From Jim Ross: MatchPoint and trading algorithms are two effective approaches to sourcing liquidity and reducing trading costs but when linked together, they take trading performance to a new level. Algos are designed to do two things: find liquidity and minimize transaction costs. In the process of finding where contra-side liquidity resides, the algo has to avoid impacting, leaking or unduly delaying its own trading strategy. Algos, to their credit, are the only feasible way to transact in a fragmented marketplace across place and time.

Imagine, however, how much better an algo could be if it spent its time maximizing the investment and trading alpha of an order as opposed to managing to the costs of a dysfunctional, suboptimal marketplace. MatchPoint provides precisely the type of liquidity-aggregation and lowest-possible-trading-cost environment that complements if not unleashes the full potential of trading algorithms.

Liquidity found! Execution delay and information leakage, no more! MatchPoint and trading algorithms: Effective apart but better together!

From Jim Ross: MatchPoint and trading algorithms are two effective approaches to sourcing liquidity and reducing trading costs but when linked together, they take trading performance to a new level. Algos are designed to do two things: find liquidity and minimize transaction costs. In the process of finding where contra-side liquidity resides, the algo has to avoid impacting, leaking or unduly delaying its own trading strategy. Algos, to their credit, are the only feasible way to transact in a fragmented marketplace across place and time.

Imagine, however, how much better an algo could be if it spent its time maximizing the investment and trading alpha of an order as opposed to managing to the costs of a dysfunctional, suboptimal marketplace. MatchPoint provides precisely the type of liquidity-aggregation and lowest-possible-trading-cost environment that complements if not unleashes the full potential of trading algorithms.

Liquidity found! Execution delay and information leakage, no more! MatchPoint and trading algorithms: Effective apart but better together!

From Todd Wilemon:

“Derivatives are dangerous.”

“Stock options are only for professionals to trade.”

“The only way to profit using options is to sell them.”

“You get what you pay for.”

“There is no free lunch”

The above “rules” are not always correct. Take the last two, for example. The Options Industry Council (OIC) puts on seminars across the country to inform and educate investors and traders about exchange-traded options. They offer a variety of seminars from a basic class on options to a class on volatility. The best part is they are all free! In my opinion, they are worth every penny (small joke, ha)—and in many ways are far superior to some very expensive training seminars out there, because the OIC seminars are taught by industry experts who are volunteering their time in an effort to educate the public, which means there is no other agenda but to help folks better understand how options work—and this in turns helps dispel the first three myths mentioned above.

In these troubling economic times, listed options are getting another look from the individual investor to hedge away risk and use leverage to profit from the rise and fall of individual stocks, ETFs (exchange traded funds) and indices.

Last month in Seattle–actually Bellevue (the town Microsoft built)—I undertook my first foray into teaching these wonderful seminars. Yes, your humble blogger is a newly minted OIC instructor. NYSE Arca Options and NYSE Amex Options are partners with the other U.S. Options Exchanges in the OIC’s non-profit, educational consortium. We are proud to be a part of this effort.

Each seminar starts with a legal disclaimer. No surprise there because what doesn’t begin without a legal declaimer these days? “Options involve risk. They are not for everyone. All examples will not take into account taxes, commissions or margin requirements. At no time should anything said be taken as a buy or sell recommendation.” All common-sense stuff. After the “covering your posterior” part of the talk, we get down to the nitty-gritty of why people attend these classes: “Options give you options.”

Listed, exchange-traded options can be excellent tools for informed public investors, not just for professionals. While trading options can be risky, they can also mitigate risks of adverse market moves against an individual’s portfolio, and if you employ the discipline and “base hit” strategies we discuss in these seminars, you can increase your portfolio’s profitability over time.

Every level of investor is represented at one of these seminars. Learning about options is like learning another language. Just as you would not be able to speak French after a few hours, you will not know all the ins and outs of options after one seminar. What these seminars provide is a good basic foundation to build on as you continue to learn about and utilize options.

For a successful investor who invests only in stocks and bonds, options expand their investment universe. Without options, an investor has only three choices in the stock market, being long, short or out of equities. An OIC seminar shows you multiple option strategies to use that will either help you make money, or protect your capital, if the stock goes higher or if the stock goes lower. There are even strategies taught that will make the investor money if the stock does nothing.

One of the more enjoyable parts is the questions from the participants. The three answers you will hear most is, “Well, that depends,” “Options give you options,” and my favorite, “We do not have the secret.” Nobody publishes tomorrow’s closing prices today.

Let me break this to you gently: your OIC instructor does not know the secret to making millions in the stock market. But your instructor does know about options, how to use them to protect and grow your capital, and he or she will give you insights into when and why options are a good idea to use as a tool in your investment decisions.

At the end of the class, many misconceptions are put to rest, like “selling options is only way to make money” or that “90% of all options expire worthless.” I will say here that neither is true but save the explanation for class.

