niederauer said today. There are “lots of assets that are available,” Niederauer said in an interview with Bloomberg Television in Davos, Switzerland. “Everyone will take a look at LME, LCH is an important asset,” he said, declining to comment on whether NYSE would make an offer.
http://jlne.ws/AhqD6W

Northwestern Memorial names Bernick, Brodsky to board posts
Crain's Chicago Business
By: Kristen Schorsch and Thomas A. Corfman January 26, 2012
(Crain's) — Former Alberto Culver Co. executive Carol Bernick and Chicago Board Options Exchange CEO William Brodsky have been picked for top board posts at Northwestern Memorial HealthCare.
Ms. Bernick has been named chairman of the Chicago-based health system's board. She was executive chairman of the Melrose Park-based cosmetics company until she sold it for $3.7 billion in May 2011 to Unilever PLC.
Meanwhile, Mr. Brodsky has been named chairman of the board of the flagship Streeterville hospital.
http://jlne.ws/wKFvRs

Wall Street's Sexiest Model
Emily Lambert, Forbes
Apologies to anyone who clicked on this story expecting to read about Christie Turlington or the latest Heidi Klum-Seal split news. But this is about Wall Street’s sexiest models – we’re talking about math.
The last few years have given us plenty of reasons to hate financial models. Models that promised to increase efficiency and manage risk became substitutes for common sense and justifications for greed. The real estate bubble was of course justified by them.
Yet people at hedge funds and trading firms, using models to mint money, remain passionate believers. Another supporter is George Szpiro, a mathematician turned writer who recently released a book called Pricing The Future, about the history of the Black-Scholes equation, the most famous model in finance and the one that launched this quantitative revolution (plus the Chicago Board Options Exchange). Szpiro, interviewed from his home in Jerusalem, explains why he still trusts models but why we should keep a close eye on the people who use them:
http://jlne.ws/zANGkT

* Yeah, it's about the Black-Scholes model. But the funniest thing in this article is that there is an actual link to the Heidi Klum-Seal split news.

TECHNOLOGY

Liquidity Centers Are Big Business
By Greg MacSweeney, Wall Street & Technology
Exchanges are the latest participants to jump into the data center colocation game as the appetite for hosted services shows no letdown.
Truth be told, data centers aren't all that exciting. The server rooms largely are nondescript, dimly lit, extremely utilitarian and cold -- both literally and aesthetically. But the technology inside the buildings is another story. The technology continues to evolve at blinding speeds, with stages of technological innovation often visible inside a single facility. Newer data centers are huge -- typically 200,000 square feet or more -- and they often roll out in phases, which makes it possible to witness improvement from Phase 1 development to Phase 3 development.
In Equinix's facility in Secaucus, N.J., for instance, the cooling vents in the first phase were located close to the ceiling. In subsequent phases, the vents were lowered just above the server cabinets to blast cool air directly into the racks. While the change may not seem like a huge technological advancement, it increases cooling efficiency, something that is extremely important in an operation where cooling and power comprise the No. 1 cost.
http://jlne.ws/xOND0e

STRATEGY

Hedging against disaster even as markets grow calm
By Gertrude Chavez-Dreyfuss,Reuters
NEW YORK | Fri Jan 27, 2012
Don't be deceived by the U.S. stock market's rousing start this year or the new-found stability of the euro.
After months of seizing on every incremental development in Europe as a reason to buy or sell, markets have started 2012 on a firm footing. The S&P stock index is up 4.8 percent so far this year and the euro has rebounded from recent declines on hopes the euro zone will survive a likely default by Greece.
But fund managers betting on economic armageddon say the worst is far from over as they eye the negotiations to restructure Greece's debt warily. While well-worn measures of volatility such as the CBOE Volatility Index show relative calm, indexes that track bets on extreme outcomes are rising. It's why "tail risk" investing - pursued by funds that bet on steep, unexpected drops in asset values - is still attracting investors eager to protect against unlikely outcomes such as a market crash. The recent decline in volatility has made these hedges cheaper.
http://jlne.ws/zG4eBV

In Options Land, Near-Term Signals All Clear. But Midyear In Doubt

2012-01-26T15:38:00.004-06:00

LEAD STORIES

In Options Land, Near-Term Signals All Clear. But Midyear In Doubt
By Brendan Conway, Reuters
The market dynamic has been repeated several times since the financial crisis: Stocks rise sharply, and investors’ interest in options wanes at the very moment that it would cost less to buy options as portfolio insurance.
By a range of measures, the U.S. options market illustrates investors’ near-term bullishness. The Chicago Board Options Exchange Volatility Index, the “fear index,” has drifted below its historical average. That decline, which reflects the lower prices investors pay for puts and calls on the Standard & Poor’s 500-stock index, is the clearest sign of decreased demand for options. Meanwhile, the number of put options granting the right to sell the most popular exchange-traded fund, the SPDR S&P 500 ETF (SPY), fell to a one-year low of 8.8 million contracts following last Friday’s monthly options expiration, as more traders unwound their protective positions. The figure, known as the “open interest,” includes put options of all maturities.
http://jlne.ws/wJGg73

CBOE Futures Exchange (CFE) to Launch Futures on Radar Logic 28-Day Real Estate Index on February 2

CHICAGO, Jan. 26, 2012 /PRNewswire/ -- CBOE Futures Exchange, LLC (CFE) announced today that on Thursday, February 2, it plans to launch futures trading on the Radar Logic 25-Metropolitan Statistical Area (MSA) RPX Composite Index (futures symbol: RPXCP). The index tracks U.S. residential housing values as a whole and is one of several Radar Logic 28-Day Real Estate indexes on which CFE may offer futures contracts.

CFE also announced that Barclays Capital will serve as the Designated Primary Market Maker (DPM) for Radar Logic 25-MSA RPX Composite Index futures.

"We are pleased to partner with Radar Logic to bring to market the industry's first real estate futures contract featuring comprehensive national residential real estate values and daily pricing," CFE Managing Director James F. Lubin said. "Now, with CFE futures on RPX indexes, the residential real estate community will have a powerful risk management tool combining these unique contract features with the benefits of an exchange-traded marketplace — improved price discovery, market transparency, execution certainty and centralized clearing."

http://jlne.ws/dqtww6

‘Extreme’ S&P 500 Momentum, VIX Signal Drop

By Lu Wang - Jan 26, 2012
The Standard & Poor’s 500 Index’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said. The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.
http://jlne.ws/zi7iDA

VIX ETFs Go Over A Cliff (VXX, TVIX, VXZ, XIV)
Wall Street Sector Selector
VIX Goes Over A Cliff (VXX, TVIX, VXZ, XIV)VIX ETFs tumble in response to Dr. Bernanke and FOMC interest rate announcements.
VIX, the CBOE Options Market Volatility Index, commonly known as the fear indicator, continued its plunge today as stocks rallied in response to Dr. Bernanke’s and the Federal Reserve’s ongoing accommodative monetary policies. VIX is widely seen as a predictor of future stock prices as when fear is high in the markets, VIX rises and stock prices tend to decline while the opposite is true in rising stock markets.
http://jlne.ws/AlYL2A

Fidelity Research Reveals Traders' Motivations Beyond Investment GainsKeys to Success: Consistency, Curiosity and Flexibility
Press Release, BOSTON, Jan 26, 2012 (BUSINESS WIRE) -- Fidelity Investments(R), a leader in helping individuals research and invest in the financial markets, today released research that shows active investors and active traders(1) derive on average 18 percent of their annual income from trading activities, but more than three quarters (78 percent) say they enjoy trading for other reasons. The survey also reveals the traits these traders consider key to their investing success, and what they would do differently if they could start over.
Beyond investment gains, traders find motivations in the following activities:
-- Fifty-four percent enjoy discovering new opportunities ("the thrill of the hunt").
-- Fifty-three percent enjoy learning new investing skills.
-- Many also enjoy engaging in social activities, including more than half who share news of their investing "wins and losses" with friends and family (59 percent share wins, 52 percent share losses), and half who seek guidance from trading peers.
http://jlne.ws/zwd9mD

EXCHANGES

Nasdaq’s Greifeld Says Not Interested in LSE, NYSE Bids
Businessweek January 26, 2012
By Elisa Martinuzzi and Whitney Kisling
Jan. 26 (Bloomberg) -- Nasdaq OMX Group Inc. isn’t interested in buying the London Stock Exchange Group Plc or another attempt at NYSE Euronext, even as antitrust regulators recommend against Deutsche Boerse AG’s bid for the owner of the New York Stock Exchange, Chief Executive Officer Robert Greifeld said. Nasdaq OMX, which made a failed hostile bid for NYSE Euronext in April, doesn’t want the LSE, Greifeld told reporters today in Davos, Switzerland. He said later that he wouldn’t consider a second attempt at NYSE Euronext because the U.S. Justice Department rejected the idea.
http://jlne.ws/AhI3eM

STRATEGY

Volatility Spurs Aggressive Algo Strategies
In volatile markets traders choose more aggressive algorithmic trading strategies and increase the level of human interaction.
By Kerry M. Bowbliss, Advanced Trading January 25, 2012
Equity traders are no strangers to volatile markets, and in the last several months they have responded similarly to how they have during other turbulent times, by trading more aggressively.
"We see a definite shift in what people choose when you hit the very high volatility days," says Dan Mathisson, managing director and head of Advanced Execution Services, Credit Suisse. When the market gets volatile, people shift from patient algos to aggressive algorithms. He explains, "There is much less use of full day VWAP and our Guerilla algorithm and a shift to Sniper and Blast, our most aggressive tools."
Mathisson adds, "And we see shifts within algos, when people have a choice as to whether they want to be patient or aggressive with a particular algorithm, they choose aggressive."
http://jlne.ws/wXw0dW

Growth concerns behind bearish options bets in YumBy Doris Frankel and Lisa Baertlein, Reuters

Wed Jan 25, 2012
* Yum February $60 puts stand out
* Yum overall options volume above the norm this week
By Doris Frankel and Lisa Baertlein
Option investors appear to have worries about Yum Brands Inc , taking out protection against a share price decline ahead of the fast-food chain's quarterly report early next month, analysts say.
Prospects of slowing Chinese growth and unfavorable exchange rates, the same headwinds that threaten rival McDonald's Corp , are worrying investors in the fast food purveyor.
http://jlne.ws/yT0VSl

How to Use Options to Wring Return From Yahoo!
By STEVEN M. SEARS, Barrons.com
How to extract more return from the search engine's moribund stock with options.
Yahoo! (ticker: YHOO) is dead. Or at least its stock has been dead money.
The stock has barely budged in the past year, and now it tops J.P. Morgan's list of "range-bound stocks" that is distributed to Wall Street's top investors. Rather than hoping Yahoo is acquired by another company, the rumor du jour swirling around it for the past few months, sophisticated investors can still profit from its stalled shares. Specifically, they can sell a March $15 put and March $17 call and profit while Yahoo remains stalled. Shares were recently at $15.64.
http://jlne.ws/xXg7EA

OPTIONS EDUCATION

Eurex and IFM announce joint educational initiative

Eurex Group News Release
IFM to deliver its best-in-class derivatives education for Eurex training purposes/ Eurex webinar series to target traders and investors in English and Portuguese languages
Eurex Group and the Institute for Financial Markets (IFM) announced today that they have teamed up to offer a joint educational initiative. Both partners aim to bring IFM’s best-in-class derivatives education to Eurex Exchange members and potential clients as well as the general industry. One joint initiative will be the first-time offering of IFM’s well-respected courses in the form of webinars in English. A large subset of the webinars also will be available in Brazilian Portuguese. Members of the brokerage community will be involved to further extend customer outreach.
http://jlne.ws/xiQFM8

EVENTS

Penson Worldwide, Inc. Fourth Quarter 2011 Conference Call On Tuesday, February 28, At 10 AM Eastern (9 AM Central)
Press Release
Penson Worldwide, Inc. (NASDAQ: PNSN) will host a conference call on Tuesday, February 28, 2012 at 10:00 AM Eastern Time (9:00 AM Central Time) with Philip A. Pendergraft, Chief Executive Officer; Bryce B. Engel, President & Chief Operating Officer; and Kevin W. McAleer, Chief Financial Officer. The call will be held to discuss results for the fourth quarter ended December 31, 2011 that will be issued in a release after the market closes on Monday, February 27, 2012. The call will be accessible live via a webcast on the Investor Relations section of www.penson.com. A webcast replay will be available shortly thereafter. Access the webcast link in advance to download any necessary software.
http://jlne.ws/wWtZzx

How Buy-Side Traders Are Adapting to the Volatility

2012-01-25T14:53:00.005-06:00

LEAD STORIES

How Buy-Side Traders Are Adapting to the Volatility
Advanced Trading
Buy-side traders are demanding stronger trading tools to navigate the increasingly volatile markets, according to a recent TABB Group study.
By Miranda Mizen, Tabb Group January 25, 2012
Profound change can be rather subtle. While it is obvious that current events cause changes in the market that require adaptation by buy-side trading desks, it is not always obvious to what extent change becomes the new norm. This year, conversations during the rollercoaster markets of August with 68 buy-side traders for TABB Group's annual buy-side equity study, "Coverage Under Fire," suggest that the needle on the dial has moved. Even if the VIX -- the Chicago Board Options Exchange Market Volatility Index -- trends southward again, the wheels on the permanent rollercoaster have been greased, and the tools on the buy-side trader's desktop need to keep up.
Perhaps surprisingly, only 47 percent of the buy-side traders interviewed by Tabb Group said they had actively changed the way they trade due to the volatile conditions.
http://jlne.ws/yA6NdG

Global firms sharpen currency hedging on euro concern
Reuters
International firms are spending more time at the highest levels discussing how to hedge currency risk, particularly euro-denominated earnings and transactions, in readiness for a worst case scenario of a euro zone breakup. Companies are scrutinizing the inbuilt protections in their hedge contracts and robustness of the settlement process if the euro were to collapse, bankers and executives said in interviews leading up to and during the World Economic Forum in Davos.
"Any CFO or any CEO of a company today, much like in the late 70s, is spending more time thinking about alternate outcomes," said Vasant Prabhu, chief financial officer of U.S. hotel operator Starwood Hotels & Resorts Worldwide Inc (HOT.N). "And currencies clearly are an element of that right now."
The implied volatility on 1-year euro/dollar contracts, a guide to future price direction in the spot currency market, has come down from the highs of October/November. But companies remain worried about future swings and the impact on earnings and acquisitions. Firms are increasingly turning to tools such as currency options -- which give them the right but not the obligation to buy or sell a currency at a particular exchange rate - to protect against extreme volatility.
http://jlne.ws/wRj3KF

NYSE Dream of Global Exchange Coming Apart on Derivatives Review
Businessweek January 25, 2012
By Nina Mehta, Bloomberg
A decade-long march by market owners toward greater worldwide scope may be ending in Europe with antitrust regulators recommending against Deutsche Boerse AG’s bid for NYSE Euronext. Should the deal be blocked, it would mean $37 billion in exchange mergers announced since October 2010 failed to close, according to data compiled by Bloomberg. Stock and derivatives venues completed $28.7 billion of takeovers in 2007 and 2008 as the Chicago Mercantile Exchange purchased rivals Chicago Board of Trade and the New York Mercantile Exchange.
http://jlne.ws/xiK4Ma

UPDATE: EU's Barnier: Need Time To Review Deutsche Boerse/NYSE Deal
--"Waiting reserve" leaves open chance to challenge antitrust regulators on merger
--EU competition authorities recommend blocking deal on near-monopoly in derivatives
--Exchanges press case for creating a European champion exchange
By Jacob Bunge, Matthew Dalton and Ulrike Dauer Of DOW JONES NEWSWIRES
A key member of the European Commission signaled Tuesday that he wanted more time to review the proposed merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF), casting new uncertainty around a deal that many investors and analysts already have given up for dead. Michel Barnier, the European Union's commissioner for internal market and services, on Tuesday placed a so-called "waiting reserve" on the matter, giving him leeway to potentially challenge a recommendation from EU antitrust regulators that the $17 billion combination be blocked.
"The decision that must be taken by the college is important, and the commissioner Michel Barnier who has been on a long, official trip to China, Japan and then London, hopes to take the personal time necessary before pronouncing on the issue," said a spokeswoman for Barnier in a statement Tuesday.
http://jlne.ws/zIv0NB

EXCHANGES

BATS debut primary listing sees modest volumes
The maiden primary listing on BATS Global Markets (BATS) has seen modest but promising volumes on its initial day of trading.
The Trade News
The iShares MSCI Norway Capped Investable Market Index Fund (ENOR) traded 4,803 shares yesterday on BATS Exchange. By comparison, the established Global X FTSE Norway 30 ETF, on rival platform Nasdaq, traded 19,486 shares on the same day. The new BATS instrument is the first of nine new exchange traded funds (ETFs), sponsored by BlackRock’s iShares ETF business to list on the BATS Exchange.
The nine iShares funds are based on MSCI indices and were chosen to provide investors with the chance to access international markets. The eight other ETFs scheduled to begin trading before the end of the week are: iShares MSCI Australia Small Cap Index Fund, iShares MSCI Canada Small Cap Index Fund, iShares MSCI Denmark Capped Investable Market Index Fund, iShares MSCI Germany Small Cap Index Fund and iShares MSCI United Kingdom Small Cap Index Fund.
http://jlne.ws/yEz6cO

CBOE Emerging Market Volatility Feature for Options Profits
By Jill Malandrino, The Street 01/25/12
Russell Rhoads is an instructor with The Options Institute at the Chicago Board Options Exchange. He is a financial author and editor having contributed to multiple magazines and edited several books for Wiley publishing. In 2008 he wrote Candlestick Charting For Dummies and is the author of Option Spread Trading: A Comprehensive Guide to Strategies and Tactics. Russell also wrote Trading VIX Derivatives: Trading and Hedging Strategies using VIX Futures, Options and Exchange-Traded Notes. In addition to his duties for the CBOE, he instructs a graduate level options course at the University of Illinois - Chicago and acts as an instructor for the Options Industry Council.
Russell: Next Tuesday, January 31, the CBOE is going to roll out a second method of taking a position based on an outlook for the market's expectation of volatility for emerging markets. Options on the CBOE Emerging Markets ETF Volatility Index (VXEEM) will commence trading as a compliment to VXEEM futures. VXEEM futures began trading earlier this month at the CBOE Futures Exchange.
http://jlne.ws/yVLO7T

Montreal Exchange Achieves New Trading Records
Press Release
MONTREAL, Jan. 24, 2012 /CNW/ - Montreal Exchange today announced that it achieved two new daily records.
Daily open interest reached 5,401,436 contracts on January 19, 2012, surpassing the previous record of 5,325,519 contracts that was achieved on January 18, 2012. A new overall daily volume record of 346,497 contracts was also established for equity and ETF options on January 20, 2012, surpassing the previous record of 287,593 contracts that was established on December 17, 2010.
http://jlne.ws/xiPFze

EARNINGS PREVIEW:Trading Slowdown, Regulatory Woes Hang Over Exchanges In 4Q
WSJ.com
By Mia Lamar and Jacob Bunge Of DOW JONES NEWSWIRES
TAKING THE PULSE: The new year finds exchanges in soul-searching mode as a nearly year-long push by NYSE Euronext (NYX) and German exchange operator Deutsche Boerse AG (DB1.XE) to seal their $17.7 billion tie-up is seen as all but dead amid increasingly unlikely European Union approval of the deal. The collapse of that deal--the sector's largest in years--would cap a year that saw the failure of several ambitious, cross-border exchange mergers, and push executives toward smaller, less-transformative dealmaking.
Exchanges in the fourth quarter were hard-pressed to match the third quarter's trading surge as a normal slowdown during the holidays was only worsened by nagging fears over the debt crisis in Europe. Stock exchanges have been particularly hard hit, with December ranking as the quietest month for buying and selling U.S. equities in four years. Meanwhile, the collapse last year of MF Global Holdings (MFGLQ) remains an overhang on the futures sector as questions persist over regulatory practices.
http://jlne.ws/wI0Qkw

Illinois business tax climate debate
chicagotribune.com January 25, 2012
State drops from No. 16 to No. 28 after ratcheting up individual income tax and corporate income tax rates
Let's talk climate change. Not weather, but taxes.
When the Tax Foundation issues its annual State Business Tax Climate Index for 2012 on Wednesday, it will show Illinois underwent the most dramatic shift of any state in the union, tumbling a dozen places since its 2011 report from No. 16 in the relative standings to No. 28 this time around.
Frankly, Chicago's winter so far wasn't this predictable.
It's possible to quibble about the 75-year-old Tax Foundation, which describes itself as a nonpartisan tax research group but some consider pro-business and conservative because of groups that fund it, or its methodology. But Illinois, desperate to get its budget in order, ratcheted up its individual income tax rate 67 percent, from 3 percent to 5 percent, and bumped its corporate income tax from 7.3 percent to 9.5 percent.
The state didn't exactly earn a gold star and a pat on the back.
http://jlne.ws/xz15ZF

