On today’s show, I discuss Focus Media’s (FMCN) buyout offer, Facebook (FB) and Apple (AAPL) options!
Mind Over Mudder: My team adventure in electrocution!
Posted: August 13, 2012 in Adventures, Extracurriculars, PicturesWhen I first signed up for Tough Mudder, a 12-mile, 25 obstacle mud-running course, the event was so far off that I was slightly removed from the impending doom-and-gloom thoughts of challenging myself at that level. While I wouldn’t classify myself as out of shape (I routinely do indoor-cycling/spin classes and variations of yoga and pilates), I’ve never done a race over 5K so this was a whole new world for me.
The point of the Tough Mudder is to test strength (obviously), stamina, mental grit and camaraderie. The last part is the most important – the challenge is NOT timed, you don’t leave anyone behind and there are obstacles where you definitely need the support of a team to make it through. Take, for example, the half-pipe obstacle: you have to get a running start through muddy slush and then propel yourself to grab someone’s hand to lift you up to the top. Since my upper body strength is my weakest link, I know for a fact I would have never made it up without my other teammates. Also, there was a “polar bear plunge” where you jump into freezing cold water and are literally shocked frozen. The only thing I could think of was “how do I get out”. I remember looking at a man from another team and mouthing the words “please help me”. I must have looked like someone who was sinking into quicksand because that is exactly how I felt. I felt helpless without the full support of the Tough Mudder team at one of my weakest (and most frightened) moments.
Further along the torture trail, you get electrocuted, have to carry logs, run up sandy dunes, crawl through pipes underneath barb wire, slide head first down a rocky slip and slide, cross buttered up monkey bars and perform all sorts of other brutal tough mudder rituals. Be that as it may, at the beginning of the race, as we were approaching our starting time, I started getting very nervous. It was supposed to be a record-breaking heat day and the weather people were issuing advisories about any outdoor activity. Furthermore, I was nervous I might let my team down and not make it over some obstacles (especially the Berlin walls where you had to pull yourself up 12 feet). After a quick mental attitude check, I told myself I could do it and started running knee deep in mud with a smile on my face. By the 2nd obstacle, I was already bleeding with mud caked in my open wounds.
By the last obstacle (electrocution), I was exhausted; I had sores all over my feet from rocks getting stuck in my shoes and running miles with them rubbing against my now wet and muddy skin. Just a few minutes after my team crossed the finish line, torrential rain started pouring down and Tough Mudder organizers had to evacuate the site, cancel the rest of the event including the next day.
This challenge was one of my proudest accomplishments and while I had temporary confidence-lacking thoughts of “I can’t do this, I don’t want to do this, WHY am I doing this”… the challenger inside me spoke louder: “you can do this, you want to do this, why WOULDN’T you do this”. Tough Mudder taught me to listen to the challenger, because, in the end, what doesn’t make you muddy and exhausted while pushing all of your pre-set limits really isn’t worth it! Isn’t the whole point of life to grow stronger with every step of the way?!?
Now that I’m officially a Tough Mudder, I’m committing to 2013 and have already pre-registered. Coincidentally, when I was at the airport the following day, I met James Lawrence waiting for a connecting flight, who is competing for the Triathlon world record. He’s aiming to complete 30 triathons in 1 year. Every day, in business and personal life, I’m learning anything is possible if you sent your mind to it. Nothing is impossible if you prepare, set your mind on success and have the support of a group. As one Tough Mudderer said, it’s mind over mudder.
Taking about the Washington REIT (WRE), E-Trade Financial (ETFC), Oasis Petroleum (OAS), Parker Drilling (PKD), and Chinese ADRs Focus Media (FMCN) and Baidu (BIDU).
One of the flagship CBOE products, the VIX, is seeing a lot of call options being added going into the long weekend. Yesterday, it looks like someone bought to open 20 thousand of the July 40/50/60 call flys for 45 cents. Overall, there were about 4 times as many calls added as puts so it appears traders are positioning themselves for a volatility pop in the months ahead.