Hopefully I’ve sparked your interest — www.888options.com is the website to find out when and where the next seminar is in your area (and there is a bunch of great content on the website to help build your options “toolkit”).

The seminars are three hours that are well worth your time. Don’t worry, we give you a break midway through the three hours and provide beverages and cookies for no charge. Bet you really want to go to one now that I mentioned there are free cookies?

See you at the OIC seminar!

TW

The alternative-trading-system model is “free form and flawed. I think it needs to be reformed,” says Jim Ross, the head of Matchpoint, NYSE Euronext’s point-in-time crossing platform in a thought-provoking interview in the current Traders Magazine.

“Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best ‘alternative to the alternatives,’” the article begins.

In between answering questions about the benefits of MatchPoint over other dark pools and point-in-time crosses, as well as other subjects, Jim puts forward an idea about the intersection of dark pools and transparency:

Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That’s not what this revolution has been about. It’s been about reducing transaction costs because transaction costs reduce performance. It’s ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated — like the NYSE of old.

We need a more centralized environment now. That’s why MatchPoint in an exchange facility is critical in reaping the disjointed liquidity that’s out there. It’s an alternative to the alternatives.

Not one to mince words, eh? As readers of Jim’s posts on this blog well know: a shrinking violet, he’s not. Later, in a related vein:

TM: Do you think dark pools should be required to publish their market share stats monthly?

JR: Yes. ATS operators should embrace this. At a minimum, this is the right thing to do. It’s no special privilege to hide in plain sight. The dark pools are doing 8 percent to 9 percent of the consolidated volume. That’s not nothing. Investors should be able to see where their flow is going and how it’s being transacted. It’s also less effective to do transaction cost analysis without that information.

I’d recommend reading the article to get the full context, and a good sense of Jim’s passion for and Street-wise knowledge of the subject. And I’d be curious to hear what you think: is it time to shed more more light on the “dark side” of the market?

The alternative-trading-system model is “free form and flawed. I think it needs to be reformed,” says Jim Ross, the head of Matchpoint, NYSE Euronext’s point-in-time crossing platform in a thought-provoking interview in the current Traders Magazine.

“Jim Ross at NYSE Euronext thinks dark pools have come full circle. Crossing systems were an alternative to the exchanges, but now, in his view, a crossing platform within an exchange is the best ‘alternative to the alternatives,’” the article begins.

In between answering questions about the benefits of MatchPoint over other dark pools and point-in-time crosses, as well as other subjects, Jim puts forward an idea about the intersection of dark pools and transparency:

Opaque or pseudo-opaque ATSs are commercially self-interested rather than focused on solving problems involving implicit transaction costs. That’s not what this revolution has been about. It’s been about reducing transaction costs because transaction costs reduce performance. It’s ironic that the NYSE is more open and inclusive than the ATS industry, which is more clubbish and isolated — like the NYSE of old.

We need a more centralized environment now. That’s why MatchPoint in an exchange facility is critical in reaping the disjointed liquidity that’s out there. It’s an alternative to the alternatives.

Not one to mince words, eh? As readers of Jim’s posts on this blog well know: a shrinking violet, he’s not. Later, in a related vein:

TM: Do you think dark pools should be required to publish their market share stats monthly?

JR: Yes. ATS operators should embrace this. At a minimum, this is the right thing to do. It’s no special privilege to hide in plain sight. The dark pools are doing 8 percent to 9 percent of the consolidated volume. That’s not nothing. Investors should be able to see where their flow is going and how it’s being transacted. It’s also less effective to do transaction cost analysis without that information.

I’d recommend reading the article to get the full context, and a good sense of Jim’s passion for and Street-wise knowledge of the subject. And I’d be curious to hear what you think: is it time to shed more more light on the “dark side” of the market?

Everybody was watching this week to see if the IPO market could get some legs again. The successful debuts of Bridgepoint Education and Rosetta Stone on NYSE Euronext effectively doubled the number of IPOs we have seen in the market this year and will help to lay a foundation for a stronger market that is really important for our economy.

These two events highlighted the changes in and importance of investors, traders, pricing and the effects of IPOs on the overall economy. Here are my observations on what we learned.

IPO investors are looking for a solid investment thesis built upon three prerequisite characteristics: participation in a growing industry, business execution and market leadership. Sounds simple, but the number of companies meeting all three are rare–so don’t expect the floodgates to open all too soon. I do think others will follow in the coming months, and they will be able to thank these two pioneers for helping to lead the way. These transactions were also particularly important in shaping sentiment around the IPO asset class itself. Investors making money on IPOs starts the flywheel, and momentum is able to build on itself.