STRATEGY

Buy VIX Options When They're Cheap
By STEVEN M. SEARS, Barrons.com
Buy cheaply priced call options in the stock market's fear gauge to protect recent gains and to hedge against bad news.
If you want a good deal, buy air-conditioners in January.
The same thinking works in the options market. When VIX is below 20, as it is now for the fourth consecutive day of a relatively calm week for the markets, investors can buy relatively inexpensive Chicago Board Options Exchange Volatility Index (VIX) call options to protect profits, and hedge portfolios without paying a fear premium. Investors normally rush to pay top dollar for VIX hedges when the stock market is dramatically declining and VIX dealers have sharply increased call prices. (Calls increase in value when the underlying security price rises.)
http://jlne.ws/Ar3QdP

CBOE to Launch Trading in CBOE Emerging Markets ETF Volatility Index Options on January 31

2012-01-24T15:01:00.003-06:00

LEAD STORIES

CBOE to Launch Trading in CBOE Emerging Markets ETF Volatility Index Options on January 31
CHICAGO, Jan. 24, 2012 /PRNewswire/ (Press Release) -- The Chicago Board Options Exchange (CBOE) announced today that it will begin offering trading in options on the CBOE Emerging Markets ETF Volatility Index (VXEEM) on Tuesday, January 31. The new options contract follows the introduction of trading in CBOE Emerging Markets ETF Volatility Index security futures (futures symbol: VXEM) at CBOE Futures Exchange (CFE) on January 9, 2012. Investors can use either or both products to hedge emerging markets volatility exposure or to make direct plays on emerging markets volatility. CBOE Emerging Markets ETF Volatility Index options and security futures are the first of several ETF-based volatility index products planned for launch at CBOE and CFE in 2012.

http://jlne.ws/dqtww6

NYSE-Deutsche Boerse May Lack EU Support
By Aoife White and Nandini Sukumar - Jan 24, 2012
NYSE Euronext (NRX) and Deutsche Boerse (DB1) AG are unlikely to garner enough support from European Union commissioners to overturn a looming veto over their plan to create the world’s largest exchange, according to four people familiar with the situation. The EU’s antitrust chief, Joaquin Almunia, won’t face significant opposition from other EU commissioners to his proposal to block the deal at a Feb. 1 meeting, said the people who can’t be identified because the discussions aren’t public. The European Commission, the EU’s executive arm, is led by 27 commissioners drawn from each of the bloc’s member states. They must jointly approve EU decisions.
http://jlne.ws/yi2vB4

SCENARIOS: Deutsche Boerse-NYSE Euronext Deal Options
By Reuters January 24, 2012
European Commission officials are set to vote in early February on Deutsche Boerse's proposed $9 billion takeover of NYSE Euronext to create the world's biggest stock exchange.
The 27 European Commissioners will cast their votes following a recommendation to block the deal by antitrust commissioner Joaquin Almunia, who is worried the combined entity will have more than a 90 percent market share in some key listed derivatives contracts in Europe. Almunia has said European markets must remain fair, efficient and competitive for both companies and investors and that competition between exchanges is necessary.

http://jlne.ws/zdWITR

New ETFs spur RRSP options
Canadian Exchange Traded Funds have become a money magnet
By Peter Evans, CBC News

Last Updated: Jan 24, 2012
Many financial gurus say the key to successful investing is diversification. It wasn’t all that long ago that getting broad market diversification in a portfolio was costly and difficult, but exchange-traded funds have made do-it-yourself investing more practical — and there are some big changes happening now in the Canadian ETF market as a result. In the past, an investor would either have had to deal with a stock broker – an endangered species these days – to buy individual shares in companies. Or maybe pay to have a professional money manager manage their investments in a mutual fund.
http://jlne.ws/z3rq23

Crude Options Volatility Falls as Futures Rise on Iran Oil Ban
By Barbara Powell - Jan 23, 2012
Crude oil options volatility fell for the first time in three days as underlying futures rose after the European Union agree to ban oil imports from Iran.
Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 29.8 as of 3:30 p.m. in New York, down from 30.3 on Jan. 20. March crude oil rose as much as 1.9 percent in intraday trading before settling 1.3 percent higher.
“We rallied back so volatility came off,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.
Crude for March delivery rose $1.25 to settle at $99.58 a barrel on the New York Mercantile Exchange, the first increase in four days.
http://jlne.ws/y6pnz9

OPTIONS REPORT: RIM Reshuffling Barely Dents Market's Outlook

--Options market's Research In Motion volatility outlook is little changed Monday following BlackBerry maker's executive succession
--Research In Motion options trading at twice normal clip, but trading is mixed
--Analyst says market signals view that executive reshuffling "not that much of a change"
By Brendan Conway Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The U.S. options market's muted reaction to Research In Motion Ltd.'s (RIMM) management reshuffling underscores the extent to which traders were already anticipating turmoil for the beleaguered BlackBerry maker's stock. Pricing gauges for put and call options to buy and sell the company's Nasdaq-listed stock barely budged Monday with word that longtime co-Chief Executives Jim Balsillie and Mike Lazaridis would be replaced by the little-known Thorsten Heins. The shakeup follows a plunge in the company's stock over the last year as weak earnings reports and a series of service outages fueled investor doubts of the company's competitive position versus the likes of Apple Inc. (AAPL). In a conference call, the Waterloo, Ontario, company touted the change and downplayed takeover speculation.
http://jlne.ws/yvlsCn

EXCHANGES

BATS Exchange Launches First Primary Listing With iShares ETF Today

BATS Global Markets Press Release
KANSAS CITY, Mo., Jan. 24, 2012 /PRNewswire/ -- BATS Global Markets (BATS), a global operator of stock and options markets, today announced the iShares MSCI Norway Capped Investable Market Index Fund (BATS: ENOR) will begin trading today on BATS Exchange, the first of nine new exchange traded funds (ETFs) sponsored by BlackRock, Inc.'s (NYSE: BLK) iShares® ETF business scheduled to commence trading on the Exchange beginning this week.
http://jlne.ws/zs6KwU

TECHNOLOGY

Options IT Sees Surge in Demand Among Hedge Fund Managers for its Private Cloud-Deployed Financial Office ServiceFinishes 2011 Signing 16 PIPE Core Clients, Adding Nearly 350 End Users Globally for its Flagship Financial Office Delivery and Support Service
Press Release, LONDON, Jan 24, 2012 (BUSINESS WIRE) -- Options IT, provider of the Options PIPE Private Financial Cloud services platform for the exchange, banking, trading and investment communities, today announced a strong surge in demand in 2011 among hedge fund managers for its PIPE Core financial office delivery and support service. Options IT signed 16 PIPE Core hedge fund clients across North America, Europe and Asia, representing nearly 350 new end users of the service in 2011. The solid growth in demand indicates a sustained recovery in the alternative investment management space globally and a continued adoption of on-Demand technology infrastructure services like Options IT's Private Financial Cloud services platform.
http://jlne.ws/zWg9pg

STRATEGY

A Bull and Bear Bet
By STEVEN M. SEARS, Barrons.com
Investors concerned the stock market is poised for a short-term technical correction, but afraid to miss a potential rally, can use a simple options strategy to simultaneously be a bull and a bear.
By "strangling" the stock market with a put and call option that have different strike prices, and the same expiration date, investors can benefit from a sharp decline, or sharp rise.
Buying the February 132 call on the SPDR S&P 500 (ticker: SPY), and the February 130 put on the SPDR S&P 500 lets investors leverage intense crosscurrents roiling the market. (The SPDR S&P 500 exchange-traded fund was trading at 131.24 in midday trading Tuesday.) Many investors think the Standard & Poor's 500 index, recently at 1304, has risen too far too quickly since the year began.
http://jlne.ws/ymEIaT

Are Buy-Write ETFs Worth The Cost?
By: Eric Dutram, Zack's Investment Research
January 24, 2012
Although stocks have begun the new year on a high note, many investors remain uncertain about the market nonetheless. Weaker than expected earnings at some firms and continued concerns over the health of key markets such as China and Europe could weigh down securities throughout the first quarter of the year. In light of this, some investors have taken to strategies that allow investors to stay allocated to the market but that could offer some level of downside protection as well.
http://jlne.ws/x3piYX

OPTIONS EDUCATION

The Newest Innovation in SPX Options
Tuesday, January 24, 2012
By James Bittman, Senior Instructor, Chicago Board Options Exchange
New Friday-afternoon-settled options on the S&P 500 (SPX) have hit the marketplace, says Jim Bittman of the Chicago Board Options Exchange (CBOE), who describes the benefits and helpful tips for trading them.
As an option trader, you are probably aware of the SPX options, but there’s a new product from the CBOE, the SPXpm options.
Our guest today is Jim Bittman to talk about that. So, Jim, first of all, what is the new product?
Well, the traditional S&P 500 index options called SPX came out of the 80s, where the options stopped trading on Thursday and they settled Friday morning, which is very unusual compared to options on stocks that continue trading all the way through Friday afternoon. So, we added a new all-electronically-traded contract. It’s the same size, but it settles on Friday afternoon—the same way other ETF options, stock options, and some other index options settle. With institutional money looking at the S&P 500 index, we wanted to make this product available for them, so for quarter ends, for year ends, we have the afternoon settlement.
http://jlne.ws/w6tVOU

NYSE Euronext Explores Adding Partners To Amex Joint Venture

2012-01-23T14:48:00.004-06:00

LEAD STORIES

NYSE Euronext Explores Adding Partners To Amex Joint Venture
By Jacob Bunge Of DOW JONES NEWSWIRES
NYSE Euronext (NYX) may add more equity partners to its Amex stock-options exchange, expanding a strategy that has boosted trading volume and turned the platform into the Big Board parent's largest U.S. derivatives market. Seven banks and trading forms agreed to take a near-50% stake in NYSE Amex in 2009 in return for a steady flow of trading business that has almost doubled contract volume on the former American Stock Exchange, which NYSE acquired a year earlier. NYSE Amex has held conversations with several more firms interested in joining the venture, though there are no formal discussions right now, according to Steve Crutchfield, chief executive of the exchange.
"We would certainly entertain the possibility of adding new partners over time," said Crutchfield in an interview on the sidelines of a Security Traders Association event.
Expanding the consortium ownership group could further lift business on NYSE Amex, which is the fourth-largest U.S. options exchange and has outgrown NYSE Arca, its sister market. The original equity-sharing deal underscored the king-making power of big firms, which do their own options trading and also handle the orders of individual investors. This month NYSE Amex's market share of all U.S. options trading was 13.3%, compared to 7% when NYSE Euronext bought the exchange, according to data from the clearinghouse OCC.
http://jlne.ws/wP9li1

Nifty Options Prices Near 3-Month Low on Interest Rate Pause Expectations
Bloomberg
By Santanu Chakraborty - Jan 23, 2012
Options to protect against losses in Indian stocks fell to the lowest level since October amid expectation the central bank will keep interest rates unchanged and as the rupee strengthened. India VIX (INVIXN), a gauge of options prices in the S&P CNX Nifty Index, was 22.64 at 12:15 p.m. in Mumbai, near the lowest since Oct. 28, data compiled by Bloomberg show. VIX soared 64 percent last year, its biggest annual gain since 2008 when the Nifty had its largest-ever yearly decline.
http://jlne.ws/z6VgnP

FOCUS: Speculators Start Buying Metals Futures, Options Again -CFTC

Forbes (Kitco News) - A price rebound for metals across the board encouraged speculators to start to rebuild bullish positions in both precious and base metals futures and options, according to U.S. government data released Friday.
All metals contracts traded on the Comex division of the New York Mercantile Exchange and the Nymex saw net long positions for speculators rise in both the legacy and disaggregated weekly commitment of traders reports. These were released by the U.S. Commodity Futures Trading Commission for the week ended Jan. 17. Speculator’s positions in copper also turned to net long from net short for the first time late last year.
http://jlne.ws/zAjvko

Increased liquidity likely to boost short term options trading by hedge funds and institutions
Hedge Funds Review
Author: Clare Dickinson
Short-term options accounted for a growing portion of total options volumes last year and hedge fund use is likely to grow in 2012, says Tabb. Infrastructure requirements may be prohibitive, however.
Short-term options (STO) were a significant factor in record options volumes last year as their popularity among institutional and retail investors increased. Hedge funds are employing them for directional bets and hedging purposes and their use is likely to grow in 2012 as a result of increasing liquidity.
The STO market is relatively new. The options, originally based on indexes, were introduced by the Chicago Board Options Exchange (CBOE) in 2005 but it was June 2010 when they began to take off following a take-up by multiple exchanges plus the introduction of STOs on single stocks and exchange traded funds (ETFs), according to Andy Nybo, a principal and head of derivatives at Tabb Group and author of Accelerated Expirations: The Growing Relevance of Short-term Options.
http://jlne.ws/y3sDiZ

January 23, 2012: Index, ETF option volumes near midday
Chris McKhann tradeMONSTER
Option volume remains strong with at 5.8 million contracts so far today, with mixed sentiment in the indexes and ETFs, optionMONSTER's data systems show.
The SPDR S&P 500 Fund (SPY) has seen 662,000 options trade, 383,000 of which are puts. The CBOE Volatility Index (VIX) options are next with 238,000 and are dominated by 144,000 puts, a ratio that is seen as bullish for stocks.
http://jlne.ws/xycZqL

EXCHANGES

Speculators have field day with options
In an uncertain equity market, investors find solace in the segment
B G Shirsat & Rajesh Bhayani / Mumbai Jan 24, 2012
If the market is not conducive for investment, speculate was the formula of global investors in 2011. This is reflected in turnover data of exchanges globally, as culled from the World Federation of Exchanges (WEF). Derivative trading data across the globe suggest that trading in index-based options grew, despite cash market volumes shrinking. And, even within derivatives, volumes other than in index options showed no significant rise. The data showed equity cash segment volumes remained stable despite a fall in market capitalisation. The number of contracts traded in equity derivatives grew 9.4 per cent as speculators increased their presence in derivatives, especially in stock index options.
http://jlne.ws/zmzfgq

STRATEGY

A Risk-On Stock Options Trade
MONDAY, JANUARY 23, 2012
The Striking Price By STEVEN M. SEARS, Barrons.com
How to maximize returns and limit risk with a few well-placed call options.
The Standard & Poor's 500 index is up about 4.6% since the year began, and one measure of the risk of owning stocks, the Chicago Board Options Exchange's Volatility Index (VIX), has fallen to the relatively optimistic level of 18.07. Before the excitement of a rising market makes the flat overall performance of the 2011 U.S. stock market a distant memory, one lesson must be remembered: take advantage of alternate beats in the stock and options market to avoid getting hamstrung by the market's risk on/risk off tempo. When stock prices are high, and options prices are low, as they are now, take profits on stocks, and buy options on that which was just sold.
http://jlne.ws/Ak7AMC

Don't Drink the Rally Kool-Aid: It's Time to Get a Bit Short!
InvestorPlace
Why it’s time to buy these S&P 500 put options
By Dan Sheridan, Sheridan Mentoring
Where is most of your money stashed? I’m not trying to get personal, I promise! But, I’m willing to bet the bulk of it is in your retirement account.
Another question: Will the stuff in your retirement account be happier if the market goes up or down? The answer is probably, “Up!”
Your portfolio likely has a strong bullish bias. 2008 hurt so much because most of your assets were in the market when everything fell apart between the eight months of torture between September 2008 and March 2009.
Do I know something you don’t know about the market? Of course not. What I do know, however, is that your portfolio is probably leaning long and the market is trading in the upper end of the range. And with those kinds of conditions, I’d personally like to start having a few put options around. In particular, I’m going to focus on the SPDR S&P 500 (NYSE:SPY), which is currently trading at $131.54. The one-, two- and three-year high is around $135.
http://jlne.ws/yGrSH1

VIX Products: Is There A Need For More Low Volatility ETFs?
Bill Luby: The more I think about it, the less I understand the need for even more low volatility ETPs. Sure, I understand that in high volatility markets many investors want a more conservative portfolio that is insulated against sharp moves in the wrong direction. In that respect, I can somewhat understand the appeal of the hugely popular PowerShares S&P 500 Low Volatility Portfolio ETN (NYSEArca:SPLV), which has now attracted more than $1 billion in assets in the eight months since it launched.
http://jlne.ws/wnNyAv

OPTIONS EDUCATION

OIC launches the latest podcast, "Does the Rumor Mill Effect Options?" in its weekly podcast series, Options Talk with OIC.

http://jlne.ws/ai4hAU

NYSE May Appeal If Deutsche Boerse Deal Blocked

2012-01-20T14:50:00.000-06:00

LEAD STORIES

NYSE May Appeal If Deutsche Boerse Deal Blocked
By Doug Cameron, The Wall Street Journal
The head of NYSE Euronext (NYX) said the exchange may appeal if European regulators block its planned merger with Deutsche Boerse AG (DBOEF, DB1.XE).
The exchanges are lobbying fiercely to preserve the planned pact after European Union antitrust examiners last week recommended that EU commissioners block the deal, on grounds that it would create a monopoly in European listed futures and options trade.
"If the deal is blocked we will consider all options, including an appeal," NYSE Chief Executive Duncan Niederauer said in an interview with Cinco Dias, the Spanish newspaper.
http://jlne.ws/zRCmcc

STAC Coverage: Options Industry Looks to Long-Onlys for Future
By Peter Chapman, Traders Magazine
Options industry officials are looking to traditional money managers for growth.
According to one veteran options executive, growth in the use of options by retail investors is flagging, so the industry is looking upstream for order flow.
"Growth in options is plateauing on the retail side," Alan Grigoletto, an official with the Options Clearing Corporation's Options Industry Council said at an industry conference yesterday, "There is so much more ground to be broken with wealth advisers, pension funds and endowments."
http://jlne.ws/AsiHg0

Buy-Write Strategy Gets Another Look
By Peter Chapman, Traders Magazine
After three years of near dormancy, mutual funds using covered calls showed signs of life last year. That's despite signs of investor dissatisfaction with fund companies.
Two new closed-end funds that cover at least half of their stock holdings with call options -one from Gabelli Funds and the other from John Hancock-launched in 2011.
That brought the total number of closed-end funds classified as buy-write funds to 31, according to Morningstar. It also added about $600 million in net assets to the group, increasing the total kitty to about $21 billion.
http://jlne.ws/welEbF

Market makers buck trend as profits surge
By Telis Demo, Financial Times
Market-making firms bucked the trend of poor results for trading groups, though the results are unlikely to be sustainable.
Knight Capital reported net income in the quarter was $40m, almost four times the $9m profit in the same quarter last year, principally on stronger revenues in its market-making unit, which matches stock trades primarily for retail brokerages.
The increase came despite weak volumes, which has been the cause of poor results across Wall Street. However, Knight was able to profit from elevated volatility by providing matches for traders who would otherwise not find them in the public markets.
http://jlne.ws/xvinzX

Interactive Brokers Group Announces 2011 Results
Press Release
Interactive Brokers Group, Inc. an automated global electronic broker and market maker, today reported diluted earnings per share of $1.40 for the year ended December 31, 2011, compared to diluted earnings per share of $(0.22) for 2010. Reported results for 2010 reflected a negative $0.71 per share impact from additional taxes triggered by the approximately $1 billion special dividend paid in December 2010. The company considers the special dividend to be non-operating in nature...
Market Making segment income before income taxes increased 363%, to $415 million, in 2011. This increase was driven by a swing in currency translation gains, which contributed 53% of the rise, reflecting an $11 million gain in 2011 compared to a $161 million loss in 2010. Currency translation effects are reported as part of Trading Gains in the Market Making segment. The remaining increase reflected trading gains on higher actual-to-implied volatility, higher options trading volumes and wider bid-offer spreads. Pretax profit margin expanded to 59% in 2011 from 24% in 2010. Market Making options contract volume increased 16% in 2011.
http://jlne.ws/zDJMuY

Hong Kong Stocks Rise on U.S. Jobs Data, Falling European Yields
By Kana Nishizawa and Jonathan Burgos, Bloomberg
Hong Kong stocks advanced, with the Hang Seng Index (HSI) posting its biggest weekly gain since the start of December, as U.S. initial jobless claims and European borrowing costs declined...
Futures on the Hang Seng Index advanced 1.1 percent to 20,187. The HSI Volatility Index fell 2.4 percent to 21.81 today, indicating options traders expect a swing of 6.3 percent in the benchmark over the next 30 days.
The Hang Seng Index tumbled 20 percent last year amid concern China would continue to curb lending and Europe would fail to resolve its debt crisis. Companies in the gauge traded at 10.1 times forecast earnings at the last close, down from 14.4 times at the beginning of 2011, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index trades at 12.6 times.
http://jlne.ws/zOuuA8