In the ETFs, the Materials Sector Fund (XLB) has been on the hard to borrow list for about 11 days now and it looks like traders are rolling their positions out and in from the June 35 puts to the September 25 and 29 puts. Overall, the Financial sector fund (XLF) was the top position change across all the trading venues with more than 100 thousand of the August 13 puts added to open interest. After that, the 2nd place goes to the XLF July 11 puts which added on more than 70 thousand contracts. The July 9 and 13 puts were also very active in the XLF. As for its components, JPMorgan (JPM) added 13 thousand of the 34 calls that expire today and morgan stanley (MS) added 13 thousand of the June 15 calls. It looks like those contracts were being bought and are opening transactions from this mornings data.
Pre-Market Pulse 5.23.12
Posted: May 23, 2012 in Pre-Market PulseTags: China, EWW, HMIN, HTHT, Mexico Fund, Morgan Stanley, MS, Options, ZNH
Morgan Stanley (MS) continues to see bullish activity with 30 thousand more of the January 19 calls traded for 67 cents on the offer yesterday. We’ve been seeing quite a lot of these being opened by a customer buyer, according to exchange data. So far, it looks like there have been about 95 thousand put on over the past couple weeks. The Morgan Stanley January 2014 17 calls are also bid with the weekly 14 calls. All of these trades were opening transactions confirmed by open interest data this morning.
From Morgan to Mexico, the peso was at its strongest level in a week and is up almost 2% on the year. Mexico’s GDP is expected to come in .2% higher after positive adjustments to their economic outlook. What does this mean for options? Well, the (EWW) Mexico Index Fund saw a blitz of bullish activity yesterday in the June 60 calls. It looks like traders bought those contracts 60 thousand times for 25 cents. Implied volatility at the time was 23 compared to a 30 day historical level of about 22 and data this morning confirms they were in fact opening transactions.
Our last scoop this morning is from Fox Business which released an article yesterday saying China which is set to surpass the US as the worlds #1 business travel spot by 2015. If you didn’t know, CBOE has Chinese ADRs options traded on their exchange and some of the names related to the travel and lodging space in China are Home Inns and Management (HMIN), China Lodging Group (HTHT), and China Southern Airlines (ZNH).
Pre-Market Pulse 5.22.12
Posted: May 22, 2012 in Pre-Market PulseTags: Call, China, ETF, FXI, JNJ, MRK, Open Interest, Options, PFE, Put, RSX, Russia, XLV
ETF names saw a lot of heightened activity in the country specific names and the healthcare sector. The Healthcare sector fund (XLV) saw more than 7 times the normal flow with the June 37 calls trading over 23 thousand times for 31 cents. Based on data from the exchange where they were executed, a firm bought to open the contracts. Some of the top components in the fund are Johnson and Johnson (JNJ), Pfizer (PFE) and Merck and Co (MRK).
In the country-specific funds, China’s FXI Index Fund saw a lot of trading in the August 39 calls with more than 17 thousand changing hands for 13 and 14 cents. Open interest was half the volume at the time so we figure the rest were opening buyers after they traded on the offer. The fund closed at 33.86 yesterday so would need to move higher by more than 15% for these contracts to be in the money. From China to Russia, the Market Vectors Russia Fund (RSX) was on a run yesterday gaining more than 4.5% during the trading session. More than 4 thousand each of the June 30 puts and calls traded on the offer. These individual legs traded at the same exact time, so it looks like someone bought a straddle position for $5 and 5 cents. As you’ve probably learned from Peter Lusk’s strategy sessions, a straddle is when someone purchases both a put and call in the same expiration and strike. When an investor or trader is long both legs, they predict and profit from a big price move in the underlying and the volatility levels.
Pre-Market Pulse 5.21.12
Posted: May 21, 2012 in Pre-Market PulseTags: Brazil Index Fund, Call, Charles Schwab, EWZ, Morgan Stanley, MS, Options, PBR, Petrobas, Put, SCHW, VALE, Yahoo, YHOO
In the financial space, Morgan Stanley (MS), the lead underwriter for Facebook, has lost 58% over the last 2 months and has been seeing a lot of upside call buying in its listed options. The company’s stock closed lower on Friday to 13.35 and, on the tape, we noticed 25 thousand more of the January 19 calls bought for 72 cents. This is following a burst of bullish activity in the past couple week as traders have been loading up on the outright August 16, October 17 and 18 dollar calls. We also saw 30 thousand of the August 16/October 17 call stupid spreads bought on May 17th for $1 dollar and 44 cents. The takeaway? Bullish option spreaders and the outright call buyers are taking large positions to the upside in Morgan Stanley. The bank is forecast to report earnings next on July 23rd.
