Dear CBOE Member: We advised you recently that the International Securities Exchange (ISE) filed a lawsuit in New York federal court against Standard and Poorâs and Dow Jones. The lawsuit seeks a declaratory judgment that would authorize ISE to list and provide a market for the trading of options on the S&P 500 (SPX) Index and the Dow Jones Industrial Average (DJX) without a license from the owners of those indexes -- S&P and Dow Jones. While we are not able to publicly discuss the legal merits of the suit at this time, you can be assured that we are working with Dow and S&P in preparing a vigorous, well-grounded legal defense. We can, however, take this opportunity to reiterate our philosophy regarding proprietary products and exclusive licensing and, ultimately, product innovation, which to us is at the heart of this case. Innovation isnât just a buzzword at CBOE. CBOE invented index options and CBOE has been responsible for virtually every index option enhancement that followed. These developments come at a price far beyond the cost of the licenses themselves. CBOE has committed millions of dollars and a tremendous number of man-hours in support of new product development and implementation. Each new product -- successful or not -- requires significant investments in research and development, in new systems and regulatory procedures, and in customer education. Significant risk accompanies the high cost of developing and launching new-product innovations. For every success story, there are untold products that trade only thinly or not at all. When we make the decision to launch a product, we assume full responsibility for it. If a new product fails to trade, we do not expect other exchanges to help defray its cost. If it succeeds, we should not expect them to share in its profits. CBOEâs ongoing willingness to assume the risk of introducing new products far outpaces that of any other options exchange. Some of our competitors would like to share the fruits of our labor without having to shoulder any cost or risk. No matter how this strategy is cloaked, it is free riding and is ultimately anti-competitive. The desire on the part of a competitor to have a stake only in our more popular, market-tested winners is equally understandable, but the practice of cherry picking, like free riding, is ultimately a disincentive to those who would truly innovate. It may be more cost effective to pursue new products through litigation than through research and development, but we donât subscribe to the argument that these lawsuits are of benefit to investors. Product innovation benefits investors. Lawsuits add to the cost of product development and ultimately create disincentives to innovate. CBOE is rewarded only when its innovations are found to be of use to investors -- and it absorbs the cost of developing those that are not. Every exchange is free to compete through innovation. There is no paucity of good ideas. In the past two years, while some of our competitors have focused their product development efforts on lobbying and litigation, CBOE has introduced VIX Options, VIX Futures, and the S&P 500 BuyWrite Index. These, by the way, are neither small concepts, nor mere product enhancements, but groundbreaking product innovations of obvious benefit to the legions of investors already using them. CBOE will continue to innovate. No customer or industry ultimately benefits when its innovators are hamstrung by legal defense costs or by being forced to unfairly share profits without sharing risks. Product innovation has never been more crucial to the options industry than it is today, when product lines are blurred and customers and users are increasingly sophisticated. CBOE will continue to advance the frontier of the options product in an increasing global marketplace. We intend to make profits and to serve investors through product innovations yet to come, and we will continue to vigorously defend our right to so do. Sincerely, Bill Brodsky Ed Tilly John Smollen
QUOTE]Quote from kapil: Mark and Ryank, Are your returns based on return on margin or your total capital allocated to options? Kapil [/QUOTE] For me, it's the same. This account is devoted to my diagonal strategy and I am fully invested most of the time. For each 100K in my account, when I say 1%, it means I make 1k. Mark
If I knew Bill personally, I'd tell him that his ideas have merit, but the disgusting markets made by his membership is reason enough for the ISE to win the suit. Mark
For me, it's the same. This account is devoted to my diagonal strategy and I am fully invested most of the time. For each 100K in my account, when I say 1%, it means I make 1k. Mark [/QUOTE] Mark , why did you stopped shorting inflated vols into report , I thought you was doing good , no ?
Yes. But, I traded those stocks very small because each trade was pretty risky. Too small to make enough money. I still like the idea (and even did a couple this past earnings season), but it requires too much time (researching the stocks and their charts). Diagonals require much less work, and the positions are easier to manage. Mark
Hi Mark, Yip and ryank, From Nov 2005 to Oct 2006, there is more than 2/3 chance that the SPX closed on high on the option expiration date. 6 months closed less 5 points from the high of the month, 2 months closed between 6-9 points from the high. The study starts from the first day of the expiration month, for example in the month of Sep 2006, that was 21 Aug 2006, till the last day of the Sep trading day, that was 15 Sep 2006, there are 8 months from Nov 2005 to Oct 2006, that the index closed less than 10 points from the high of the month. Just to list the month in details (closing SPX price from the high of the option month): 1) Nov 2005 : 1.3 point 2) Dec 2005 : 8.5 points 3) Feb 2006 : 2.2 points 4) Mar 2006 : 3.2 points 5) Apr 2006 : 6.9 points 6) Aug 2006 : 0 point 7) Sep 2006 : 5.0 points 8) Oct 2006 : 4.2 points This month could just be another month adding to the statistics. How would the above statistics help us in any way ? One usage is to might help us to close out our bear call spread one week before the expiration date if the index is still trending upward since the current statistics shows that there is more than 50% that the index will close on the month range high.
i was wondering...... since most people feel that writing put credit spreads are not prudent at this time; has anyone considered some cheap debit spreads? then when things possibly correct some you have profit and/or partial hedges to your new credit spreads? is this "building" superior possibly to ratio writing because you are legging in when the debit is cheap; then writing when premium's are higher? anyway, this is how i have traded this year. i actually made a good percentage on debits in the beginning and middle of the year. these past few months my debits have been sucking wind except for a rut call debit in major positive territory.
Been trying to get filled on put credit spreads the last few weeks but to no avail. The market is in a bullish run so I wanted to be on the other side of it but premiums are thin at the strikes I like. With vols so low, you could certainly look to a few lottery debits but I really do not see this market selling off so strongly or VIX spiking so high. If it does the spread will negate a lot of the IV increase. If you want to play it that way, better off with solo puts.
The strangest thing just happened. I decided to take this small downturn in the RUT to get out of my last bear call for this year. The position was the 830/840 DEC RUT. The mid was $1.00 with an ask of $1.20. I offerred to buy back at $1.05. I was filled in less than 5 seconds at $0.90???!. Good for me, but I've never had this kind of good fill before. What's even stranger is that the RUT was ticking higher. My previous experience with the RUT has been poor with regards to getting good fills. What experience have others had with getting good fills on the RUT?