EXCHANGES

Lower volumes pressure Q4 earnings at U.S. exchanges
By John McCrank, Reuters
Investors pulled back from trading in the fourth quarter as headlines out of Europe undermined faith in the markets, limiting the earnings power of U.S. exchange operators, which derive much of their revenue from trading fees.
Earnings at the exchanges kick off with CME Group Inc (CME.O) on February 2, hot on the heels of a regulatory ruling out of Europe expected on February 1 on the fate of Deutsche Boerse's (DB1Gn.DE) $9 billion takeover of trans-Atlantic rival NYSE Euronext (NYX.N).
Exchange profits for the quarter ended December 31 are expected to be mixed, with all but CME seen surpassing their year-ago results. All, however, are seen well off their results from the third quarter, when volumes spiked along with volatility.
http://jlne.ws/xseJdS

Exchange and Clearing Fees For New Weekly Options Contracts
ICE Futures US - Press Release
Effective with the start of trading on February 6, 2012, the non-member Exchange and Clearing fee for the new Weekly Option Contracts on Sugar No. 11®, Coffee "C"® and Cotton No. 2® will be $1.05 per side.
The new weekly option contracts are short-life options that share most of the contract terms of the existing monthly option contracts - including strike price, minimum price quote, trading hours and exercise and assignment provisions. The new weekly options, however, expire on a different date than the monthly options, providing an expiration on each Friday that is not already the expiration date for a monthly option on the relevant futures contract. For each product, three weekly option expirations are listed concurrently, so each weekly option has a trading life of approximately four weeks.
http://jlne.ws/yqBOD0

ELX Names Richard Jaycobs Chief Executive Officer
Press Release
NEW YORK, NY, Jan 20, 2012 (MARKETWIRE via COMTEX) -- ELX Futures, L.P. (ELX), a leading electronic futures exchange, announced today that veteran futures industry executive Richard Jaycobs will succeed Neal Wolkoff as Chief Executive Officer of ELX.
Mr. Jaycobs, a 25-year veteran of the futures and derivatives industry, has served as President of the Cantor Exchange, a CFTC-regulated exchange committed to providing the market with innovative products in entertainment, weather, and news events. Earlier, he served as CEO of the Chicago-based Clearing Corporation (formerly the Board of Trade Clearing Corporation), CEO of onExchange, and Managing Director at the New York Cotton Exchange.
http://jlne.ws/xEAvQh

STRATEGY

Showdown: Bear Puts vs. Bear Calls
By Josip Causic, MoneyShow.com
A recent market example is used to illustrate the differences in risk between the bear put and bear call option strategies and considerations traders should take when choosing one over the other.
A bear put and bear call are both bearish vertical spreads. The first one is a debit spread, and the latter one is a credit spread. In which case would one make more sense to trade over the other? It depends on the implied volatility (IV).
http://jlne.ws/wsmDHy

Straddling Earnings Season - Know Your Options
by Kevin Matras from Zacks.com, NASDAQ
With earnings underway, here's an options strategy that's perfect for a company about to report.
A straddle involves buying both a call and a put at the same strike price (at-the-money) at the same time.
With options, you buy a call if you expect the market to go up. And you buy a put if you expect the market to go down. A straddle, however, is a strategy to use when you're not sure which way the market will go, but you believe something big will happen in either direction.
http://jlne.ws/yeLKsA

A Q&A With CBOE's CEO Brodsky and COO Tilly

2012-01-19T14:33:00.001-06:00

LEAD STORIES

A Q&A With CBOE's CEO Brodsky and COO Tilly
By Peter Chapman, Trader's Magazine
Chicago Board Options Exchange chairman and chief executive officer Bill Brodsky and president and chief operating officer Ed Tilly broke bread with the New York City press corps in January in order to update the scribes on the exchange operator's initiatives. Reporters learned that a quarter of CBOE's volume came from proprietary products, specifically its index options, but over half its profits. CBOE's year-old C2 exchange was achieving the company's goals, the executives said, trading 228,000 contracts per day in last year's fourth quarter, but they still increased its rebate in January. Traders Magazine presents a slice of the Q&A session.
http://jlne.ws/A1GVAv

Stocks Gain on Bank Profits, U.S. Economy as Euro Climbs on Bond Auctions
By Stephen Kirkland and Rita Nazareth, Bloomberg
U.S. stocks rose for a third day as Bank of America Corp. (BAC) posted a profit and jobless claims slid, while European equities and the euro climbed as French and Spanish borrowing costs decreased at auctions...
The S&P 500 gained 4 percent this year through yesterday, the best start to a year since 1987, as U.S. economic reports and speculation that China will loosen monetary policy outweighed concern that downgrades for European nations would worsen the debt crisis.
The Chicago Board Options Exchange Volatility Index, the benchmark gauge of U.S. options prices known as the VIX (VIX), dipped below 20 for the first time since July amid lower demand for protection against losses in equities.
http://jlne.ws/Amw0D2

Buyer’s Market for Options
By: Lori Spechler, CNBC
Despite nagging concerns about the euro zone, major stock indices — S&P 500, Nasdaq, Russell 2000 — are off to a strong start this year, while volatility has been falling.
And as volatility falls, so do those sky high option premiums that were more common in 2011...
“The trade is to really get out there and make a statement and buy volatility at these levels," says Alex Panagiotidis, managing director of Sterne Agee Institutional Equity Options.
http://jlne.ws/y3A1NY

Short-Term Options Drove US-Listed Options to Record Levels in 2011
By Martin Rabkin, RiskCenter
Short-term options represent one of the most successful products launched by options exchanges in recent years, with demand from retail and institutional investors driving growth, says TABB Group in new research published yesterday, “Accelerated Expirations: The Growing Relevance of Short-term Options.”
“However, as more names are added to the list, investor interest and volume will rise”
According to TABB, short-term options (STOs) were a significant factor behind record options volume in 2011 with STOs accounting for 8.3% of the total 4.6 billion contracts traded for the year. Short-term options accounted for a peak 11.7% of total volume in October 2011, when volume reached 45.7 million contracts. Comparatively, one year earlier in October 2010, STOs trading volume totaled 20.8 million contracts.
http://jlne.ws/xZow7U

EXCHANGES

The World Federation of Exchanges Publishes 2011 Market Highlights
Press Release via The Wall Street Journal
Equity volumes in 2011 remained stable despite a fall in market capitalization, while derivatives, bonds, ETFs, and securitized derivatives continued to grow strongly, according to figures released today by the World Federation of Exchanges (WFE).
WFE statistics are culled from WFE member exchanges, which continued to increase their listings and diversify their product offerings in 2011. Specific 2011 highlights from WFE are as follows:
http://jlne.ws/xiBRTE

Turkey: Going forward costs brokers and exchanges dear
By Nick Lord, Euromoney
TurkDex introduces exchange-traded options; ISE [Istanbul Stock Exchange] head steps down
Turkey continues to open up to derivatives and structured products while much of Europe clamps down on them.
Last year saw the introduction of warrants and ETFs traded on the Istanbul Stock Exchange (ISE). This year will see the introduction of exchange-traded options contracts on TurkDex, the derivatives exchange based in Izmir.
Ilhami Koc, CEO of Is Investment Bank, has stated that the next stage in Turkey's financial development will be the deepening of the country's derivatives markets.
http://jlne.ws/ABHSUh

STRATEGY

Using Option Premiums To Gauge Risk
Seeking Alpha
As someone who actively traded the markets during the 2008/2009 financial crisis, I have many memories from that time period that I doubt I'll ever forget. One observation I made then has to do with the put premiums on the SPDR S&P 500 (SPY) and PowerShares QQQ Trust (QQQ) in late September 2008, just prior to the bottom falling out of the markets. At the time, the VIX was quite elevated but nowhere near the incredible heights it would soon reach, yet puts on the SPY and QQQ were already trading at "you've got to be kidding me" prices. At the time, it seemed to me as if the market makers were almost daring people to sell the puts. Way out-of-the-money puts expiring just a few weeks later in October were trading at premiums normally reserved for options expiring many months later. On the flip side, it seemed crazy to purchase the puts betting on further declines in the major market indices at the prices they were being offered for. Yet, that was exactly what an investor wanting to make money should have done.
http://jlne.ws/wvmdqs

Using Options To Take Advantage Of Volatility
By Charles Brokop, Seeking Alpha
When I explain how someone can generate very solid returns with low volatility all while having their money in a money market or other cash vehicle, they usually look at me like a dog that heard a strange noise and give me the tilted head look. The investment discipline does take a while to understand and there are some moving parts involved; however, with the recent high volatility in the market over the past few years, learning this may be a valued strategy. This is an investment strategy that offers strong performance whether the market goes up, down, or stays relatively even, called an ‘Absolute Return Strategy.’ The transactions can also be done in most major brokerage accounts which are another benefit.
http://jlne.ws/wlSDCX

SEC Clears Way For NYSE, Deutsche Boerse To Merge

2012-01-18T13:57:00.001-06:00

LEAD STORIES

SEC Clears Way For NYSE, Deutsche Boerse To Merge
By Jacob Bunge Of DOW JONES NEWSWIRES
The U.S. Securities and Exchange Commission on Wednesday approved the proposed merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF), while leaving room for the European Union to have final say on the deal. SEC officials approved a raft of rule filings by the NYSE Euronext-owned exchanges like the New York Stock Exchange and NYSE Amex, as well as the Deutsche Boerse-owned International Securities Exchange, relating to a change in ownership that would see the markets move under a new parent.
http://jlne.ws/y5LmVC

Europe Leans Toward Blocking NYSE-Deutsche Borse Merger
By JAMES KANTER, The New York Times
The European Union’s competition commissioner, Joaquín Almunia, won support on Tuesday from European government representatives on an advisory panel in his effort to block a merger between NYSE Euronext and Deutsche Börse, a move that is one of the last stages before a formal decision on the deal is made early next month...
The recommendation by the antitrust advisory panel, which is not binding, is the latest sign that the regulatory obstacles in the way of the deal may be insurmountable. The deal would put the vast majority of the European exchange-traded derivatives market, and a sizable proportion of the region’s stock trading, in the hands of one company.
http://jlne.ws/zh2fa6

EU’s Almunia Pledges to Spur Competition as DB-NYSE Veto Looms
By Aoife White and Nandini Sukumar, Bloomberg
Europe’s top antitrust regulator pledged to use “all available instruments” to spur competition in the region as he prepares to block the merger of Deutsche Boerse AG and NYSE Euronext...
EU regulators told the two companies that they plan to prohibit the deal to create the world’s largest exchange because it would monopolize derivatives trading in the region, according to two people familiar with the draft decision in December. NYSE and Deutsche Boerse appealed directly to European Commission President Jose Barroso last week to try and salvage their merger, arguing an EU ban would harm European exchanges and drive business to other parts of the world.
http://jlne.ws/y1rYeP

Bets Against Euro Lose Appeal As Market Calms
By Neil Shah, The Wall Street Journal
Some investors are curbing their negative bets against the euro and other risky currencies as market conditions improve, a sign that after months of tension they're starting to think Europe's problems won't infect the global economy.
For months, hedge funds and other professional money managers have dumped euros and used options bets to wager against the currency because of mounting concerns about Europe's debt crisis and the global economy. Government data released Friday showed traders had, as of Jan. 10, amassed the biggest negative position on the euro since at least 2007.
http://jlne.ws/wTIzhR

OptionsCity Software appoints Margaret Wiermanski as Chief Operating Officer
OptionsCity Press Release January 18, 2012
FOR IMMEDIATE RELEASE
Chicago – OptionsCity Software, Inc, a provider of end-to-end electronic trading software, has named Margaret Wiermanski as the company’s Chief Operating Officer.
“Margaret is a key addition to our management team,” said Hazem Dawani, CEO of OptionsCity Software, Inc. “Her extensive experience in financial management, operations, and compliance functions will be an asset to the OptionsCity team as we continue our growth and focus on global expansion.”
“I am excited to be part of the OptionsCity team,” remarked Margaret Wiermanski. “What they have accomplished in a short time is impressive and they have built a solid foundation for its future expansion. What impressed me the most is the genuine enthusiasm of everyone at OptionsCity and their commitment to product ingenuity and customer service.”
http://jlne.ws/wBPXVE

EXCHANGES

CBOE Holdings, Inc (CBOE) Shares Given a “Sell” Rating by Goldman Sachs (GS) Analysts
LocalizedUSA
Posted by LUSA Staff on Jan 17th, 2012
CBOE Holdings, Inc logoCBOE Holdings (NASDAQ: CBOE)‘s stock had its “sell” rating reiterated by Goldman Sachs (NYSE: GS) in a research note issued on Tuesday.
Separately, analysts at Jefferies Group (NYSE: JEF) cut their EPS estimates on shares of CBOE Holdings in a research note on Wednesday. They now have a “hold” rating on the stock. Analysts at Macquarie downgraded shares of CBOE Holdings from an “outperform” rating to a “neutral” rating in a research note to investors on Thursday, December 22nd. Also, analysts at Oppenheimer (NYSE: OPY) reiterated an “outperform” rating on shares of CBOE Holdings in a research note to investors on Tuesday, November 15th. They now have a $29.00 price target on the stock.
http://jlne.ws/xIw4w0

NASDAQ (NDAQ) Given “Conviction Buy” Rating by Goldman Sachs (GS) Analysts
LocalizedUSA
Posted by LUSA Staff on Jan 17th, 2012
NASDAQ (NASDAQ: NDAQ)‘s stock had its “conviction buy” rating reaffirmed by research analysts at Goldman Sachs (NYSE: GS) in a report issued on Tuesday.
Separately, analysts at Zacks Investment Research reiterated a “neutral” rating on shares of NASDAQ in a research note to investors on Thursday, November 10th. They now have a $26.00 price target on the stock.
http://jlne.ws/wxavPU

OPTIONS ON FUTURES

PowerShares Plans Active Equity/VIX ETF
By Olivier Ludwig, IndexUniverse
Invesco PowerShares, basking in the success of its low-volatility SPLV, filed paperwork with the Securities and Exchange Commission to market an actively managed equities-based portfolio that seeks to lower investment risks by pairing stocks with instruments related to CBOE Volatility, or VIX, futures. Apart from equities and VIX-related tools, such as listed VIX futures contracts, the PowerShares Equity Allocation Portfolio will also invest in swaps and notes as well as money market instruments, according to the filing, which was dated Jan. 13.
http://jlne.ws/zqoNNb

REGULATION

Exemption for forex swaps and forwards should hold, says GFMA’s Kemp
By Joel Clark, Risk.net
A proposed determination to exempt foreign exchange swaps and forwards from mandatory clearing and exchange trading requirements under the Dodd-Frank Act is very likely to be confirmed, despite a nine-month silence from the US Treasury since it published the text in April 2011, according to James Kemp, managing director of the global foreign exchange division of the Global Financial Markets Association (GFMA) in London...
The global foreign exchange division is working on a number of regulatory projects this year as it seeks to help its members - 22 of the largest forex banks - prepare for mandatory reporting for all forex derivatives, as well as central clearing and exchange trading for those products not exempt, including non-deliverable forwards (NDF) and options.
http://jlne.ws/Ae8Nnk

Could This be the Next Financial Disaster?
By Dave Forest, OilPrice.com
I wrote last week about big changes coming to financial regulation in Europe.
Look for the sequel soon in the U.S. America is buckling down for a new era of financial rulemaking...
Another sore point in the wake of the financial crisis has been derivatives. Simply, financial instruments whose value derives from the value of a separate financial instrument. Derivatives range from the relatively simple (options) to the complex (credit default swaps). Critics say that over the last several years financial industry players have been allowed to write derivatives too freely. The result being this area of finance ballooned. To the point that the estimated total value of derivates outstanding globally is a staggering $615 trillion.
http://jlne.ws/zr7yDH

TECHNOLOGY

BATS To Move Disaster Recovery Site to Savvis' Chicago facility
Savvis will buildout and operate a secondary DR site for all three of BATS's U.S. stock and options markets.
By Ivy Schmerken, Wall Street & Technology
January 18, 2012
Today, BATS Global Markets said it would move its secondary disaster recovery site to the Savvis Chicago CH4 data center facility for all three of its U.S. markets. BATS already has a relationship with Savvis in Weehawken, New Jersey where it hosts the matching engines for BATS’ two equity markets, BZX and BYX exchange as well as the BATS Options Market. BATS’ primary sites will continue to be in Weehawken, N.J., but it will migrate the secondary DR sites to Chicago. As part of the agreement, BAT has extended its existing services contract for hosting its matching engines at Savvis’ Weehawken facility.
http://jlne.ws/AiV7e0

Bats Exchange claims its first listings

2012-01-17T15:56:00.005-06:00

LEAD STORIES

Bats Exchange claims its first listings
KansasCity.com
Eight exchange-traded funds from iShares will be the first publicly traded listings on the Lenexa-based Bats Exchange. Bats Global Markets operates the exchange and other markets where shares of public companies, options and other securities trade. The listings are the first in Bats’ competition with the New York Stock Exchange and Nasdaq to be the home market for publicly traded securities.
http://jlne.ws/z5wQ1A

The Efficiency of the VIX Futures Market: A Panel Data Approach
The Journal of Alternative Investments
The empirical findings support the hypothesis that VIX futures are good predictors of spot VIX values. The tests show that the VIX futures with a forecast horizon up to 23 days do not incorporate a significant risk premium and, thus, can be considered as unbiased and efficient estimators of the relevant spot VIX levels.
http://jlne.ws/yFlJ7g

UPDATE: EU's Almunia: Competition Between Exchanges Needed
WSJ.com
By Matina Stevis and Jacob Bunge Of DOW JONES NEWSWIRES
BRUSSELS (Dow Jones)--The head of the European Union's competition watchdog said Tuesday evening that competition among financial exchanges is necessary as the E.U. prepares to deliver a decision on the proposed merger of Europe's two biggest market operators. European Union competition chief Joaquin Almunia noted the E.U. had raised concerns around the planned merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF) and would be adopting a decision on the case "soon."
"By now all of you are aware that the European Commission has raised preliminary concerns in the announced merger between two large exchanges in the E.U., and it has launched an in-depth investigation that is still ongoing," said Almunia.
http://jlne.ws/xxq8gk

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Jan 17, 2012 10:30 AM CT
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price
http://jlne.ws/Ap3R0G

Stock ETFs Rally as S&P 500 Tests 1,300
ETF Trends
January 17th at 7:34am by Paul Weisbruch, Street One Financial
Stock exchange traded funds were set for a higher open Tuesday following the holiday weekend with S&P 500 futures testing the key 1,300 level before the opening bell. Equities marched steadily higher last week, even reversing early weakness last Friday to finish near the high end of their ranges while shrugging off bearish news out of Europe. We saw the SPX close at 1,289.09 on Friday, and it traded as high as 1,296.82 the previous session before giving back some gains.
...Volatility related ETNs were extremely active last week as we saw VelocityShares Daily 2X VIX Short Term ETN (NYSEArca: TVIX) trade a multiple of its average daily volume both last Thursday and Friday, and iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) and VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) volumes were also healthy.
http://jlne.ws/yk8jhM

TECHNOLOGY

ConvergEx Group Launches ConnEx
Outsourced FIX Services Offer Scalable, Cutting-Edge and Cost-Efficient Infrastructure and Technology
NEW YORK, Jan. 17, 2012 /PRNewswire via COMTEX/ -- ConvergEx Group, a leading technology company, today announced that it has launched ConnEx, a new business that provides a complete line of FIX connectivity infrastructure solutions. ConnEx offers the latest technology available and a dedicated team of professionals to customize solutions with highly-flexible FIX gateways and top-quality FIX protocol implementation. These services are designed to help customers more efficiently manage their daily operations and to save significantly on capital expenditures.
http://jlne.ws/wQuQev

STRATEGY

Six Sanity Checks For A Seemingly Virtuous VIX
ZeroHedge Submitted by Tyler Durden on 01/17/2012
As short-term volatility leaks lower and lower and more and more talking heads use this 'risk-index' as reason to be longer and longer stocks, we thought it might be useful to get some context on recent movements in volatility-related factors. Whether its seasonality, volatility term structure, or the high-yield credit market, VIX looks low (underpricing short-term risk). Perhaps it is a plethora of new-year-new-book covered call euphoria or just belief in the LTRO firewall fixing tail-risk (or US decoupling shifting us to moderation), short-term options are sending some different messages to the risk-is-on-like-donkey-kong 'broadcast' that the contemporaneous (and in no way leading) VIX is being mis-understood as indicating. We present six perspectives that should be considered before more nickels are picked up in front of the micro (earnings) and macro (you name it) steamroller.
http://jlne.ws/Acd3yD

OPTIONS EDUCATION

New Resources for a New Year
By STEVEN M. SEARS, Barrons.com
Some books and Websites that encourage investors to think and act more sensibly in dealing with the market's volatility and risk.
In these halcyon days of the new year, when much is made of little facts, such as the stock market trading at its highest level in many months, it is important to think more deeply than Wall Street's sound bites. Volatility and risk are still the issues that investors must address and try to master. If the 2012 stock market resembles that of 2011, the next 50 or so weeks will be a roller coaster that ends at about the same level it began. Already, some investors are actively buying puts on the Standard & Poor's 500 to protect against a sharp stock decline before March expiration.
http://jlne.ws/zMTGG3