A week before that, Charles Schwab (SCHW) is expected to report earnings and is throwing up bearish flags after seeing large customer buyers of downside June 12 puts for 35 cents across the exchanges. These appear to be opening transactions after more than 11 thousand traded with just 2 thousand reported in open interest. The stock closed at 12 dollars and 33 cents on Friday.
On to the IT space, Yahoo (YHOO)’s options are continuing their bullish signals with the June and weekly 16 calls trading the most on Friday. Altogether, more than 34 thousand traded with the majority executed on the offer. Also, let’s not forget 2 weeks ago, there was a buyer of 57 thousand January 20 calls for 36 cents per contract. Over the weekend, Bloomberg reported that Alibaba, a Chinese e-commerce site, may be buying back 20% of its stock for about $7 billion dollars which is more than a third of YHOO’s current market capitalization. Based on the activity, it appears option traders are positioning themselves for a yahoo pop.
Other interesting option activity was in the Brazilian Index Fund’s (EWZ) June 55 calls which were bought for 76 cents by an opening customer more than 20 thousand times. The Brazilian Index Fund holds components Petrobas (PBR) and Vale (VALE), which are both trading near their yearly lows, so we could see a bump in the Brazilian fund in the month ahead.
Semiconductor stocks Quality Systems (QSII), ATMI Incorporated (ATMI), and Taiwan Semiconductor Manufacturing (TSM) have seen a lot of bullish activity in options. Watch details on today’s Pre-Market Pulse!
Keywords: options semiconductors trading stock market Taiwan
In the iShares Taiwan Index Fund (EWT) yesterday, over 55,000 Of the Dec 14 calls traded on the ticker for 21 and 20 cents in opening transaction; it is now over 15% of the open interest in the firm’s options. Taiwan Semiconductor Manufacturing (TSM) is currently the top position in the fund with over 15% of the fund’s holdings in the company. In a Korean newspaper a few days ago, it was reported Samsung (Korea) will increase its 2012 capital expenditures for semiconductors from $9 to $13 billion. As for TSM, they are reported to have recent rush orders from customers and Apple just began trial production of a new generation of A6 chips in their facilities. On top of all of that, the companies will partner with IBM and Intel to fund a $4.4 billion nanotech facility in New York. Aside from the extremely bullish options action in the overall Taiwan Index fund, TSM added over 10,000 January 12.5 calls and traded more than 12 times its usual volume a couple days ago. That position is now 31% of the open interest in the company.
As for today’s semiconductor trade du jour, SOXL, the Direxion Daily Semiconductor Bull 3x shares is currently trading over 10 times its usual options volume with traders buying the November 30 calls. They paid $6.10 when it was trading near $34.64. It is up almost $1 since then.
EWT is up 62 cents to $13.57 right now and when the BIG trade went off, the fund was at $12.93. Options once again lead the way.
Talking Taiwan and the exciting semiconductor industry!
The following video has been lighting up SINA stock in today’s trading session: http://video.sina.com.cn/v/b/63346861-1290078633.html
Here is a note from Xiran (Joyce) Chen, contributor to RMB, regarding what the Chinese media and government are saying about the use of SINA Weibo (the twitter of China):
Sina Weibo user amount popped up to 195 million from 63.11 million, a 208.9% increase in the past 6 months. Government institutes and officers are the main force behind the increase. Weibo is used by them to post news, connect with citizens and collect criminal reports for the first time. They have been using Weibo more as a tool to gather crime statistics. So far, the police have successfully investigated a lot of missing children cases based on real-time notifications they get from Weibo.