Nasdaq looks at changing its structure

2012-01-13T16:02:00.000-06:00

LEAD STORIES
Nasdaq looks at changing its structure
By Telis Demos in New York and Jeremy Grant in London
The Financial Times
Nasdaq OMX’s board of directors is discussing the possibility of changing Nasdaq’s leadership structure, which could include Robert Greifeld being named chairman in addition to chief executive, people briefed on the discussions said. The discussion comes as NYSE Euronext and Deutsche Börse’s deal appears at risk of being called off due to strong opposition from antitrust regulators in Europe. It is likely to stoke anticipation that Mr Greifeld may be trying to clear a way for a potential merger to capitalise on his rivals’ failure by seeking the ability to offer up the chief executive role to a merger partner as an inducement to complete a deal.

http://jlne.ws/xufByg

DB-NYSE tie-up hits another hurdle
By Jeremy Grant, FT.com
Plans by Germany’s Deutsche Börse and US-based NYSE Euronext to create the world’s largest stock and derivatives exchange hit a significant hurdle after Europe’s antitrust regulators decided to recommend that the deal be blocked. While no official announcement was made, people familiar with the matter said that regulators argued that a combination of the Börse’s Eurex derivatives exchange with NYSE’s London-based Liffe derivatives arm would create a business that would stifle competition in exchanged traded derivatives in Europe.
http://jlne.ws/xgT22u

More Stock-Market Volatility Coming This Year: Chart of the Day
By David Wilson, Bloomberg
Jan 12, 2012 11:01
Stock investors shouldn’t get used to the relative calm that markets are now showing, according to Andrew Garthwaite, a global equity strategist at Credit Suisse Group AG. Volatility is likely to rise this year, Garthwaite wrote yesterday in a report. He attributed the outlook to excessive borrowing in developed economies, which ensures that investors will be “abnormally sensitive” to shifts in economic growth and government policy, he added.
The CHART OF THE DAY compares the volatility of the Standard & Poor’s 500 Index and the performance of the Chicago Board Options Exchange Volatility Index, or the VIX, since the beginning of last year. The VIX indicates the level of concern among investors about future share-price swings.
http://jlne.ws/xg3BiR

Nikkei 225 January Options Settle at 8,470.71, Traders Say
Bloomberg
By Yoshiaki Nohara - Jan 12, 2012 6:22 PM CT
Japan’s Nikkei 225 January options settled at 8,470.71, traders said.
http://jlne.ws/xPGevO

Opening View: DJIA Down On Its Luck After JPMorgan Earnings, Bank of America Report
NASDAQ.com
Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,314,706 call contracts traded on Thursday, compared to 752,333 put contracts. The resultant single-session put/call ratio arrived at 0.57, while the 21-day moving average was 0.68.
http://jlne.ws/z8CSe4

EXCHANGES

Housing Derivatives Market
by Jann Swanson, Mortgage News Daily
Company Outlines Model behind New Housing Derivative
Jan 6 2012,
The Chicago Board Options Exchange (CBOE) will soon permit futures trading in housing through a derivative based on the Radar Logic Composite Price. According to information released by Radar Logic, a New York City real estate data and analytics company, this derivative will allow institutions both to hedge against downturns in housing prices and to allocate portions of their investment portfolios to housing assets without the search, transaction, and maintenance costs association with purchasing physical properties. Or, as the background information the company released today says, "RPX futures will allow you to invest in residential real estate without having to mow the lawn."
http://jlne.ws/xSep6z
Kansas City Board of Trade Clearing Corp. Elects Officers, Directors for 2012
Kansas City, Missouri News
Friday, January 13, 2012
The Clearing Corp. reconciles all futures and options trades at the Kansas City Board of Trade and guarantees the financial integrity of all trades.
Michael L. Dean, Cargill, Inc., was elected president of the Kansas City Board of Trade Clearing Corp., a wholly owned subsidiary of the Kansas City Board of Trade.
http://jlne.ws/wZB7Xj

REGULATION

Prediction Markets Look To Gain Regulatory Acceptance in USOpalesque, Friday, January 13, 2012
Should investors have the right to hedge their portfolios based on election results in the U.S.? Some might say the ability to hedge political risk currently exists to some extent through existing futures contracts on stock indices, interest rates and currencies. Others say the ability to bet on election results is damaging to democracy, while still different voices defend the need for small business executives to hedge political outcomes.
Enter the North American Derivatives Exchange (NADEX), which is petitioning the CFTC to allow regulated trading based on U.S. presidential elections and control of the U.S. House and Senate. The system offers new potential for hedgers and speculators, but also has raised important questions. Is an election prediction market just raw gambling? Can the process be corrupted by politicians to influence the results of public opinion or an election? How does the market making process ensure enough liquidity so that the market cannot be whipsawed? These questions were put to Dan Cook, spokesperson for the emerging Chicago-based futures exchange that is apparently targeting retail investors. Last year the exchange traded near 1 million contracts in energy, stock indices and currencies - a far cry from the nearly three billion contracts traded at market leader CME.
http://jlne.ws/xeOrDh

U.S. SEC tightens leash on exchanges post 'flash crash'
Reuters
By Jonathan Spicer, Herbert Lash and Sarah N. Lynch
Fri Jan 13, 2012 11:16am IST
NEW YORK/WASHINGTON (Reuters) - The May 2010 "flash crash" was bad for almost everyone involved in the stock market, but for the U.S. Securities and Exchange Commission, it was a disaster.
With $1 trillion in shareholder equity wiped out in a matter of minutes - however temporarily - alarmed investors demanded answers.
Embarrassingly, the heads of the New York Stock Exchange and Nasdaq Stock Market got into a spat on television, blaming each other for the mess, and the SEC realized that it didn't have the information to explain what caused the scariest few minutes in recent Wall Street history.
The regulators had to seek the data from the exchanges, delaying a much-anticipated report on the crash by nearly five months. The unwelcome lapse in oversight laid bare the SEC's limited ability to track the inner workings of the marketplace when it matters most.
http://jlne.ws/xo6iKK

VIX Had Smallest Intraday Range Ever!

2012-01-12T14:55:00.003-06:00

LEAD STORIES

VIX Had Smallest Intraday Range Ever!
Wall Street Sector Selector January 11, 2012 3:44 pm
Bill Luby: If ever there was a day to be short the volatility of volatility, it was today. In fact, today established a new record for the smallest (in percentage terms) intraday range for the VIX (NYSEARCA:VXX), a mere 1.14%. For those who are curious (and I know you are out there), the previous record of 1.24% dates from August 29, 2003.
http://jlne.ws/zxrm8M

Traders' New Cry: See You in a Week
By CHRIS DIETERICH, WSJ.com
'Short-Term' Options Bet on a Stock's Action in a Handful of Days Instead of Month; a Volatility Play
It's fast times in the options market.
Demand is soaring for stock options that expire within a week's time, as opposed to the usual monthly expiration. This relatively new style of contract—known as a weekly or short-term option—is cheaper than a monthly option, and it allows investors to quickly dart in and out of the market, taking advantage of sudden moves. The growing appeal of weekly options shows how traders' time horizons are becoming shorter amid high volatility in financial markets.
http://jlne.ws/xOyNWV

NYSE chief 'pretty disappointed' with antitrust ruling
Dow Jones Newswires
12 Jan 2012
The chief executive of NYSE Euronext said that European Union antitrust regulators' analysis of his company's planned merger with Deutsche Börse was "fundamentally flawed," after regulators recommended blocking the deal. Competition authorities that have come to view a planned combination of the two exchange groups' futures markets as a monopoly on European futures and options trade have ignored competing markets in off-exchange derivatives and overseas platforms, NYSE Euronext chief executive Duncan Niederauer said in a video message to his employees.
"I have to tell you I think that's a conclusion that results from a fundamentally flawed technical analysis that ignores the realities of the marketplace that we live and work in every day," Niederauer said in the message, a transcript of which was reviewed by Dow Jones.
http://jlne.ws/xRaaEL

Index, ETF option volumes near midday
Chris McKhann, optionmonster.com
Total option volume tops 5.1 million contracts so far today with mixed sentiment in the indexes and ETFs, optionMONSTER's data systems show. The SPDR S&P 500 Fund (SPY) has 625,000 options traded, 360,000 of them puts. The S&P 500 Index (SPX) contracts have turned over 234,000 times, with 146,000 puts.
http://jlne.ws/zxtt1M

EXCHANGES
BATS Announces First Primary Listings; Welcomes New iShares ETFs
Leading ETF Issuer to Launch Inaugural Listings on BATS Exchange; New ETFs Based On MSCI Indexes
KANSAS CITY, Mo., Jan. 12, 2012 -- KANSAS CITY, Mo., Jan. 12, 2012 /PRNewswire/ -- BATS Global Markets (BATS), a global operator of stock and options markets, today announced that BlackRock, Inc.'s (NYSE: BLK) iShares® Exchange Traded Funds (ETFs) business, the world's largest manager of ETFs, will list eight new ETFs on BATS Exchange, marking BATS' first primary listings.
http://jlne.ws/zNrPeX

NYSE Euronext : NYSE Liffe U.S. Named ‘Exchange of the Year’ by Risk Magazine
NYSE Liffe U.S.
-Industry Recognition of the Exchange's Innovative Trading and Clearing Model -
-Highlighting the Exchange's Strategic Vision and Rapid Customer Acceptance -
New York, Jan. 12, 2012 - NYSE Liffe U.S., the U.S. futures exchange of NYSE Euronext (NYX), today announced it was named 'Exchange of the Year' by Risk Magazine in its 2012 Risk Awards. Less than a year after introducing its suite of interest rate futures contracts, NYSE Liffe U.S. has built a competitive exchange platform offering a unique combination of industry-leading technology, capital and operational efficiencies, and ground-breaking innovation. With a product portfolio that includes futures on precious metals, MSCI indices, US Treasuries, Eurodollars and the recently announced DTCC GCF Repo Index contracts, NYSE Liffe U.S. offers value and efficiency through innovative products and services.
http://jlne.ws/yduzY7

STRATEGY

Energy Investing In 2012: How To Come Out On Top In Volatile Markets
ETF Daily News January 11th, 2012
Elliott Gue: With the ongoing EU sovereign-debt crisis conjuring painful memories of the 2008-09 financial crisis for many investors, bigger-picture concerns drove global equity markets in 2011. A surge in market volatility and the increased correlation between stocks reflect the primacy of macro developments over stock-specific news and catalysts.
Volatility is the degree to which a particular stock or index fluctuates in value over time. Many investors monitor the Chicago Board Options Exchange Index (VIX) to gauge the implied volatility of the S&P 500. Higher VIX readings suggest that traders expect market volatility to increase.
http://jlne.ws/wHBXwJ

OPTIONS EDUCATION

OIC ANNOUNCES EQUITY OPTIONS SEMINAR LINEUP FOR WINTER/SPRING 2012
Launches Pilot Seminar on Advanced Strategies
Press Release Chicago (January 12, 2012) – The Options Industry Council (OIC) announced today its seminar schedule for the winter and spring season. Seminars focusing on basic, intermediate, volatility, and options on ETFs topics will be offered as well as a new seminar for experienced traders on advanced options strategies. The pilot seminar will cover vertical spreads, butterflies and condors and will be introduced in Philadelphia, Chicago, and New York in February and March. These free, educational seminars are taught by experienced instructors from the different options exchanges and OIC professionals in a classroom-style setting with the aim of educating investors and financial advisors on the responsible use of options. The seminars run from 6-9 p.m. and advanced registration is required.
http://jlne.ws/z2LZ7n

JLN Options Interview: A Talk with Mark Abssy, Senior Index & ETF Manager at ISE, on the SPY Bear and Bull Option Overlay Indexes

2012-01-11T16:13:00.002-06:00

A Talk with Mark Abssy, Senior Index & ETF Manager at ISE, on the SPY Bear and Bull Option Overlay Indexes

On December 5, 2011, the International Securities Exchange (ISE) announced that it had created two new indexes, the ISE SPY Bear Options Overlay Index (VCS) and the ISE SPY Bull Option Overlay Index (VPS). The indexes track the performance of a portfolio of vertical call or put spread strategies based on the SPDR S&P 500 ETF.

JLN Options editor Sarah Rudolph spoke with Mark Abssy, Senior Index & ETF Manager for ISE, about how the indexes work, what makes them different from what has gone before, and what products will be launched using them as the underlying.

Q: How do the indexes work and what are some of the ways customers can use these indexes in their trading strategies?

A: Traditionally, people who trade options observe a certain level of volatility, and they have a certain outlook in the near- or mid-term, and they want to not only identify what strategy to use but also to find a single trade, one position that they can track and monitor over time.

The option indexes available now are primarily call or put writing indexes. These indexes are composed of an underlying position and an options position that mirrors traditional options trading with a tied-to-stock trade. Again, both the equity and options elements are components in traditional option strategy indexes.

As you know, ISE is primarily an options exchange, but we also have a small but growing business in the index space. Our goal is not to create benchmarks, like some of the other firms in the index development business, but to create purpose-built indexes to be used as the underlying for investment products. We believe that VCS and VPS fit nicely into that strategy.

When we looked at packaging various options strategies into an index, our goal was to design an index that exhibits the traits of a given strategy but achieves greater diversification than having exposure to a single position.

To create an investment vehicle as opposed to a trading vehicle, we looked at not what was the best trade right now, but rather we looked at all the possible trades for a given strategy, such as the vertical call spread. The index uses a mix of front month and second month positions. For each of those expiration periods, we create all the possible spread pairs, then rate and rank them on various criteria – liquidity, the premium collected, etc.

Once we’ve created all these possible spreads, we collect metrics about them and we pick a mix of spreads from the front month and second month, then within each of those months, so that the portfolio is also diversified in terms of moneyness. We also build in loss floors for the components of the index.

For instance, if you look at the portfolio that was created at the November rebalance on the vertical call spread index, that portfolio started off with 45 spreads, and at end of that expiration cycle it still held 45 spreads. That was the bearish position: the bear call spread. Throughout that expiration period, had you invested in a portfolio represented by the index, you would have realized a 19.5 % gain.

On the other side, however, the vertical put spread index started out that same period with 50 different spreads and ended with 14 spreads in the index. Over that time a certain number of spreads hit their loss limits and were allocated to cash. That portfolio was down about 7% for the same time period.

One of the unique aspects of this index is that it offers a diversified portfolio of option positions, which differs from how many traders use options. The benefit of this approach is that it reduces the volatility of their exposure.

Q: How much does this spread strategy limit a trader’s ability to profit?

A: Consider the numbers I just gave you for a recent one-month gain, if you talk to a typical options trader, they may say, “where did you go wrong?” But we are targeting this index at people who don’t trade options, who are used to equity-type returns. If you talk to these investors, they will say, ‘Wow! You didn’t use leverage or a swap?’

Once an issuer lists products based on these indexes, we think this will be a good gateway to the options marketplace, not just for retail traders but for a lot of professionals, brokers and RIAs, with responsibility for other people’s portfolios. If they trade the indexes in the form of an ETF, they will want to, at a minimum, understand the payoff diagram for the vertical spread, where you have both limited loss and upside. However, there is still plenty of upside to be had as demonstrated by my previous example.

Q: Clearly ISE has done a lot of focusing on ETF products. (ISE was voted Most Proactive Exchange, ETF Derivatives at the 7th Annual Global ETF Awards Dinner hosted by exchangetradedfunds.com for 2010.) Why has ISE been so active in ETF derivatives?

A: When we initially launched our index business in 2003, we created our own proprietary indexes with a view to list options on them. Over time, this business evolved, and we looked for opportunities in an adjacent space, that is, the growing ETF area.

In 2007, we licensed three of our indexes to First Trust Advisors, and they launched three ETFs based on ISE’s indexes. The ETF industry is growing rapidly and there was a demand for the type of unique, sector-specific indexes that ISE was developing. Growing this segment of our index business has been my area of focus since joining ISE in 2008. Since my background is in investment management, I understand the fund marketplace, for both mutual and exchange-traded funds, which allows me to focus on engaging issuers and other potential partners in this area.

Q: Do you have a time frame on when these indexes will be implemented as ETFs?

A: We are in discussions with potential fund issuers, but do not have a timeframe to announce yet.

Our typical approach to new products is to launch indexes in conjunction with tradable products like ETFs. We took a different approach here because these indexes are the first of their kind in the options area and we wanted to provide the opportunity for people to track the data now and see how the indexes perform over time.

These are the first two indexes, but we believe this methodology could potentially support a range of similar products. It’s an exciting first step for us.

CBOE Eyes New Futures On Equities, Bond Yields, Commodities

2012-01-11T15:11:00.001-06:00

LEAD STORIES

CBOE Eyes New Futures On Equities, Bond Yields, Commodities
By Jacob Bunge, Of DOW JONES NEWSWIRES
The parent of the Chicago Board Options Exchange is exploring ways to broaden its small U.S. futures market with contracts linked to stocks, bond yields and commodities, according to an executive.
CBOE Holdings Inc. (CBOE), which runs the largest U.S. options exchange by contract volume, is looking for ways to bulk up in proprietary futures contracts that carry higher trading fees than stock options.
The eight-year-old CBOE Futures Exchange does most of its business in futures linked to the CBOE Volatility Index, or VIX, the so-called "fear gauge" that reflects anticipated gyrations in the Standard & Poor's 500 stock index.
Any new contracts tied to stocks, interest rates and commodities launched on the CBOE Futures Exchange are unlikely to be copycat versions of products already offered by larger futures market operators like CME Group Inc. (CME) and IntercontinentalExchange Inc. (ICE), said James Lubin, managing director of the platform for CBOE.
http://jlne.ws/AsY6Tx

NYSE Euronext-Deutsche Borse Lobbying to Save Deal
As European antitrust regulators signal they would recommend blocking the $9 billion deal, NYSE Euronext and Deutsche Borse have launched a lobbying effort in Europe.
By Reuters January 11, 2012
NEW YORK/FRANKFURT - Deutsche Boerse and NYSE Euronext have launched a lobbying effort in Europe to save their $9 billion merger, as European antitrust regulators made it clear they would recommend the deal be blocked, a source familiar with the situation said on Tuesday. European Commission antitrust chief Joaquin Almunia and the case team plan to make the recommendation to the so-called college of 27 commissioners, who are expected to meet early next month to decide on the fate of the deal, the source said.
The antitrust staff's move, which NYSE and Deutsche Boerse had been expecting since at least late last month, places the deal to create the world's largest exchange operator on the brink of collapse.
http://jlne.ws/AAGZUx

Five possible options for NYSE-Deutsche Boerse
By Michelle Price, MarketWatch
The news that European Union regulators have preliminarily rejected the proposed landmark merger between NYSE Euronext /quotes/zigman/421745/quotes/nls/nyx NYX -0.79% and Deutsche Boerse AG , despite a range of remedy packages, leaves the two exchanges with few options. The European trading industry had widely expected the deal to be rejected amid fears that the combination of the two exchanges' formidable derivatives franchises would create a monopoly in European derivatives trading.
Although the exchanges have offered a range of remedies, including spinning off some of their overlapping contracts and partially opening up Deutsche Boerse's clearing house, these measures have so-far failed to appease Europe's antitrust department, known as DG Competition, according to reports.
http://jlne.ws/xblf0d

Disaster Puts Options Are Suddenly Popular
By STEVEN M. SEARS, Barrons.com
Investors are actively buying bearish options even as U.S. stocks approach highs that haven't been seen since last summer.
As much is made of the stock market's recent strength, much hedging action is suddenly occurring in the options market and out of the sight of most investors and market pundits. Investors started Wednesday by buying bundles of puts on the Standard & Poor's 500 index that would increase in value if the index, now at about 1286, fell to 1200 or lower before March. An 86-point drop on the S&P 500 index is the equivalent of about an 800-point fall of the Dow Jones Industrial Average.
The hedging action suggests that major investors are buying disaster insurance in case the old hobgoblins of 2011, including Europe's economic crisis, and a return of U.S. economy weakness, take center stage.
http://jlne.ws/AaOmmk

Options Brace for Euro Rebound Versus Dollar After Drop: Chart of the Day
By Liz Capo McCormick, Bloomberg
Demand has faded since mid-November for options that protect against a slide in the euro versus the dollar as derivative traders look beyond weakness in the shared currency and brace for a potential rebound.
The CHART OF THE DAY shows the premium for options granting the right to sell the euro versus those that allow for purchases has been cut by more than half even as the 17-nation currency plunged to a 16-month low versus the dollar. A negative reading for the so-called 25-delta risk reversal rate means implied volatility, a gauge of price and demand, is higher on euro puts relative to that on similar value calls. A put grants the right to sell; a call allows for purchases. The chart also shows record noncommercial speculative net short positions in euro futures contracts, according to Commodity Futures Trading Commission data.
http://jlne.ws/xd2LjP

EXCHANGES

CBOE CEO Brodsky: 'I'm embarrassed to live here'
By Lynne Marek, Crain's Chicago Business
January 10, 2012
(Crain's) — CBOE Holdings Inc. CEO Bill Brodsky derided the state of Illinois for financial problems, such as underfunding of state pensions, just weeks after the state passed a new law that will reduce the taxes that his Chicago-based options exchange pays.
"I'm embarrassed to live here," Mr. Brodsky said in answer to a reporter's question at an annual CBOE media lunch Tuesday. His remark was in reference to a bond-rating downgrade by Moody's Investors Service Inc. last week to A2, that agency's lowest for any state. "We need people to come together and recognize the gravity of the situation and work together to a solution."
http://jlne.ws/wICfLu

Another Chicago exchange master blows at PR
Greg Hinz On Politics | Crain's Chicago Business (Opinion)
What is it about Chicago's masters of the universe — aka the guys who run our big trading exchanges — and their wont to insert foot squarely in mouth?
First it was CME Group Inc.'s Terry Duffy.
In a trip down to Springfield a few weeks back to lobby for a big, expensive tax break, Mr. Duffy swaggered in as if he owned the joint, not so much making a quick and persuasive case as demanding an entitlement. He even kept referring to the Legislature as "Congress" — which said a lot about his mindset, in my view.
Now it's CBOE Holdings Inc.'s Bill Brodsky who's talking before thinking.
As my colleague Lynne Marek reported, Mr. Brodsky, in response to a question at the exchange's annual media luncheon, said he was "embarrassed to live" in a state with such huge unfunded pension liability — this just a few weeks after Mr. Brodsky snagged about $6 million a year in state tax cuts as part of the CME legislation.
http://jlne.ws/wGJyd2

CBOE sees volatility products as engine of growth
By Doris Frankel
CHICAGO, Jan 10 (Reuters) - CBOE Holdings Inc's suite of volatility products has been an engine of growth for the exchange operator as investors embrace volatility as an asset class, a top executive said on Tuesday.
'For us, the acceptance of volatility as an asset class was validated in our achievement in setting record volume in 2011,' said James Lubin, managing director of CBOE Futures Exchange (CFE).
CBOE is home of the Volatility Index, Wall Street's favorite barometer of sentiment also known as the VIX. In recent years, CBOE has introduced options and futures based on the VIX on its exchanges due to investor demand to trade volatility. VIX futures were offered in 2004 and VIX options followed in 2006.
http://jlne.ws/xVfdP2

STRATEGY

Covered Call ETFs For A Volatile, Sideways Market
Seeking Alpha
by: Vince Martin January 10, 2012
Covered call writing has become a popular strategy of late, particularly as online investing tools have cut transaction costs and allowed individual investors reasonably priced access to the options market. In addition, a number of factors have combined to make the strategy successful in the recent market. Higher volatility has increased option premiums; a sideways market (the S&P 500 closed 2011 down 0.03 percent) has limited the benchmark rate of return; and low yields in the bond market have forced investors to more creatively seek income generating strategies.
The Chicago Board Options Exchange (CBOE) compiles the BuyWrite Index (BXM), which simply involves the ownership of the S&P 500 index, with an index call option written against the long position. It has outperformed the broader market since the onset of the financial crisis in late 2007
http://jlne.ws/wbNtb4

-- More on the CBOE's new BuyWrite Index, which has received a lot of coverage lately, including our piece on Jan. 5.

Short-term strategies boost US options trading

2012-01-10T17:03:00.001-06:00

LEAD STORIES

Short-term strategies boost US options trading
Tom Osborn, Financial news (subscription)
10 Jan 2012
Record trading in US equity options markets last year was boosted by fund managers increasingly hedging short-term equity positions using short-dated options contracts, according to a report from US research firm Tabb Group, as the US market gears up for another heavy year of trading on the back of volatile cash markets. Volumes in the US options market reached record levels in 2011, despite flagging slightly in December, with 4.5 billion contracts changing hands across the market’s nine exchanges. That figures represents a 17% rise over 2010, according to US trade body the Options Industry Council.
The report, by Tabb’s chief derivatives analyst Andy Nybo, suggested a record 8% of the contracts traded for the year were short-dated options, which expire on a weekly basis. Typically, option contracts on companies are listed on a monthly basis, meaning an option holder automatically gains the right to buy or sell that company's stock at a pre-agreed price after one month has passed.
http://jlne.ws/wtrGah

Short-Term Options Drove US-Listed Options to Record Levels in 2011, Says TABB Group
MarketWatch
Short-Term Volumes Accounted for 8% of Trading in 2011, According to New Research
NEW YORK & LONDON, Jan 10, 2012 (BUSINESS WIRE) -- Short-term options represent one of the most successful products launched by options exchanges in recent years, with demand from retail and institutional investors driving growth, says TABB Group in new research published today, "Accelerated Expirations: The Growing Relevance of Short-term Options."
According to TABB, short-term options (STOs) were a significant factor behind record options volume in 2011 with STOs accounting for 8.3% of the total 4.6 billion contracts traded for the year. Short-term options accounted for a peak 11.7% of total volume in October 2011, when volume reached 45.7 million contracts. Comparatively, one year earlier in October 2010, STOs trading volume totaled 20.8 million contracts. " http://jlne.ws/AxQ22d

CME Group Congratulates New FIA President Walt Lukken
Press Release
Jan. 10, 2012
CHICAGO, Jan. 10, 2012 /PRNewswire via COMTEX/ -- CME Group, the world's leading and most diverse derivatives marketplace, released the following statement on Walt Lukken being named the new president of the Futures Industry Association (FIA):
"We congratulate Walt Lukken on his appointment to head the Futures Industry Association. CME Group has had a long history of working closely with Walt during his tenure as Commissioner and then Acting Chairman of the Commodities Futures Trading Commission. His experience and depth of knowledge make him an ideal candidate to lead the FIA and we look forward to working with him to ensure the CFTC properly implements Dodd-Frank, enhances customer protection mechanisms following the failure of MF Global, and enhances the global competitiveness of U.S. futures markets."
"We also commend John Damgard for his 30 years of leadership as FIA President.
http://jlne.ws/ApllkA

-- JLN Options congratulates Walt Lukken as well. Never thought the Damgard era would actually come to an end.

FIA Announces Leadership Succession
Washington, D.C.—Jan 10, 2012—The Futures Industry Association announced today that its board of directors has appointed Walter Lukken as president and chief executive officer. Lukken brings to the FIA many years of experience in government as well as expertise in the mechanics of clearing, a critically important issue for the FIA and its members. He succeeds John Damgard, who has been the head of the association since 1982.
“We are delighted to announce this appointment. Walt is a tremendously talented individual with extraordinary experience and industry knowledge, and we are very fortunate to have someone of his caliber to lead the FIA at this important moment in its history,” said Michael Dawley, chairman of the FIA and co-head of futures and derivatives clearing services at Goldman, Sachs & Co.
The appointment concluded a selection process that began in March 2011, when Damgard announced his plans to retire. Lukken will take up the new position in time for the next annual meeting of the FIA board of directors scheduled for March 12. Damgard will remain with the organization as a senior advisor.*
http://jlne.ws/AcbRBN

* On the other hand, maybe it's not quite coming to an end.

Deutsche Boerse, NYSE Chiefs Set to Meet Amid Rising Opposition to Merger
By Nandini Sukumar and Aoife White - Jan 10, 2012
Jan. 10 (Bloomberg) -- European antitrust regulators have until Feb. 9 to evaluate Deutsche Boerse AG’s takeover of NYSE Euronext and have yet to communicate a formal ruling, according to the exchange companies. Suzanne O'Halloran reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)
The chief executive officers of Deutsche Boerse AG (DB1) and NYSE Euronext will meet in New York tomorrow to discuss rising opposition to their planned merger, according to two people with direct knowledge of the matter.
Reto Francioni and executives of Deutsche Boerse are flying to meet NYSE’s Duncan Niederauer after the companies said today that no official decision has been received from European antitrust regulators on the deal. Shares of the exchange operators rose more than 5 percent after the Financial Times said the European Commission would block it.
http://jlne.ws/xJmST7

3rd UPDATE: NYSE-Deutsche Boerse Merger Rejected By EU Regulators
WSJ.com
By Jacob Bunge and Stephen Fidler Of DOW JONES NEWSWIRES
--Regulators recommend prohibition of exchanges' merger plan
--Deal still must be ruled on by EU commissioners
--Exchanges concentrating efforts on lobbying commissioners
(Updates with sourcing to EU official, additional background, share price.)
Regulators of the European Union have preliminarily rejected the proposed merger between NYSE Euronext (NYX) and Deutsche Boerse (DBOEF, DB1.XE), according to a senior European Union official.
A recommendation to prohibit the $17 billion combination had been widely expected after EU antitrust officials continued to harbor concerns around the two exchange companies' combined power in derivatives trading despite several remedies proposed by the firms, including the spinoff of some overlapping contracts.
Spokesmen for Deutsche Boerse and NYSE Euronext said in separate statements Tuesday that the merger candidates hadn't yet received any notice of a decision by the EU on the deal. A spokeswoman for the European Union antitrust division declined comment.
http://jlne.ws/xhe110

Quick View: Bulking up – is it worth it any more?
FT.com By Jeremy Grant
The biggest exchange merger ever attempted looks like it’s hitting the buffers.
Europe’s antitrust authorities have blocked the Deutsche Börse-NYSE Euronext deal, our sources tell us.
They argue that the combination of the two groups’ derivatives exchanges Eurex and Liffe, would snuff out competition in European derivatives. They have suggested that the two groups divest a derivatives business – probably Liffe. But that would kill the rationale for the whole deal since derivatives is the most lucrative part of an exchange’s business.
http://jlne.ws/w0vB9u

CBSX Completes Acquisition of NSX
Peter Chapman, Traders Magazine Online News, January 10, 2012
The stock exchange subsidiary of the Chicago Board Options Exchange completed its acquisition of the National Stock Exchange at the end of last year. The deal gives the CBOE Stock Exchange a second license. Both exchanges will continue to operate separately under their current names, but will merge staffs in Chicago and Jersey City, according to a statement from CBSX.
http://jlne.ws/xG8Xft

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Jan 10, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York.
http://jlne.ws/xkEnyH

EXCHANGESCME's Duffy: Unaware Of Any Effort To 'Break Up' CME Group -CNBC
By Jacob Bunge Of DOW JONES NEWSWIRES
The executive chairman of CME Group Inc. (CME) said Tuesday that the futures exchange operator was "very much unaware" of any regulatory effort to "break up" the company. The comments from CME's Terry Duffy, made in an interview with CNBC, followed reports this week that authorities in Washington were considering a forced spin-off of CME's regulatory functions following the collapse of MF Global Holdings Ltd. (MFGLQ) in late October. CME served as MF Global's main regulator at the exchange level, responsible for auditing futures brokers like MF and other functions not performed by the Commodity Futures Trading Commission.

NYSE Euronext Announces Trading Volumes for December 2011 and Other Metrics
Global Derivatives ADV Up 12% Year-over-Year; U.S. Equity Options ADV Up 17% NEW YORK, Jan 10, 2012 (BUSINESS WIRE) -- --NYSE Liffe U.S. Crosses One Million Contracts in Total Exchange Open Interest

--European Cash ADV Up 9%; U.S. Cash ADV Down 11%

NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for December 2011(1). Global derivatives average daily volume ("ADV") of 7.5 million contracts in December 2011 increased 11.8% versus the prior year with U.S. equity options increasing 17.1%. Cash equities ADV in December 2011 were mixed, with European cash trading ADV increasing 9.0% and U.S. cash trading ADV decreasing 10.6% from December 2010 levels.
http://jlne.ws/xkvQcY

CBOE Futures Exchange to launch security futures trading in emerging markets volatility index
Hedgeweek Tue, 10/01/2012
CBOE Futures Exchange is to launch trading in security futures on the CBOE Emerging Markets ETF Volatility Index on Monday, 9 January, pending regulatory approval. The VXEEM Index reflects the implied volatility of the iShares MSCI Emerging Markets Index exchange-traded fund (ETF) (ticker:EEM). EEM options were the eleventh most actively traded option at CBOE in 2011. In addition to hedging emerging markets volatility exposure or making direct plays on emerging markets volatility, VXEM security futures - in conjunction with other volatility products - will allow market participants to trade cross-index or cross-asset volatility.
Barclays Capital will be a Lead Market Maker for VXEM security futures.
http://jlne.ws/zKPHhZ

STRATEGY

How to Profit From a Busted Stock-Exchange Merger
Barrons.com
By STEVEN M. SEARS
Use options to position for the likely termination of merger plans between NYSE Euronext and Deutsche Börse.
It is time to prepare for NYSE Euronext and Deutsche Börse to announce the cancelation of their star-crossed merger plan. The securities exchanges recently extended the deal termination date to March 31 in what is likely a final effort to win European approval. The U.S. Justice Department has approved the deal that was initiated in February 2010, but European regulators are concerned the deal may stifle competition in European derivative markets. The delays are potential negatives.
"People are coming to the realization that this thing is unlikely to occur," a senior trader at a major options market-making firm said.
http://jlne.ws/zlyKNT

SPDR Gold Trust: Using Options To Hedge Against A Gold ETF Collapse
ETF DAILY NEWS
January 10th, 2012
Sam Kirtley: At SK Options Trading, we primarily use the SPDR gold trust (NYSEARCA:GLD) for exposure to the gold price. GLD is an exchange traded fund, designed to track the price of one tenth of an ounce of gold. GLD currently holds around 1280 tonnes of physical bullion, the sixth largest holding in the world, preceded only by the U.S. Germany, the IMF, Italy and France. The major benefit of using an ETF such as GLD is that one can gain exposure to the gold price as easily as buying a stock and one can effectively trade gold options as easily as trading stock options.
http://jlne.ws/yWR2IN

Cash is still king, at least for now
Commentary: Conservative strategy ready to re-enter market
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — It’s not yet time for conservative investors to get back into the stock market — but it could be close.
That’s the message of a stock timing model that keys off the CBOE’s Volatility Index /quotes/zigman/2766221 VIX -1.80% . In its simplest form, the model calls for going to cash whenever the VIX rises above its median level of just shy of 20, and staying there until the VIX drops back below. A buy signal could be close at hand, however: The VIX is now back to the low 20s — and could easily drop below its long-term median in the next week or two.
http://jlne.ws/yEbZH6

Should You Use Options? Definitely, Just Practice Safe Strategy
Seeking Alpha by: Rocco Pendola January 10, 2012
Somehow, a portion of the comments section in a recent article about Apple's (AAPL) dominance turned into a mini-debate over the safety, or perceived lack thereof, of options trading among retail investors:

http://jlne.ws/w3g4yu

Largest option buying in equities so far
NASDAQ.com
by David Russell from optionMONSTER in Investing, Options
Nearing the halfway mark in today's session, here are the individual equity names with the most call and put buying on optionMONSTER's ActionTracker data system.
http://jlne.ws/zcVfom

OPTIONS EDUCATION

Energy Investing In 2012: How To Come Out On Top In Volatile Markets
Seeking Alpha
by: Elliott Gue January 10, 2012
With the ongoing EU sovereign-debt crisis conjuring painful memories of the 2008-09 financial crisis for many investors, bigger-picture concerns drove global equity markets in 2011. A surge in market volatility and the increased correlation between stocks reflect the primacy of macro developments over stock-specific news and catalysts.
http://jlne.ws/wDC80U

-- Mostly basic info on trading volatility

EVENTS

CBOE, C2, CFE, and CBSX
Trading Schedule for Martin Luther King, Jr. Holiday
CHICAGO, January 10, 2012 – CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the following trading schedules for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2), CBOE Futures Exchange (CFE) and CBOE Stock Exchange (CBSX) in observance of the Martin Luther King, Jr. Holiday; all times are Chicago time:
Friday, January 13:
CBOE, C2, CFE and CBSX will have regular trading hours for all products.
Monday, January 16:
CBOE, C2, CFE and CBSX will be closed.

CBOE Stock Exchange Completes Acquisition of National Stock Exchange

2012-01-09T16:18:00.004-06:00

LEAD STORIES

CBOE Stock Exchange Completes Acquisition of National Stock Exchange
CHICAGO, January 9, 2012 - CBOE Stock Exchange (CBSX) announced today that it completed the acquisition of all-electronic National Stock Exchange (NSX) on December 30. The acquisition, approved by the Securities and Exchange Commission, allows CBSX to expand its footprint in the securities exchange space by wholly owning and operating a second separate exchange.
Both exchanges will continue to operate separately under their current names and will integrate teams in Chicago and Jersey City, NJ.
http://jlne.ws/dqtww6

CBOE Stock Exchange Buys Market in Bid to Diversify Trading Client Roster
New York Investment
Posted on January 9, 2012 by admin
A marketplace partly owned by CBOE Holdings Inc. (CBOE), that runs a largest U.S. options exchange, acquired a 127-year-old National Stock Exchange to get access to new forms of customers. CBOE Stock Exchange, owned by Chicago-based CBOE Holdings and 9 companies including Interactive Brokers Group Inc. (IBKR) and Susquehanna International Group LLP, finished a squeeze of NSX on Dec. 30, according to David Harris, boss and chief executive officer of CBSX. Terms of a understanding weren’t disclosed. Harris is now also authority and CEO of Jersey City, New Jersey-based NSX, founded in 1885 as a Cincinnati Stock Exchange.
http://jlne.ws/zUJCpW

Ed Knight of Nasdaq OMX Discusses ....
Traders Magazine Online News, January 9, 2012
Ed Knight, general counsel and executive vice president at Nasdaq OMX, testified before the Senate Banking Committee in December during a hearing on the status of capital formation and job creation. Knight argued that the marketplace was overly fragmented and that exchanges needed government help in supporting the trading of small company stocks.
>>On the need for government help
We should also deal with structural issues that make our public markets less attractive today. We ask for your help in reshaping the rules driving the public markets so that investors and entrepreneurs will continue to view the U.S. capital markets as the most efficient and best regulated markets in the world. The United States used to be the market of choice for global IPOs. From 1995 to 2010, listings on U.S. exchanges shrank from 8,000 to 5,000, while listings on non-U.S. exchanges grew from 23,000 to 40,000.
>>On the "problem" of fragmentation
Today's U.S. markets are increasingly fragmented and volatile. Liquidity in U.S. stocks is dispersed across 13 exchanges, over 40 other registered execution venues, and uncounted other trading facilities.
http://jlne.ws/wB6El5

VIX ETFs Creep Lower as Euro Fears Recede
ETF Trends
January 9th at 10:18am by Tom Lydon
Exchange traded funds that follow futures contracts based on the CBOE Volatility Index are trading lower with markets apparently growing more confident that the euro can survive the debt crisis. According to a recent press release, the CBOE said that annual trading volume in 2011 surpassed twelve million contracts for the first time, with the VIX setting new trading records for annual, quarterly, monthly, weekly and single-day volumes.
However, volatility is beginning to wind down. The VIX has dropped more than 30% since mid-November, falling close to 20, report Chris Dieterich and Brendan Conway for The Wall Street Journal.
http://jlne.ws/zjhjj1

EXCHANGES

CBOE Lists Futures On Emerging-Markets Volatility
--CBOE lists futures tied to volatility in the iShares MSCI Emerging Markets Index ETF
--Emerging markets "VIX" measures options prices and expected swings in the emerging-market ETF
--CBOE to list futures on 10 additional sector and single-stock "fear" gauges through 2012
By Chris Dieterich, WSJ.com
NEW YORK -(Dow Jones)- The Chicago Board Options Exchange on Monday launched futures tied to the volatility of emerging-market stocks, the latest move by the exchange to broaden offerings tied to its "fear" franchise.
The futures are linked to volatility in the iShares MSCI Emerging Markets Index exchange-traded fund (EEM). Similar to CBOE's Volatility Index, which uses options prices to gauge anticipated swings in the Standard & Poor's 500, CBOE's Emerging Markets ETF Volatility Index measures expected swings in the EEM.
http://jlne.ws/y8EXHC

Successful Start for Seoul Options and Futures Exchange, SOFX New Trading Platform
Press Release Published on: January 9th, 2012
Seoul (OPENPRESS) January 8, 2012 - SOFX this week successfully introduced its new products onto its new trading platform, representing the first milestone of importance in the platform's release. Recently, thousands of products were migrated from the SOFX's platform to the new trading platform, involving approximately a majority of SOFX customers.
Having started with the organization's new indexes markets a few years back, the new trading platform will be rolled out to all of SOFX markets as soon as possible. When the rollout is completed, clients will require only one connection through the SOFX network to access all its cash and derivatives markets in the country and its new initiatives.
http://jlne.ws/xuRPN2