VIX GIGANTIC CASH SPREAD GOES UP paper buys 2155 November 25 puts; buys 1780 November 27 puts; buys 1496 November 30 puts. buys 1276 November 32 puts; buys 1099 November 35 puts; buys 958 November 37 puts; buys 842 November 40 puts ; buys 745 November 42 puts; buys 665 Novembr 45 puts; buys 597 November 47 puts and sells 5650 November 80 puts. The November 80 puts are over it trades $20.98 million.
Talkin’ Abbott Labs (ABT) split-up, earnings and Emerging Market bulls
Talking Boeing and the China airlines in my best Pan Am outfit 
An Inside Look at China Derivatives Association
Posted: October 14, 2011 in Conference, Pictures, RMB
Last night I went to my first CDA event and was very impressed with the guests on the panel.
The key speaker and presenter was Nanhua Futures Company, a member of the Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, and a full clearing member of the China Financial Futures Exchange in China. They also hold memberships on Eurex, HKMeX and HKeX and employ over 800 people. The company has 6 branches and 60 different analysts in the first futures research institute in China. They are a first-class shop, no doubt.
Here are some things I learned from the event, or already knew, and think it’s important to share:
-CSI 300 futures contracts have the highest limit up and down at 10%,
-For clearing, member firms upload their client’s data to CFFMC which they can then log-in and check,
-For margin calls, clients have 2 consecutive days to provide sufficient capital,
-The exchange can adjust margin according to market conditions which they recently implemented before the week-long National day Holiday,
-In order to trade Chinese futures you have to 1.) be a Chinese citizen, or 2.) start an enterprise in China. Furthermore, you must pass the CFFEX qualification exam and have 500,000RMB as an individual or 1,000,000RMB as a professional institutional investor,
-Nanhua is seeing an increasing amount of interest from the algo and HFT community and they provide API and FIX connections so traders can work from systems they are already familiar with,
-China is working on developing another Chinese financial futures contract and personal opinions are that it could be a Chinese bond,
Also present at the event was the Standard Commodity Exchange Trade Center from Singapore. They operate as a “market-maker” in iron ore, steel and steel based commodities and use their own balance sheet to invest with their clients. Their main products are in steel and in materials used in industrial production. They have a joint venture with China Railway Materials Corporation and provide the world’s 1st e-commerce steel trading platform. The 2010 revenue from the group was over 170B RMB and they had 25 million tons of volume in 2010. They cover over 40 provinces in China and have the largest online commodity trading platform in China. The research they provide is based on real production volume on their systems. They settle their trades offshore to provide for flexibility in foreign exchange and international capital flow.
The last speaker was from the Hong Kong Mercantile Exchange which has been in operation for about 5 months now. They have gold and silver futures contracts listed and hope to launch copper futures in the next few weeks. The contract will be based on cash copper prices in Shanghai. One unique aspect of the exchange is that the gold and silver is denominated in RMB but the margin calls are in USD that convert at an offshore rate. They are also working on a physically delivered jet fuel contract. They have a diverse set of shareholders and membership; there is a Russian Nickel company on their board along with a shipping company and China’s largest bank, ICBC. Their membership represents some of the largest Mainland brokers along with international companies including Morgan Stanley, MF Global and Interactive Brokers.
After 3 days at FIA Expo 2011, these are the most important things I took away for the equity option world:
1.) Almost everyone agrees CBOE has successfully made volatility an asset class.
2.) Traders are heavily discussing correlation swaps; some people think this may be the ‘new’ VIX. A lot of talk on the volatility of correlation.
3.) There’s a great need for options education, especially from private wealth advisors and investors who have traditionally not used these products.
4.) Compliance and legal is becoming the most ‘in-demand’ aspect of the futures and options industry. The regulators have a lot of work to do and this is a record year in terms of enforcement cases.
5.) The buy-side would like Europe to be a better marketplace. People think there is a large opportunity in European markets if someone can get the structure right.
6.) Asian clients like to trade the sector-based ETF products here in the US.
7.) Investors in the states are going abroad to find uncorrelated assets.