Platinum options traded on JSE for first time
Business LIVE
The Johannesburg Stock Exchange (JSE) has seen 800 platinum option contracts traded on the Safex commodity derivative's global market late last week, the first time that the JSE has seen this trading strategy used by market participants. Chris Sturgess, general manager of the commodities division at the JSE, says: "To date the trade has been solely in futures, but I'm pleased to see the first interest in using options by a hedge fund. Options are versatile instruments that in their simplest form enable traders to acquire a type of insurance. Buyers pay a premium to reduce their risk and have access to upside potential. This is a trend we are optimistic will increase."
http://jlne.ws/wGz5z8

Warsaw Stock Exchange Derivatives Market In 2011
MondoVisione
The total volume of trading in all derivatives was 15.6 million instruments in 2011, an increase of 5.7% year on year.
WIG20 options
* The volume of trading in WIG20 index options was 897.8 thousand options in 2011, an increase of 33% year on year;
* The monthly volume of trading in WIG20 index options was the highest in WSE history in August 2011 at 135.3 thousand options. The daily volume of trading in WIG20 options was historically the highest on 4 August at 19,372 options;
* The number of open interest in options was 17.5 thousand options at the end of the year. The month-end number of open interest was historically the highest at the end of May 2011 at 144.9 thousand options."
http://jlne.ws/zQt3Co

CME to Raise Stake in Dubai Mercantile Exchange, Sharaf Says
Bloomberg
By Anthony DiPaola - Jan 9, 2012
CME Group Inc. (CME), the world’s largest futures exchange owner, is set to increase its holding in the Dubai Mercantile Exchange, according to Ahmad Sharaf, chairman of that Persian Gulf oil bourse. The DME plans to raise money by offering more shares to existing investors this year, Sharaf said while attending a conference in Abu Dhabi today. The current roster of shareholders, which includes CME, a Dubai investment fund and the state of Oman, will remain the same, with only the size of their stakes changing, he said.
http://jlne.ws/y3ZxU0

REGULATION

Transaction Tax, CME’s MF Global Audit, EU Capital Rules: Compliance
By Carla Main, Bloomberg - Jan 9, 2012
French President Nicolas Sarkozy said it is “unacceptable” that there’s no tax on financial transactions and said France “won’t wait for everyone to be agreed” before imposing the tax.
“How can you explain that when you buy an apartment or go to the supermarket you pay tax, but that financial transactions are the only sort of purchase where you don’t pay,” he said.
Sarkozy, adding that the euro zone “must take its responsibilities,” made the remarks to the closing session of the “New Worlds” conference in Paris Jan. 6. A European Union financial-transaction tax would drive away investment and weaken employment unless a levy was accepted worldwide, said Margrethe Vestager, Denmark’s economy minister.
http://jlne.ws/xDuAS6

STRATEGY

Using Options To Hedge Against a GLD Collapse
NASDAQ.com
Posted by Trefis Team
At SK Options Trading , we primarily use the SPDR gold trust (NYSEARCA:GLD) for exposure to the gold price. GLD is an exchange traded fund, designed to track the price of one tenth of an ounce of gold. GLD currently holds around 1280 tonnes of physical bullion, the sixth largest holding in the world, preceded only by the U.S. Germany, the IMF, Italy and France. The major benefit of using an ETF such as GLD is that one can gain exposure to the gold price as easily as buying a stock and one can effectively trade gold options as easily as trading stock options.
http://jlne.ws/yxzM09

Speculators Increase Bullish Wagers Most Since ’10: Commodities
By Elizabeth Campbell, Businessweek
Jan. 9 (Bloomberg) -- Hedge funds raised their wagers on higher commodity prices by the most since July 2010 after signs of accelerating U.S. growth bolstered optimism that demand for raw materials will strengthen.
Money managers expanded their combined net-long positions across 18 U.S. futures and options by 25 percent to 671,915 contracts in the week ended Jan. 3, Commodity Futures Trading Commission data show. Bullish bets on cotton rose the most since April 2009 and those on coffee doubled. Crude-oil holdings reached a three-week high.
http://jlne.ws/wEYdgy

How About A High Volatility ETF? Do High Volatility Products Belong In Your Portfolio?
by Michael Johnston, ETF Database
January 9, 2012
One of the most noteworthy innovations in the ETF industry over the last several years has been the development of funds that deliver targeted exposure to investment “factors”, allowing for easy access to techniques that previously required extensive research and maintenance. From high momentum to low beta, there are now ETFs that slice and dice broad equity indexes in a number of different ways to deliver unique risk/return profiles.
http://jlne.ws/A76atI

VIX: Where Will It Trade?
By Mark Sebastian, The Street 01/09/12
Heading into the second week of January, traders need to prepare themselves for something we haven't seen in some time. The possibility of the CBOE Volatility Index (VIX) falling below 20! I did not think we would get here as quickly as we have, but assuming there is no crazy news overnight, the VIX will be trading around 21.25 on Monday's open with a strong bias to move lower. Lower? One might ask, how could the VIX possibly trade lower, IV is low...isn't it?
http://jlne.ws/wz692K

EVENTS

In observance of the Martin Luther King, Jr. holiday, NYSE Arca Equities, NYSE Arca Options, NYSE Amex Options, NYBX, and the NYSE Bonds market will be closed on Monday, January 16, 2012.
http://jlne.ws/x5xDDe

CBOE FUTURES EXCHANGE TO LAUNCH SECURITY FUTURES TRADING IN EMERGING MARKETS VOLATILITY INDEX

2012-01-06T15:02:00.004-06:00

LEAD STORIES

CBOE FUTURES EXCHANGE TO LAUNCH SECURITY FUTURES TRADING IN EMERGING MARKETS VOLATILITY INDEX
CHICAGO – January 6, 2012 -- CBOE Futures Exchange, LLC (CFE) announced today that it will launch trading in security futures on the CBOE Emerging Markets ETF Volatility Index (Index ticker: VXEEM; futures symbol: VXEM) on Monday, January 9, pending regulatory approval.
The VXEEM Index reflects the implied volatility of the iShares MSCI Emerging Markets Index exchange-traded fund (ETF) (ticker: EEM). EEM options were the eleventh most actively traded option at CBOE in 2011.
In addition to hedging emerging markets volatility exposure or making direct plays on emerging markets volatility, VXEM security futures – in conjunction with other volatility products – will allow market participants to trade cross-index or cross-asset volatility. Barclays Capital will be a Lead Market Maker for VXEM security futures.

http://jlne.ws/yDtlgC

New futures tied to emerging markets
Chris McKhann, optionmonster.com
The Chicago Board Options Exchange is launching new futures based on emerging-markets options on Monday. The CBOE Emerging Markets ETF Volatility Index (VXEEM) is based on the options of the iShares MSCI Emerging Markets Fund (EEM). The exchange-traded fund gives broad exposure to the emerging markets, including China, South Korea, Brazil, Taiwan, Russia, and India.
The VXEEM contracts will have some issues similar to those of VIX futures, such as odd expirations and limited access, but I am hopeful that this will be a successful product.
http://jlne.ws/zftnX3

Emerging Markets VIX Futures Begin Trading Next Week, CBOE Says
By Jeff Kearns and Nina Mehta, Bloomberg - Jan 6, 2012
Volatility futures linked to emerging-markets stocks begin trading on the Chicago Board Options Exchange Jan. 9, according to a statement from the largest U.S. equity derivatives market.
The futures track the CBOE Emerging Markets ETF Volatility Index (VXEEM), a gauge of options prices and expected price swings for the iShares MSCI Emerging Markets exchange-traded fund. The U.S.-listed ETF tracks 859 companies in 21 nations, from Samsung Electronics Co. to China Mobile Ltd. to OAO Gazprom. Barclays Plc is the lead market maker for the futures, CBOE said.
http://jlne.ws/z90sji

CBOE S&P 500 3-Month Volatility Index Heralding A Return To Normalcy
ETF Daily News January 6th, 2012
Bill Luby: With the political season heating up, it seemed like an opportune time to work “normalcy” into one of my posts again and what better way to do that than by putting under the microscope one of my favorite overlooked indices: the CBOE S&P 500 3-Month Volatility Index, which I typically reference with the more pithy VXV ticker symbol.
http://jlne.ws/A1Dpyg

Volatility. It s Here to Stay.
January 6, 2012
Elizabeth Wine, Securities Technology Monitor
Amidst the worried debate over whether the United States will tumble into recession this year, market watchers agree on one thing: volatility is here to stay.
Even if policymakers in Europe solve the debt crisis swiftly and their U.S. counterparts come to agreement on how to handle this country's own debt woes, Wall Street expects markets will continue to gyrate unpredictably.
http://jlne.ws/x8WF0N

OPTIONS REPORT: BofA's Stock Surge Flushes Out Bulls
WSJ.com
--Bullish trading in Bank of America has run roughly double the average this week
--Some options bets nearly double in one session as Bank of America's stock jumps 8.6% Thursday
--Put sellers bet that shares of Avon Products can hold recent gains before February
(Updates throughout with closing stock and options prices.)
By Chris Dieterich OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Bank of America Corp.'s (BAC) stock got bludgeoned last year as the worst performer on the Dow Jones Industrial Average, but investors are using recent strength to stake out bullish options bets. Bank of America's shares rose 50 cents, or 8.6%, to close at $6.31 after topping $6 for the first time in nearly two months. The stock knit together its first five-session winning streak in more than a year. In 2011, the stock's 58% decline was pockmarked by both seven- and eight-session skids.
http://jlne.ws/ylFBi7

EXCHANGES

SEC Blesses CBOE Stock Exchange Deal
By JACOB BUNGE, WSJ.com
The Securities and Exchange Commission has approved the planned takeover of the National Stock Exchange Inc. by the CBOE Stock Exchange LLC, which is partly owned by the Chicago Board Options Exchange.
Regulators' approval gives a green light for the union of two of the smallest U.S. stock-trading platforms, which together represent about 0.6% of daily turnover in domestic securities, according to data from BATS Global Markets.
http://jlne.ws/yla9dx

Silly Politics Beg for Market Discipline
Fox Business
Written By Al Lewis Published January 06, 2012
Yossi Beinart, chief executive of the North American Derivatives Exchange, wanted to be up and running with a new set of options this week that would have allowed investors to bet on the 2012 election. Who will be president? Which party will control the House or Senate? People would have been able to trade futures contracts on these questions. Instead, the Commodity Futures Trading Commission on Wednesday decided to put this proposal under a 90-day review. Meantime, one of the regulator's five commissioners has said Beinart's idea amounts to "political poker."
http://jlne.ws/zjkOtd

BATS December Equities Market Share Up, Options Off Slightly
Traders Magazine Online News, January 6, 2012
BATS Global Markets reported earlier this week its U.S. equities matched market share totaled 11.2 in December, down slightly from 11.5 percent in November, but up from 9.5 percent a year ago. The exchange operator saw an average daily matched volume of 710.7 million shares. The exchange operator in November saw an average daily matched volume of 843.6 million shares.
According to Rosenblatt Securities' latest report, BATS BYX monthly consolidated volume was 2.42 percent for November, up from 2.32 percent in October. BATS Options saw its matched market share come in at 2.1 percent in December, off from the 3.1 percent level achieved in November, up from 0.7 percent from one year ago. BATS Options had an average daily matched volume of 345, 880 contracts last month, with 524,998 contracts traded on December 16.
http://jlne.ws/w4cMfl

REGULATION

MF Global Inquiry Turns to Its Primary Regulator
By BEN PROTESS and AZAM AHMED, NYTimes.com
Terrence Duffy of the CME Group testified at a Senate hearing about MF Global's missing money.Andrew Harrer/Bloomberg NewsTerrence Duffy of the CME Group testified at a Senate hearing about MF Global’s missing money. Federal authorities investigating the collapse of MF Global have expanded their inquiry to include the actions of the CME Group, the operator of the main exchange where the commodities brokerage firm conducted business, according to people briefed on the matter.
CME, which also served as MF Global’s primary regulator, has come under heavy criticism after $1.2 billion in customer money disappeared from MF Global. The Commodity Futures Trading Commission, the government agency leading the case, is scrutinizing CME’s conduct in the days before MF Global filed for bankruptcy on Oct. 31.
http://jlne.ws/Ax7epO

No Misconduct Evidence in 1,000% Profit Trades
By JACK BOUBOUSHIAN, Courthouse News Service
CHICAGO (CN) - A Spanish trader may keep the $500,000 he made on potash stock options, a return of more than 1,000 percent, because the SEC cannot prove insider trading, a federal judge ruled. In August 2010, two Spanish men, Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez bought "relatively risky" stock options in Potash Corporation of Saskatchewan, a company that mines potash, a key ingredient in fertilizer.
http://jlne.ws/wVyO37

OPTIONS EDUCATION

Robert Engle Selected as the Recipient of the 2011 IAFE/SunGard Financial Engineer of the Year Award
New York, January 6, 2012 -- The International Association of Financial Engineers (www.iafe.org) and SunGard (http://www.sungard.com) today announced that Robert F. Engle, the Michael Armellino Professor of Finance at New York University and 2003 Nobel Laureate for Economics, has been named the 2011 IAFE/SunGard Financial Engineer of the Year (FEOY). The award will be presented to Dr. Engle on February 2, 2012, at the New York Stock Exchange in New York City, during the IAFE/SunGard FEOY Award Gala Dinner.
Commenting on his 2011 FEOY award, Dr. Engle said, “I am very pleased to be honored as Financial Engineer of the Year at this challenging time. The goals of improved risk management and responsible performance have never been more important."
He is currently the Director of the newly created NYU Stern Volatility Institute and is the Co-Founding President of the Society for Financial Econometrics (SoFiE), a global non-profit organization housed at NYU.
http://jlne.ws/zO08m5

Options Traders See Higher Volatility Ahead

2012-01-05T15:22:00.002-06:00

LEAD STORIES

Options Traders See Higher Volatility Ahead
By STEVEN M. SEARS, Barrons.com
Savvy options traders are taking advantage of the subdued VIX to buy low-cost protection
On Thursday, the stock market sent investors a critical message. If you failed to hear it, you missed information that matters more than the mostly rosy prognostications for the stock market in 2012 from Wall Street banks. The message: Volatile volatility is back from winter vacation, and likely here to stay for all of 2012.
http://jlne.ws/AqS5Y1

Deutsche Börse Holders See NYSE Deal Chances Fade
By ULRIKA DAUER And JACOB BUNGE, WSJ.com
With the European Union's antitrust verdict just a month away, several of Deutsche Börse AG's biggest shareholders are losing confidence in the German exchange operator's ability to pull off its planned tie-up with NYSE Euronext. As talks with the EU's antitrust authorities continue to drag on, investment managers at several of Deutsche Börse's 10 largest shareholders and a spokesman for the German DSW retail shareholder association said there is now only a 40% chance of the deal getting EU clearance by Feb. 9—a key hurdle until the offer terminates on March 31—compared with over 50% during the summer.

http://jlne.ws/wVSgjz

Tullett Prebon appoints head of options trading on base metals desk
Banking Business Review
Published 05 January 2012
UK-based inter-dealer broker Tullett Prebon has appointed Simon Underhill as head of options trading (EMEA) on the base metals desk. The company said that the appointment is part of its long-term strategy to enhance its product offering to clients and grow its base metals team. Based in London, Underhill will report to joint desk managers Mark Sedgwick and Steve Walter.
http://jlne.ws/zf9A0A

EXCHANGES

SEC Blesses CBOE Stock Exchange's Deal For National Stock Exchange
By Jacob Bunge, Of DOW JONES NEWSWIRES
The Securities and Exchange Commission has approved the planned takeover of the National Stock Exchange Inc. by the CBOE Stock Exchange LLC, which is partly owned by the Chicago Board Options Exchange. Regulators' approval gives a green light for the union of two of the smallest U.S. stock-trading platforms, which together represent about 0.6% of daily turnover in domestic securities, according to data from BATS Global Markets. The all-electronic CBOE Stock Exchange, or CBSX, had agreed in late September to buy the NSX, another automated market once known as the Cincinnati Stock Exchange. Their deal was patterned on the structure of larger rivals like Nasdaq OMX Group Inc. (NDAQ) and NYSE Euronext (NYX), both of which run multiple stock exchanges offering various market models and pricing schemes in a bid to lure different types of trading.
http://jlne.ws/ADlsA8

Eurozone crisis, MF Global chill trading at CME Group
chicagotribune.com/Reuters
CME Group and IntercontinentalExchange said on Wednesday that trading volume dropped last month, which analysts attributed to MF Global's collapse and Europe's debt crisis chilling trading in U.S. futures markets. Chicago-based CME, the biggest U.S. futures exchange operator, said trading dropped 9 percent last month to an average of 9.6 million contracts a day, taking the shine off a record-setting year.
http://jlne.ws/wgD0Xl

CME Retains Futures-Trading Crown For 2011
WSJ.com
--CME Group remains world's largest futures market by contract volume
--Economic turmoil also boosted futures trading at Deutsche Boerse, NYSE Euronext
--Strong year overshadows slower-than-usual December activity
By Jacob Bunge and Mia Lamar Of DOW JONES NEWSWIRES
CME Group Inc. (CME) maintained its standing as the world's largest futures market in 2011, outpacing the prospect of an enlarged competitor in the planned merger of Deutsche Boerse AG (DB1.XE, DBOEF) and NYSE Euronext (NYX). Chicago-based CME reported Wednesday a 10% rise in trading activity over 2010 levels, outstripping growth at the European futures markets run by its smaller rivals as global economic turmoil drove derivatives-trading activity to record levels.
http://jlne.ws/yixPBM

NSE BSE to conduct special F&O trading session on Saturday
Moneylife Personal Finance site and magazine
January 05, 2012
On account of upgradation in the Futures and Options (F&O) trading system, the NSE is conducting a special live trading session on Saturday. To maintain uniformity in trading time-table, the BSE will also conduct a special live trading session in the equity F&O segment on that day
http://jlne.ws/wxzyI0

REGULATION

Chicago Tribune: STOCK Act is Merely ‘Window Dressing’ and ‘Damage Control’ to Protect Rep. Bachus and Others
Big Government
The Chicago Tribune editorial page believes that legislative efforts to ban congressional insider trading, such as the STOCK (Stop Trading On Congressional Knowledge) Act, are simply an exercise in “damage control” and “window dressing” to shield Rep. Spencer Bachus (R-AL) and others mentioned in a 60 Minutes investigative report, based on Breibart News editor Peter Schweizer’s bestselling book, Throw Them All Out.
...A Breitbart News exclusive report revealed that Rep. Spencer Bachus’s options trading records during the summer and fall of 2008’s debates over the Troubled Asset Relief Program (TARP) were curiously well-timed with market trends. Specifically, from July to November 2008, Rep. Bachus executed at least 40 options trades that resulted in as much as $50,000 in capital gains.
http://jlne.ws/yYeqh3

STRATEGY

CBOE Global Volatility Feature for Options Profits
TheStreet
By Jill Malandrino 01/05/12
This complimentary article from Options Profits was originally published on January 3 at 8:59am EST.
Russell Rhoads is an instructor with The Options Institute at the Chicago Board Options Exchange. He is a financial author and editor having contributed to multiple magazines and edited several books for Wiley publishing. In 2008 he wrote Candlestick Charting For Dummies and is the author of Option Spread Trading: A Comprehensive Guide to Strategies and Tactics. Russell also wrote Trading VIX Derivatives: Trading and Hedging Strategies using VIX Futures, Options and Exchange-Traded Notes. In addition to his duties for the CBOE, he instructs a graduate level options course at the University of Illinois - Chicago and acts as an instructor for the Options Industry Council. Volatility as an asset class continues to gain acceptance among money managers and the trading of volatility continues to grow.
http://jlne.ws/AqpNkV

Inverse VIX ETN (XIV) Gets Hot Again
by Michael Johnston, ETF Database, January 5, 2012
Between the beginning of the second half of 2011 and the middle of December, few exchange-traded products endured a tougher stretch than the VelocityShares Daily Inverse VIX Short Term ETN (XIV); the exchange-traded note plummeted last summer as the “fear index” spiked and VIX futures markets entered a rare stage of backwardation. Those two elements–increases in the spot VIX coupled with market expectations of an upcoming decline–spelled trouble for a product designed to deliver daily inverse exposure to a benchmark comprised of short-term VIX futures contracts
http://jlne.ws/AnOMvy

EVENTS

NYSE Euronext Announces Date For Fourth Quarter And Full-Year 2011 Earnings Release And Conference Call
Press Release
NYSE Euronext ( NYX) will announce earnings for the fourth quarter and full-year 2011 before the market opens on Friday, February 10, 2012. A news release will be issued at approximately 2:30 a.m. (New York) / 8:30 a.m. (Paris) and a conference call with remarks by NYSE Euronext senior management will begin at 8:00 a.m. (New York)/ 2:00 p.m. (Paris). A presentation will be referenced during the call and available on our website at http://www.nyseeuronext.com/ir.
http://jlne.ws/An4P3f

Commentary: CBOE BuyWrite Indexes Growing, With Interest from Pension Funds and Institutional Investors

2012-01-05T08:13:00.001-06:00

CBOE BuyWrite Indexes Growing, With Interest from Pension Funds and Institutional Investors

The Chicago Board Options Exchange recently compiled the 2011 year-end returns for its BuyWrite and PutWrite indexes, which were higher by percentage change than some of the biggest U.S.-based stock indexes. JLN Options spoke with Matt Moran, vice president, business development for the CBOE, on the growth of the indexes since the BXM, the first and most well known options benchmark index, was introduced in 2002.

The CBOE BXD index was up 7.9%, BXY 7.1%, PUT up 6.1% and BXM up 5.7%, compared to gains of only 2.5% in the S&P 500 Total Return Index, and a loss of 0.003% in the SPX, for example. (A complete list follows this article, and of course more information is available on the CBOE web site.)

The buy-write and put-write benchmark indexes are becoming popular at a time when stock and commodity indexes were flat or down. Benchmarking against the BXM index involves the relatively simple strategy of selling a listed SPX option against a portfolio of S&P 500 stocks. According to Moran, the covered call buy-write strategy is often the first strategy individual investors use.

Covered calls have grown in popularity over the past few years, as individual and institutional investor search for alternatives to stocks, which have been sluggish, and interest rates and fixed income products, which continue to be low. The goal today is a steadier return on stocks, Moran said.

“You are not necessarily aiming for a home run – only for singles and doubles. To an extent, that’s what you see here. The S&P index is jumping up and down, but the BXM is steady. Both indexes came down in August, but the S&P came down a lot more. More recently, the BXM outperformed – it had higher returns with lower volatility,” he said.

From peak to trough from around Oct. 2007 to Feb. 2009, the S&P 500 and several other major stock indexes, as well as the commodity index GSCI, all declined by more than 50%, which caused a lot of concern for investors. “Lots of people can’t deal with 50% drawdowns in their portfolio. They want to smooth out returns.”

Over various time periods in the past 25 years, the annualized returns for the options indexes tended to be slightly higher than most of the stock indexes. Also, standard deviations for the options indexes were lower.

People want less volatility now than compared to the 1990s, Moran said. In 2012, managing risk, smoothing out returns, and lower standard deviations, are a big deal for institutional and individual investors.

“This shows that, contrary to the idea some have that options are risky, these are strategies that use options in a conservative way,” he added.

Pension funds are now exploring BXM replications. According to a November 2011 article in Traders Magazine, “Options: Pension Plans Cotton to Buy-Writes,” up until recently, buy-write strategies were not popular with these plans. Managers are just starting to use them now.

“Pension funds are noticing that BXM has stock-like returns but bond-like volatility,” Moran said.

Pension funds work with consultants to decide whether an index like the BXM is one they would like to allocate to. Mutual funds are also becoming interested in the BuyWrite indexes. Their most popular strategy is buying and writing covered calls, Moran added.

Moran said institutions are attracted to buy/write strategies because they can work well in range-bound markets, which we have had for the past 12 years. When he gives presentations to managers and institutional investors around the country, Moran said he notices that simple options strategies are becoming much more well-known and accepted.

“Five or 10 years ago, there was maybe one person at a financial advisor who dealt with options. Now, many advisors are familiar with them,"
Moran said. “Brokers can’t get away with just being a stock picker in this environment.”

The CBOE has reached out with a number of initiatives to educate advisors and institutions about the BuyWrite indexes. The exchange has engaged in email campaigns and visited with pension consultants to get them up to speed on the concepts, Moran added.

The CBOE has listed some “key papers” on BuyWrite and PutWrite strategies on their web site. For further reference, they are available at http://www.cboe.com/micro/BuyWrite/

-- Sarah Rudolph

1. % CHANGES FOR SELECT INDEXES IN 2011 (Data courtesy of CBOE)

BuyWrite and PutWrite Benchmark Indexes

7.9% BXD - CBOE DJIA BuyWrite Index
7.1% BXY - CBOE S&P 500 2% OTM BuyWrite
6.7% BXR - CBOE Russell 2000 BuyWrite Index
6.1% PUT - CBOE S&P 500 PutWrite Index
5.7% BXM - CBOE S&P 500 BuyWrite Index

U.S.-based Stock Indexes

2.5% S&P 500 Total Return*
1.9% Russell 1000 Total Return Index
1.4% Russell 3000 Total Return Index
-0.003% SPX - S&P 500
-3.6% Russell 2000 Total Return Index

Global Stock Indexes

-18.9% MSCI Emerging Markets Index (TR* in $US)
-16.2% MSCI EAFE Index (US$)
-12.3% MSCI EAFE Index (TR $US)
-20.0% Hang Seng Index (Hong Kong)
-21.7% Shanghai SE Composite Index (China)
-17.3% Nikkei 225 Average (Japan)
-14.5% S&P/ASX 200 Index (Australia)

(* the stock indexes with a “TR” are “Total Return” indexes that include reinvested dividends (but not taxes and transaction costs)

2. ALL-TIME RECORD HIGHS FOR BXY and PUT INDEXES

Dec. 29 the CBOE S&P 500 2% OTM BuyWrite Index (BXY) set an all-time record daily closing high of 1067.18
On Dec. 27, 2011, the CBOE S&P 500 PutWrite Index (PUT) closed at an all-time record high of 1127.89
The BXM index also is near its all-time high closing value of 859.35.

NYSE CEO Says Takeover Will Be Determined in ‘Next Few Weeks’

2012-01-04T15:24:00.000-06:00

LEAD STORIES

NYSE CEO Says Takeover Will Be Determined in ‘Next Few Weeks’
By Whitney Kisling, Bloomberg
The fate of NYSE Euronext (NYX)’s merger (NYX) with Deutsche Boerse AG (DB1) will be determined in “the next few weeks” as European officials rule whether it will stifle competition, Chief Executive Officer Duncan Niederauer wrote.
“We have already produced a clear and articulate response to the commission‘s statement of objections,” Niederauer said in a transcript of a video message to employees filed with U.S. regulators today. “The next few weeks will determine the outcome of this process.”
http://jlne.ws/wDkheV

Euro zone crisis, MF Global chill trading at CME, ICE
By Tom Polansek and Ann Saphir, Reuters
CME Group (CME.O) and IntercontinentalExchange (ICE.N) said on Wednesday that trading volume dropped last month, which analysts attributed to MF Global's collapse and Europe's debt crisis chilling trading in U.S. futures markets.
CME, the biggest U.S. futures exchange operator, said trading dropped 9 percent last month to an average of 9.6 million contracts a day, taking the shine off a record-setting year.
The decline was driven by a 30-percent dive in interest-rate trading as Europe's simmering debt crisis put a damper on expectations that the U.S. Federal Reserve might veer from its current near-zero rate policy.
http://jlne.ws/Aqr0pl

Asia Hedge Funds Face Year of Attrition After Most Closures Since 2008
By Netty Ismail and Bei Hu, Bloomberg
Asia’s hedge-fund industry is set to shrink in 2012 after a year in which growth stagnated, performance faltered and managers struggled to raise capital.
There were 123 Asian hedge funds that closed in the first 10 months of 2011, compared with 125 in all of 2010 and a record 184 in 2008 when the collapse of Lehman Brothers Holdings Inc. (LEH) roiled markets, according to Singapore-based data provider Eurekahedge Pte. Artradis Fund Management Pte, once Singapore’s biggest hedge fund, shut, while managers returning money to investors included CoreVest Partners and Kilometre Capital Management Ltd.
http://jlne.ws/z068xy

Where Volatility Is, And Contagion Isn’t
David Reilly, Richard Barley, The Wall Street Journal
Just about everything in financial markets has been on a white-knuckle ride for the past six months. But one of the most volatile things has been, well, volatility. Some of the biggest swings of the year have come in the VIX, or CBOE Market Volatility Index, known as the fear gauge for equity investors. At the end of the year, the VIX was down about 45% from the end of the third quarter. That followed a gain of about 160% from the previous quarter. Such swings make the S&P 500′s 14% drop in the third quarter and 11% rebound in the fourth seem downright yawn-inducing.
http://jlne.ws/ypzDbU

Hedge Funds End 2011 on a Very Bad Note
By KEVIN ROOSE and AZAM AHMED, The New York Times
When the history books are written, 2011 may go down as the dark ages for hedge funds.
Last year was dismal for hedge fund performance, according to an index maintained by Eurekahedge, an independent information firm that specializes in hedge fund data.
http://jlne.ws/zXTx7A

U.S. Stock Options With Biggest Changes in Implied Volatility
Bloomberg
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York. This {OSCH } search was limited to options that are more than 10 days from expiration, have trading volume of at least 200 contracts and have strike prices within 5 percent of the underlying security's price.
http://jlne.ws/yU0zYm

EXCHANGES

2011 Trading Volume at CBOE Futures Exchange Sets New Annual Record
CBOE Futures Exchange, LLC Press Release
Volume of 12 Million Contracts Up 174% from 2010; Numerous Milestones Achieved During Banner Year
CHICAGO, Jan. 3, 2012 -- /PRNewswire/ -- The CBOE Futures Exchange, LLC (CFE) today announced that 2011 was the busiest year in CFE history, with annual trading volume surpassing twelve million contracts for the first time ever. During the record-setting year, nearly every major trading metric at the exchange achieved a new all-time high.
http://jlne.ws/zz5U2q

How to Gamble on the Elections
By Dan Newman, The Motley Fool
January 4, 2012
Every four years, there is a competition that tests the will, strength, and ability of its participants. While the Olympics invite everyone around the world to compete, this competition is reserved only for U.S. citizens. This is the presidential election, and soon, you may be able to legally invest in the election outcomes.
$100 on Four More Years
On Dec. 19, Nadex, the North American Derivatives Exchange, filed to offer tradable options on major presidential candidates and party control of the U.S. House and U.S. Senate. This means that an investor can buy something called binary options that pay $100 if you choose the winning candidate or party correctly. If you do not choose correctly, the option is worth $0.
http://jlne.ws/AijFrb

(India) BSE may shift F&O expiry from second to fourth Thursday every month
By Bhargav Trivedi, The Economic Times
The BSE is planning to shift its derivatives expiry day from the existing second Thursday of every month to the fourth Thursday. The move will result in BSE's futures and options ( F&O) contracts expiring on the same day as that of the National Stock Exchange (NSE), one broker in the know of the development said. A notification informing brokers about the change in expiry schedule will be issued soon. The exchange's official spokesperson declined to comment.
The change in the expiry schedule has been decided after suggestions from option traders, looking for arbitrage opportunities.
http://jlne.ws/xJdGnL

STRATEGY

How to Profit From Volatility in 2012
Strap into an ETN and let the market roller coaster begin
By John Nyaradi, InvestorPlace
Early January is the time for stock market predictions, and analysts and pundits everywhere have dusted off their crystal balls in a futile attempt to peer into the future and determine what 2012 will bring.
Of course, none of these people have a clue about where the stock market will stand one year from today because, unfortunately, no one can predict the future.
However, one prediction is safe to make: that a very likely feature of 2012 will be ongoing volatility in global stock markets. We’ve already seen volatility on the first day of trading of the new year with an impressive post-holiday pop that took the Dow Jones Industrial Average back to its highest level since last summer.
http://jlne.ws/zD2BWf

Covered Calls Finish Strong In 2011
By Bill Luby, Seeking Alpha
Just looking back at The Year in VIX and Volatility (2011) is enough to make one’s stomach churn. Try to tell someone who has acrophobia that even the scariest roller coaster ride ends up right where it started and you will likely not assuage any fears. Something similar is at work for hikers, bikers or mountain climbers. The amount of effort they will need to call upon has nothing to do with ending up at the same elevation they started, but rather it is the cumulative elevation gain over the course of the trail, road or mountain. As with many things in life, it is all about the journey, not the destination.
http://jlne.ws/zlZ5Ad

THE OPTIONS INDUSTRY COUNCIL ANNOUNCES DECEMBER OPTIONS VOLUME DOWN 6% WHILE 2011 VOLUME SETS NINTH CONSECUTIVE RECORD

2012-01-03T16:10:00.001-06:00

LEAD STORIES

THE OPTIONS INDUSTRY COUNCIL ANNOUNCES DECEMBER OPTIONS VOLUME DOWN 6% WHILE 2011 VOLUME SETS NINTH CONSECUTIVE RECORD
CHICAGO (January 3, 2012) – The Options Industry Council (OIC) announced today that 320,324,954 total options contracts were traded in December, which is a 6.12 percent decrease compared to December 2010 volume of 341,207,420 contracts. Total options trading volume for 2011 came in at 4,562,748,194 contracts, surpassing last year’s record by 17.02 percent when 3,899,068,670 total options contracts were exchanged. Equity options volume was 4,224,604,529 contracts, 17.01 percent higher than the 3,610,436,931 contracts traded the previous year. Trading volume in 2011 marks first time volume topped 4 billion contracts in a single year and the ninth consecutive year of annual record volume.
http://jlne.ws/zu3P1z

VIX Drops Below 200-Day Moving Average
January 3rd at 7:44am by Paul Weisbruch, Street One Financial
The CBOE Volatility Index was poised for a lower open on Tuesday as the S&P 500 futures jumped about 2% before the bell.
Heading into the New Year’s holiday last week, overall volumes in the marketplace tapered off significantly with little evidence of any year end window dressing, as it appears that most institutional investors simply sat on the sidelines altogether.
http://jlne.ws/y85ZiZ

New Year to Test Muted 'Fear Gauge'
WSJ.com
By CHRIS DIETERICH And BRENDAN CONWAY
Don't be fooled by the options market's best-known sentiment gauge, the Chicago Board Options Exchange Volatility Index, which finished the year close to its sleepiest readings in months. A look under the hood reveals investors who trade options remain wary that sluggish economic growth and efforts to shore up the euro zone's finances could continue to roil stocks in 2012.
Options prices can be used to judge market anxiety since they force investors to weigh how much they should pay to hedge stock portfolios against declines in the market. When people are spooked, they pay higher prices, in this case for options on the Standard & Poor's 500-stock index that drive the volatility index.
http://jlne.ws/xycQW7

Traders On The Move
Patty Kevin-Schuler, vice president of sales and marketing at BOX Exchange, was named a two-year term governor by the Security Traders Association. Schuler, a 25-year veteran, is also the 2011-2012 president of the Security Traders Association of Chicago. The appointment is effective Jan. 1, 2012.
http://jlne.ws/z0893u

EXCHANGES

Eurex sees derivatives trade up Tuesday 3rd January 2012, 3:28am
Derivatives trading platform Eurex saw 2.8bn contracts traded in 2011, an increase of seven per cent on 2010’s level, it said yesterday. More than 11m contracts were traded on average each day, up from 10.4m per day in 2010, as both the amount traded on the Eurex Exchange and those traded on the International Securities Exchange rose. Equity index derivatives were the biggest single market, accounting for almost a billion annual contracts. Eurostoxx 50 derivatives such as futures and options were the most popular products, with 408.9m futures contracts traded. The product seeing biggest growth was Eurex KOSPI, a Korean stock exchange index product, which jumped to 17.4m contracts from 166,000 in 2010.
http://jlne.ws/vCjB09

Eurex enjoys bumper year of trading
By Tom Osborn, MarketWatch
Trading on Deutsche Boerse's derivatives and repo platforms rose strongly during 2011, according to annual figures published by the German exchange operator ahead of an EU competition commission ruling on its planned merger with NYSE Euronext /quotes/zigman/421745/quotes/nls/nyx NYX +4.87% . Trading on Eurex, Europe's largest derivatives exchange, was up almost across the board. Fixed-income derivatives trading, which included flagship futures on German government debt, was particularly impressive, rising by 9.7%.
Trading in equity derivatives proved the one sour spot, with the value traded in single stocks falling by 12.9% amid thinning liquidity in cash trading on the back of the as the troubles in the euro zone. However, trading in equity index futures - which allow buyers to take a position on the future level of an index and are often used as a hedge against falling markets - rose by 18.5%, wiping out the fall in single name contracts.
The International Securities Exchange, Deutsche Boerse's U.S. options trading platform, enjoyed growth of 4.4%, as U.S. derivatives trading remained buoyant.
http://jlne.ws/wN6Qdi

BATS Captures One-Fourth of European Stock Trading
January 3, 2012
Tom Steinert-Threlkeld
BATS Global Markets said its two electronic exchanges accounted for one-fourth of stock trading across Europe in December. The two venues, BATS Europe and Chi-X Europe, accounted for 25.4 percent of all trading for Europe in December, BATS said. That is compared to 22.6 percent a year ago.
http://jlne.ws/yoN1oI

ISE Reports Business Activity for December and Full Year 2011
NEW YORK, January 3, 2012 Press Release
Average daily volume for the full year 2011 was 3.1 million contracts, an increase of 4.4% over 2010.
ISE is the third largest equity options exchange in 2011 with market share of 19.1%, excluding dividend trades.
Dividend trades make up 14.3% of industry volume in December 2011 and 4.7% of total industry volume for 2011.
The International Securities Exchange (ISE) today reported average daily volume of 2.3 million contracts in December 2011, a decrease of 10.6% over December 2010. Total options volume for the month was 47.8 million contracts. Average daily volume for full year 2011 was 3.1 million contracts, an increase of 4.4% over 2010. Total volume for the year was 778.1 million contracts. ISE was the third largest U.S. equity options exchange in 2011 with market share of 19.1%*.
http://jlne.ws/y4mKr9

CBOE Holdings: Daily Trading Volume Averages Record 4.8 Million Options Contracts in 2011
-- CBOE Volume Tops One Billion Contracts for Fourth Straight Year
-- CBOE Futures Exchange Record Volume Up 174% from 2010
CHICAGO, Jan. 3, 2012 /PRNewswire/ -- CBOE Holdings, Inc. (NASDAQ: CBOE) today announced record 2011 options trading volume of 1.20 billion contracts for the Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2), combined, compared to 1.12 billion contracts in 2010. Average daily volume (ADV) in 2011 reached a new all-time high of 4.78 million contracts, an eight -percent increase from 2010 ADV of 4.44 million contracts.
The year 2011 marked CBOE's fourth consecutive year of one-billion-plus contract trading volume.
CBOE Futures Exchange (CFE) trading volume achieved a new all-time high of 12.0 million contracts in 2011, surpassing the 4.4 million contracts traded in 2010 by 174 percent. CFE's record trading activity was propelled by robust volume in CFE's flagship product, futures on the CBOE Volatility Index (VIX). During CFE's record-setting year, nearly every major trading metric at the exchange achieved a new all-time high.
http://jlne.ws/yvS0dQ

December 2011 Total Options Marketshare by Exchange, from the Options Clearing Corporation:

AMEX – 13.60%
BATS – 2.34%
BOX – 3.25%
CBOE – 22.04%
C2 – 1.21%
ISE – 14.93%
NSDQ – 3.92%
NYSE Arca – 12.29%
OMX PHLX – 26.42%

December 2010 Total Options Marketshare:
AMEX – 10.66%
BATS – 1.22%
BOX – 2.62%
CBOE – 24.61%
C2 – 0.72%
ISE – 16.41%
NSDQ – 4.39%
NYSE Arca – 11.08%
PHLX – 28.30%

December 2011 Equity Options Marketshare:
AMEX – 14.53%
BATS – 2.51%
BOX – 3.49%
CBOE – 16.78%
C2 – 1.26%
ISE – 15.92%
NSDQ – 4.20%
NYSE Arca – 13.14%
OMX PHLX – 28.16%

December 2010 Equity Options Marketshare:
AMEX – 11.32%
BATS - 1.30%
BOX – 2.78%
CBOE – 20.10%
C2 –0.76%
ISE – 17.25%
NSDQ – 4.67%
NYSE Arca – 11.75% PHLX – 30.05%

OCC Cleared Contract Volume Reached 4.6 Billion Contracts in 2011 for Record Year
CHICAGO (January 3, 2012) OCC announced today that total cleared contract volume in 2011 reached 4,600,955,949 contracts, a 17 percent increase over the 2010 volume of 3,925,686,805 contracts. 2011 marked the ninth consecutive year of record volume for OCC and the first time cleared contract volume surpassed 4 billion contracts.
OCC ended the year with 322,408,712 cleared contracts in December, a 6 percent decrease from the December 2010 volume of 344,206,175 contracts. Options: Exchange-listed options trading in December reached 320,324,954 contracts, down 6 percent from December 2010. Average daily options volume in 2011 was 18,106,144 million contracts, roughly 2.6 million contracts per day more than the daily average in 2010. OCC cleared 4,562,748,194 total options contracts in 2011, a 17 percent increase over 2010's annual cleared volume of 3,899,068,670 contracts.
http://jlne.ws/ACzMn0