Here are some of my favorite quotes:
-”Money and risk can flow around the world at the touch of a button”
-”This industry is part of the solution, not the problem”
-”Each part of our economy counts on well-performing derivatives market”
-”Our markets are too interconnected to fail”
-”There’s $22 of derivatives for every $1 that flows through the economy”
-”If you haven’t heard of Blackrock, you’re probably at the wrong conference”
-”Some would say you’re the new Too Big to Fail” – directed to exchange panel
-”It’s the thing that keeps you up at night” in regards to risk and compliance discussion on exchange panel
Awards:
Best overall booth: OptionsCity @OptionsCity
Best panel: Global Demand for Equity Options with:
Andy Nybo, Principal & Head of Derivatives Research, Tabb Group, Jay Gannon, Head of Equity Products Americas, Newedge USA, Bill Gellman, Head of Trading, Bayhill Capital Management, David Silber, Global Head Equity Derivatives, Head of US Equity Trading, Jefferies
Best party trooper: Vince Veneziani from Markets Media 
@GreatestTrades
Best new product: Apple Juice futures & options (because it’s my favorite drink)
Best part: Seeing all my friends and peers from around the world. I can’t wait for next year.
Pictures:
As the EEM (Emerging Markets Index) crossed into $38 territory today, someone swept over 50,000 Dec 42 calls across the option exchanges. ISEE sentiment indicates this was an opening customer buyer and the transaction happened just before noon Chicago time. The delta on the trade is about 28 and it is appears to be an opening transaction as there are just 27,000 contracts outstanding. It’s a $4.25 million dollar trade. Implied volatility was around the 34 level compared to historical levels of: 45% (30 day), 45% (60 day) and 35% (120 day). The majority of the trade was executed for 85 cents. Since this looks like a directional play, the fund would need to rally up about 12.5% to breakeven (excluding commissions and transaction fees). EEM closed up 4.28% to 38.07 today.
The fund invests in the following companies (by descending holding amount): Samsung Electronics Co, Gazprom, China Mobile (CHL), Petrobas – Petroleo Brasil (PBR), Vale (VALE), American Movil, Industrial and Commercial Bank of China, Banco Itau Holding Financeira, CNOOC (CEO).
The fund invests in the following countries (by descending holding amount): China, South Korea, Brazil, Taiwan, South Africa, India, Russia, Mexico, Malaysia, Indonesia.
China is set to open up after a week-long National Day Holiday and historic events are unfolding before our eyes…
FIRST, just a few hours ago, Bloomberg published an article highlighting the SEC’s mission to find a proper evaluation method for Variable Interest Entities (VIEs), a common structure used by Chinese ADRs to list on US exchanges.
VIE structures have 1 or more of the following characteristics summarized by the Summary of Interpretation No. 46 by FASB:
- The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity.
- The equity investors lack one or more of the following essential characteristics of a controlling financial interest:
- The direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights
- The obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities
- The right to receive the expected residual returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses.
In particular, the article draws attention to these companies as receiving increased scrutiny regarding their VIE structures from the SEC: Shanda Interactive (SNDA), KongZhong (KONG), Fushi Copperweld (FSIN) and Sino Assurance (SNAS). SINA and BIDU also operate under a VIE structure. Here is the original article: “China Companies Evading Rule With U.S. Listings Stump Regulators” http://www.bloomberg.com/news/2011-10-09/china-companies-evading-rule-with-u-s-listings-stump-regulators.html
SECOND, the currency bill is set for a Senate vote on Tuesday in a historic move by leaders to try and penalize China and levy tariffs on imports. Despite the fact this bill could be in violation of trade agreements, it presses on. China has openly stated that they are deeply disappointed; and, at first blush, it appears to be a distraction from the real problems at hand. Some economists and currency forecasters are calling for a hike in the RMB reference rate in the near-term in order for China to gently appease the US and buy some time. In Hong today, the Bank of China will resume purchasing RMBs to clear trades and settle transactions. This could help push the rate higher.
THIRD, there is a lot of trade data coming out this week: China imports, exports, foreign exchange reserves, inflation data.
Obviously, only time and action will show how this all develops. I would be very careful trading the ADRs this week. What do you think – does the US have any chance of following through on this? The value China places on its sovereign rights is not something to be taken lightly…
On today’s CBOE Pre-Market Pulse, I discuss last night’s Markets Media event, options education, VIX, AAPL and SPX.