REGULATION

The Outer Limits of Insider Trading
By PETER J. HENNING, NYTimes.com
Potash Corporation investors gained when a buyout bid failed.David Stobbe/ReutersPotash Corporation investors gained when a buyout bid failed.
Most insider trading cases start out with suspicions about well-timed transactions that prove to be lucrative once information becomes public about a company. Bringing a successful enforcement action requires more than just suspicious trading, however, because the government must have evidence that a trader acted on material nonpublic information and not just that the person made a particularly prescient investment. A recent decision in the United States District Court in Chicago dismissing civil insider trading charges filed by the Securities and Exchange Commission highlights how difficult it can be to bridge the gap between suspicious trades and securities fraud.
http://jlne.ws/wPtpGf

STRATEGY
Banking on a New Year's Bounce for Financial Stocks
By STEVEN M. SEARS, Barrons.com
Savvy investors can use options to position for short-term gains in banks and other financial stocks.
A burnt child loves the fire.
That famous Oscar Wilde quote comes to mind as financial stocks surge higher on the first trading day of the New Year amidst cautiously bullish options-trading patterns.
Investors, many of whom were burnt by bad bank-stock bets last year, seem to believe that America's financial Frankensteins, including Bank of America (ticker: BAC) and Citigroup (C), will do in 2012 what they failed to do in 2011: advance. But since there is no substantive reason to believe 2012 will be better for the financial sector than 2011 -- even though Barclay's is apparently telling clients that the risk of not owning U.S. banks is greater than the risk of owning them – some investors are using options to game the system.
By buying call options that expire between January and March, savvy investors are positioning themselves to benefit the financial sector's expected surge while carefully controlling their risks. By midday Tuesday, almost 19,000 January 14 calls traded on the Select Sector Financial (XLF). More than 38,000 of Bank of America's January $6 calls traded. J.P. Morgan's (JPM) January $35 calls traded more than 3,800 contracts.
http://jlne.ws/xffmPG

Buy-Write Is the Right Buy By STEVEN M. SEARS, Barrons.com
The simple strategy known as the "buy-write" or "covered call" was proven in 2011 to make a silk purse from a sow's ear
The passage of time doesn't necessarily equate with change. The issues that loomed over the market and global economy at the start of 2011 still persist at the start of 2012 like a virus impervious to antibiotics.
It is true America didn't fall into an economic abyss, nor Europe into its own financial quagmire. But the year ends, as it began, with hopes that the long shadow of a financial crisis that began in 2007 will lift, and happier days will arrive.
http://jlne.ws/tHLhg6

Options trading: When to use a spread
Phil McDonnell, The Globe and Mail
TheStreet Tuesday, Jan. 03, 2012
I often utilize option strategies that lean toward selling options. There are some very simple advantages to this. First a selling strategy gives us favorable theta decay. The time erosion works in our favor. It is a lot easier to predict that there will be 31 days in January than it is to predict the direction of the market. January is guaranteed to have 31 days but stock direction is never guaranteed.
http://jlne.ws/weD6Eu

TECHNOLOGY

GFI Group to provide Hap Capital with FENICS Professional
New York hedge fund chooses GFI market-leading system for FX Options
New York, January 3, 2012 – New York’s Hap Capital has licensed FENICS Professional™ Pricing and Analytics Tools from GFI Group, Inc. (NYSE: GFIG) for use on Hap Capital’s FX Options Desk in New York City.
Andrew Dexter, Head of FX Options at Hap Capital said, "After evaluating numerous systems for FX Options that cover pricing, risk management, and transaction processing, we decided that GFI FENICSSM was clearly the best choice. Their platform, FENICS Professional, provides us with the accuracy, ease of use and scalability we require to support and grow our business”, and added, ” FENICS’ customer support team provides fantastic training and ongoing support to help us get the most out of the platform and be more efficient.".
"We are delighted to welcome HAP Capital as a client and to be able to provide them with the tools they need to continue developing their FX options business. Our business has grown significantly during the last few years as we have added new clients from every market segment" said Richard Brunt, Global Head of FENICS & Market Data Services at GFI.
http://jlne.ws/w97A48

U.S. options trading has another banner year in 2011

2011-12-30T14:46:00.003-06:00

JLN Options wishes a very happy New Year to all our readers.

LEAD STORIES

U.S. options trading has another banner year in 2011
By Doris Frankel, Reuters
CHICAGO | Fri Dec 30, 2011 2:52pm EST
U.S. stocks spent the year swinging wildly, and because of the stomach-churning volatility it is no surprise that options activity hit its ninth straight annual record in 2011.
This year was the first to surpass 4 billion contracts. Europe's sovereign-debt worries and the lack of progress in the U.S. budget deficit kept the markets on edge, and investors turned to puts and calls as a way to speculate on price gyrations, manage market risk and generate returns.
"One of the key drivers of volume was the greater adoption of option strategies by institutional accounts that are seeking to both manage risk exposure and enhance returns through premium generating strategies," said Andy Nybo, head of derivatives at research firm TABB Group.
http://jlne.ws/tiu7s

EU Said to Prepare Draft Decision on NYSE Merger
By Nandini Sukumar, Bloomberg - Dec 30, 2011
European officials may distribute as soon as next week a recommendation on Deutsche Boerse AG (DB1)’s planned takeover of NYSE Euronext, people familiar with the discussions said.
The European Commission team examining the case indicated at a meeting on Dec. 21 that they are likely to propose prohibiting the deal, according to two people familiar with the situation, who declined to be identified as the conversations were private. The advice is non-binding.
NYSE and Deutsche Boerse have been trying to convince European regulators that merging to create the world’s largest exchange operator won’t stifle competition in derivatives and clearing. Officials told the companies at last week’s meeting in Brussels that concessions they offered didn’t go far enough to allay their concerns, two people familiar with the talks said at the time. The last day the commission can rule is Feb. 9.
http://jlne.ws/vUpasP

Exchange Mergers in Limbo as $37 Billion of Takeovers Fail
By Whitney Kisling, Nandini Sukumar and Nina Mehta, Businessweek
Dec. 30 (Bloomberg) -- The biggest wave of takeover offers ever for publicly traded stock and derivatives exchanges has done little for investors in 2011, as more than $21 billion of equity value was erased and only one deal closed.
NYSE Euronext shares have fallen 13 percent in 2011 as German stocks plunged and regulators in Europe resisted its combination with Deutsche Boerse AG. ASX Ltd., the Australian market owner whose agreement with Singapore Exchange Ltd. fell through in April, has lost 19 percent. London Stock Exchange Group Plc is down 5.2 percent after owners of Toronto Stock Exchange operator TMX Group Inc. spurned its offer in favor of the bid from a group of Canadian banks and pensions.
http://jlne.ws/ujuWyp

Oil Volatility Falls as Futures Little Changed Before Holiday
Bloomberg
By Mark Shenk - Dec 30, 2011
Oil options volatility fell as the underlying futures were little changed before the three-day New Year holiday weekend. Implied volatility for at-the-money options expiring in February, a measure of expected swings in futures and a gauge of options prices, slipped to 31.4 percent at noon in New York from 32.4 percent yesterday. Futures slipped 0.2 percent, reducing the yearly gain to 8.8 percent.
http://jlne.ws/uYj1fz

EXCHANGES

Osaka Securities Exchange Trading Overview For Year 2011 & December 2011
Date 30/12/2011
1. Total trading volume of derivatives in 2011 was 194,134,017 units (preliminary estimates), which recorded its second highest. (The trading volume of OSE-FX is a quick quote by the date of December 29.)
2. Annual trading volume of Nikkei 225 mini in 2011 was 117,905,210 units, which exceeded 100 million units for the third consecutive year and recorded its second highest.
3. Annual trading volume of Nikkei 225 Options in 2011 was 45,192,519 units, which hit a record high for the 9th consecutive year.
http://jlne.ws/umdRyb

Illinois' Sears, Kmart stores spared the ax
News-Gazette.com Tom Kacich
HOFFMAN ESTATES — Sears Holdings Corp. on Thursday identified 79 Sears and Kmart stores that it plans to close after poor Christmas holiday sales.
None of the stores is in Illinois.
But three are in Indiana — a Sears in Anderson, and Kmarts in Indianapolis and St. John. Also set to be closed are two Sears stores in Missouri, both a Sears and a Kmart in Wisconsin and two Kmarts in Iowa.
The list, Sears said, is of 79 of the 100 to 120 store closings that were announced by the company earlier this week. The number of jobs to be lost and the dates of the store closings will be disclosed later.
Meanwhile, area legislators had varied reactions to Sears' announcement of the store closings, which came shortly after the Hoffman Estates-based company received state and local tax breaks that could total as much as $275 million. The company had threatened to leave Illinois if it did not get the concessions.
Although some Chicago-area lawmakers were critical of Sears' announcement of store closings, local legislators for the most part were not.
"It's part of the economy," said state Sen. Shane Cultra, R-Onarga, who voted for the tax break.
http://jlne.ws/ubeHZq

From the above article: 'Barickman said he believes the debate over state tax breaks to Sears and the exchange operators CME Group Inc. and CBOE Holdings Inc. was a "missed political opportunity" to enact broader tax relief.'

Volatility in gold fuels call interest in miners

2011-12-29T14:56:00.004-06:00

LEAD STORIES

Volatility in gold fuels call interest in miners
XE.com 29Dec2011
Bullish call options in several miners grabbed the interest of investors looking for gains as gold fell to its lowest level in nearly six months. . Shares of Kinross Gold were up 0.89 percent to $11.24 on the NYSE. The stock earlier logged a new year low of $10.85. The options on the miner are actively traded. The top trade is a 2,000-lot of January $10 calls at the $1.24 asking price on the International Securities Exchange, where data reports an opening buyer, said WhatsTrading.com options strategist Frederic Ruffy.
http://jlne.ws/ujSVvK

Gold Miner ETFs Leap As Options Turn Bullish; AUQ, ABX, GG Jump
Focus on Funds - Barrons.com
By Murray Coleman
Gold mining ETFs haven’t had a very good 2011. The Market Vectors Gold Miners ETF (GDX) headed into today’s session down more than 18% on the year. Meanwhile, its small-cap focused cousin, the Junior Gold Miners ETF (GDXJ), has seen its shares drop more than 40% in that same period. By contrast, funds that track spot futures prices have done much better — the popular SPDR Gold ETF (GLD) is clinging to a roughly 9% price improvement. Both miners are following stocks higher Thursday: GDX was most recently up 1.7% while GDXJ was ahead by 3.9%. GLD, on the other hand, was sinking by 0.3%.
Joining a more upbeat mood about gold miners are options traders.
http://jlne.ws/rHgXdl

Stocks in U.S. Advance on Bets Economy Will Weather European Debt Crisis
Bloomberg
U.S. stocks advanced, following yesterday’s decline in the Standard & Poor’s 500 Index, as housing and labor market data signaled the world’s largest economy is weathering Europe's sovereign debt crisis.
Trading of a new class of contracts that expire a week after they’re listed pushed U.S. options volume to a ninth- straight annual record as investors turned to shorter maturities to hedge risk.
Didn’t Exist
About 4.5 billion contracts changed hands through Dec. 27, beating last year by 16 percent, according to data from Chicago- based OCC, which clears and settles equity derivatives. Weekly equity options, which didn’t exist before last year, accounted for 9.3 percent of industry volume for options tied to stocks and exchange-traded funds this year through November, Steve Crutchfield, chief executive officer of NYSE Amex Options, said in a telephone interview Dec. 22.
http://jlne.ws/rOEZQH

ETF Spotlight: Volatility-Linked Funds
ETF Trends December 28th at 5:53pm by John Spence
The CBOE Volatility Index, Wall Street’s fear gauge, climbed 7% on Wednesday amid the sell-off in stock and precious metals exchange traded funds. Volatility-linked exchange traded products such as iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), VelocityShares Daily 2x VIX Short Term ETN (NYSEArca: TVIX) and ProShares VIX Short-Term Futures ETN (NYSEArca: VIXY) followed the VIX higher. Some traders use these products to hedge long portfolios or speculate on market pullbacks. The funds are designed as trading vehicles that track VIX futures contracts, rather than the spot price.
http://jlne.ws/ustCIz

The ‘Terrible 10’ letters of 2011
Commentary: Hard-asset and China letters see significant losses
By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) — Let’s start off with the bad news. 2011’s bottom performer by Hulbert Financial Digest count (down 57.2% over the year to date through November vs. 0.07% for the dividend-reinvested Wilshire 5000 Total Stock Market Index) is the MarketWatch Options Trader.
Full disclosure: That’s a MarketWatch product.
Exculpatory disclosure: Another MarketWatch product, Revolution Investing, was this year’s No. 3 top performer, up 11.6%. ( See Dec. 26 column. ) Of course, options are a hairy, high-stakes area — as are exchange-traded funds. Doug Fabian’s ETF Trader (down 41.9%) was on our 2010 Terrible 10 list too. ( See Dec. 23, 2010, column. )
http://jlne.ws/u9peNc

Traders On The Move
Traders Magazine Online News, December 28, 2011
Editorial Staff
http://jlne.ws/vgTUNf

EXCHANGES

Deutsche Börse Group: Year in review
Financials - Futures Magazine
Deutsche Börse Press Release
The year 2011 was defined especially by the uncertainties surrounding the European sovereign debt crisis and the associated volatility in the financial markets. This led to greater hedging needs for market participants. In 2011, Deutsche Börse AG acted again as a guarantor of safety and stability for the financial markets, with a positive impact on the real economy. The Group will therefore continue its growth initiatives in the areas of risk management, clearing, sales and products in 2012.
http://jlne.ws/s0MAnQ

Top Stories 2011: Exchange Price War!
Traders Magazine Online News, December 29, 2011
Peter Chapman
With volume slumping for the second year in a row, the industry's major stock exchanges competed aggressively for brokers' business. That meant cutting prices. And, in the world of stock exchanges, price cuts translate into higher rebates. This year, the exchanges introduced new rebate programs and sweetened the terms of existing programs. They added new rebate tiers, reduced the volume thresholds necessary to qualify for higher rebates and, simply, increased rebates.
http://jlne.ws/tjBagn

CME Group (CME) Crosses Pivot Point Resistance at $244.95
Published on Thu, 12/29/2011
By Adrienne Chilton, Financial News Network Online
Shares of CME Group (NYSE:CME) opened today above their pivot of $243.48 and have already reached the first level of resistance at $244.95. Should the shares continue to rise, the resistance pivots of $247.35 and $251.22 will be of interest. CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities. The Exchange brings together buyers and sellers of derivatives products on its trading floors, electronic trading platform, and through privately negotiated transactions that it clears.
http://jlne.ws/vl3dZJ

REGULATION

Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Related to FLEX Options
December 29, 2011
Federal Information & News Dispatch, Inc.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Act"), /1/ and Rule 19b-4 thereunder, /2/ notice is hereby given that on December 12, 2011, the Chicago Board Options Exchange, Incorporated ("Exchange" or "CBOE") filed with the Securities and Exchange Commission (the "Commission") the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange is proposing to amend certain rules pertaining to the electronic trading of Flexible Exchange Options ("FLEX Options") on the Exchange's FLEX Hybrid Trading System platform.
http://jlne.ws/sad6nB

SECURITIES AND EXCHANGE COMMISSION v. GARCIA
December 28, 2011
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
JUAN JOSE FERNANDEZ GARCIA and LUIS MARTIN CARO SANCHEZ, Defendants.
No. 10 CV 5268.
United States District Court, N.D. Illinois, Eastern Division.
MEMORANDUM OPINION AND ORDER
MARVIN E. ASPEN, District Judge.
Presently before us is a motion for summary judgment in a case that involves allegations of insider trading based on the purchase and sale of Potash Corporation of Saskatchewan, Inc. ("Potash") call option contracts. The United States Securities and Exchange Commission ("SEC") originally brought this action against two defendants, Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez. Defendant Garcia subsequently settled with the SEC and is no longer party to the action.
http://jlne.ws/ujXryc

STRATEGY

Why Overwriting Is an Attractive Options Strategy
By STEVEN M. SEARS, Barrons.com
By using a strategy known as overwriting, the options market will pay you to buy or sell stocks.
The buy-and-hold strategy has legions of fans. However, an options strategy, known as overwriting, often does better. By selling bullish calls, or bearish puts, against stocks that investors own, or want to own, investors can boost returns with little risk. The strategy often outperforms the standard buy-and-hold approach because it increases income earned from stocks.
http://jlne.ws/scyQlI

VIX Creeps Higher This Week As Europe Overhang Persists

2011-12-28T15:00:00.002-06:00

LEAD STORIES

VIX Creeps Higher This Week As Europe Overhang Persists
By Steven Russolillo, The Wall Street Journal
The stock market’s “fear gauge” is flashing a fairly atypical sign for what is usually the market’s quietest period of the year.
The Chicago Board Options Exchange’s volatility index, or VIX, has jumped 13% this week as trading volume thinned due to the holidays. The measure is still down 24% from levels earlier this month. But the fact that it is hovering above its long-term average of about 20 is uncharacteristic heading into the end of the year, and represents the latest cause for concern for investors.
http://jlne.ws/uDLM0V

A Terrible 2011 For Hedge Funds
By Cam Hui, Seeking Alpha
...A funny thing happened in 2011. First of all, hedge funds had a terrible year as they substantially underperformed the S+P 500. On a year-to-date basis to December 16, 2011, the HFRX Global Hedge Fund Index was down -9.0% after fees compared to -1.3% for the S+P 500.
The negative performance occurred across the board. The chart below shows the YTD returns of the various HFRX sub-indices. The Global Index was down 9.0%, but every single category of hedge fund returns underperformed the S&P 500.
The poor performance of hedge funds in all categories is illustrative of the headwinds faced by active managers in 2011. Nothing worked!
http://jlne.ws/tiPy5E

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News - Dec 28, 2011 10:30 AM CT
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York.

http://bloom.bg/ucsRtD

EXCHANGES

Chicago has a problem with missing money
Exchange operator CME needs to protect its customers — and its long-term interests
Chicago Tribune
CME Group has a problem that with each passing day hurts the reputation of this important company, which operates the Chicago Mercantile Exchange and Chicago Board of Trade. It's past time for more aggressive damage control — and for some increasingly obvious reforms.
CME's problem spilled into the headlines on Halloween, when the big trading firm MF Global failed. Customer accounts on deposit at MF went missing. Now Christmas has come and gone, and customers still have not gotten all their money back. As much as $1.2 billion is unaccounted for.
This is CME's problem for a couple of reasons. Over the years, the futures industry has fought for the right to regulate itself. As a result, CME was MF's primary regulator, the first line of defense for the trading firm's customers, and the organization tasked with the firm's day-to-day oversight.
http://jlne.ws/tBs2NK

REGULATION

SEC Doubles Down On Its Efforts To Find Hedge Fund Fraud
Alexander Eichler, The Huffington Post
Memo to hedge fund managers: It's a bad time to try to overachieve. The Securities and Exchange Commission is cracking down on hedge fund fraud, and the first places they're looking are the firms that seem to be doing a little too well.
According to a report in The Wall Street Journal, the SEC has devised a method of sorting data that highlights hedge funds whose balance sheets never seem to suffer, no matter how rocky the market gets. The WSJ notes that the agency is trying to spot the next Bernie Madoff before he or she can defraud investors of billions of dollars, the way Madoff did with his Ponzi scheme. Already, the WSJ says, the SEC has initiated four civil-fraud lawsuits based on their data review system.
http://jlne.ws/sKZT4b

Investment Advisers Likely To Bear Cost Of More Oversight
By Caitlin Nish, The Wall Street Journal
Stricter oversight of financial advisers appears inevitable, and the advisory firms likely will have to foot the bill that comes with it.
The new costs will mean a financial squeeze for many advisers, particularly at smaller firms. Industry watchers say this could push some advisers out of business and prompt others to merge with larger operations.
http://jlne.ws/t8LX3b

STRATEGY

The Inflation Hedge Trade: Not Just A Precious Metals Vs. Paper Question

Seeking Alpha
Gold bulls say things like:
- Gold has skyrocketed only when measured in fiat currency.
- Actually it’s only retaining its value, not increasing in value.
- You see how precious metals have soared along with the ballooning deficits and National Debt? It’s all about money printing.
We hear such claims more frequently and ever louder these days, but they are not really true. They are also quite dangerous arguments in seducing new buying of precious metals (PMs) at current prices. Gold clearly has not merely “retained its value”—it has in fact exploded in terms of its purchasing power, as it has rocketed from $300/oz a decade ago to as high as $1900/oz this year. Congratulations to those who got in much lower [I bought gold at $300/oz and silver at $4.50/oz, but alas I sold much of it too soon].
But that is the problem—even gold bugs admit that gold is not supposed to explode in terms of its purchasing power. It is supposed to more or less track price inflation and thus have relatively steady purchasing power. In other words, as go consumer prices, so should go gold. (Not 'as goes deficit spending, so should go gold.')
...Both of these ETFs also have highly liquid options markets—a plus for those who are savvy at writing options against their position to generate extra income...
http://jlne.ws/sM5Osh