The management teams and bankers involved in the recent deals told us that the buyside players are changing. Many of the hedge funds and fast money players are gone, heralding a return of the long-term investor. This is important for the newly public company because it gives them the ability to create a better shareholder base aligned with their strategic objectives.

Pricing and valuation are obviously critical to the success of an IPO. Both deals this week seemed to price well relative to their public comps. In the past, this has been a major problem in the industry as management teams, boards, and investors pushed to get the highest valuation and the last dollar out of pricing. It set up an environment where two-thirds of the IPOs missed expectations the first or second quarter after listing. My advice to any company on valuation is to remember two things: First the IPO is not a sale of the company and Second, you are an unproven private company with higher risk–acknowledge that and prove the market wrong. The year-over-year valuation comparisons are getting easier so valuation may prove to be less of an obstacle going forward.

My last point is something we often forget to think about. The IPO is an important job engine for our economy. These two companies employ about 2,000 employees. Bridgepoint didn’t exist five years ago. Rosetta Stone had 10mm in revenue five years ago. Both companies create jobs, provide for families and create wealth. We need the IPO market to work in our economy–an economy, if I remember, that was established on entrepreneurship and innovation.

So, kudos to these two for setting the stage. I, for one, feel more positive today than I did last week and who wouldn’t want a change in sentiment after the winter we have just barely lived through?

NYSE Arca options today takes another huge step forward in bringing speed, transparency and throughput to complex options order trading. Starting today, all single-leg options with stock orders AND reversal conversions are eligible for trading in the Complex Order Matching Engine!

You want functionality? We give you functionality! (Can you tell I am a little excited?!!)

Your favorite options trading platform that provides you with immediate, cost-effective electronic order execution will now be able to handle buy writes, delta neutral single-leg option orders (tied to stock or ETF), married puts and reversal conversions. This functionality is available for every issue listed on the NYSE Arca options platform. How cool is that?

Now you will get the same lightning-fast order handling that you love for tied trades as you do for options-only single-leg and complex orders. Supercharge your execution opportunities by using the new Complex Order Book functionality to access the liquidity on both our equity and options electronic platforms at the same time.

NYSE Arca offers riskless execution for options with stock complex orders by matching complex orders within the Complex Order Book OR by interaction with the liquid simple markets on both the options and equities platforms.

To use the new functionality, OTP holders must also be an NYSE Arca ETP (equity trading permit) holder, as well as a FINRA (Financial Industry Regulatory Authority) member. (But you are already an ETP holder, aren’t you? If not, now is the time!)

It gets better:
• Single-leg option with stock orders can be priced in penny increments.
• Reversal conversions orders can be priced in penny increments.
• Complex orders can be priced in penny increments.
• Marketable option/stock orders will trade immediately lightening-fast, with no auction or delay in processing.
• ArcaBook subscriptions are available for the Complex Order Book with both top of book messages and new instrument messages.
• These strategies will be available in all options symbols traded on NYSE Arca.

In order to identify and organize complex instruments and orders, NYSE Arca will disseminate Complex FAST symbols via ArcaBook. For other technical details and specs and also for people who you can contact for more info, please peruse the client notice here:
http://www.nyse.com/pdfs/Expansion_Single_leg.pdf

See you in the Complex Order Book!

Trade ‘Em Up!
TW

If you work on Wall Street or used to — and by Wall Street I mean the financial-services industry, not just the literal place — you must read the op-ed article by Peggy Noonan in today’s Wall Street Journal, “Lessons From the Recovery of 2001; Not so long ago, there were heroes on Wall Street.”

The article begins by placing a task squarely on Wall Street’s shoulders rescuing and restoring the Street’s reputation.

This will, in fact, be the great work of a generation of American business leaders.

More is at stake than their standing. At stake is the standing of a free-market system that has flourished since America’s founding and made it the wealthiest nation in the history of man.

Ms. Noonan writes of the higher, larger purposes of capitalism: to “lift the greatest numbers out of poverty;” to bring “more services, more creativity, more opportunity, more ferment and movement—more life.” To pursue this work requires a moral, ethical foundation, out of which positive actions flow, she says:

Noble. Constructive. Admirable.

When was the last time anyone thought of Wall Street like that?

There was a moment, a very public one well within memory, that was all of those things. And it might help the coming generation of business leaders to keep its lessons in mind.

Ms. Noonan recalls, through the words of my colleagues who were there, the dark day of 9/11, and how in the tremendously difficult days that followed, people worked together as never before so that the financial markets could resume operation and again take their place as not just financial engines but highly visible symbols of economic freedom and opportunity.

I wouldn’t count those who worked around me as heroes, though the work was indeed daunting. The real heroes were the firefighters and police officers who ran into the World Trade Center when everyone was running out; and countless others who put their lives on the line to save the lives of others. But in the days that followed, their heroism resonated and inspired others. Was there a sense of higher purpose among my colleagues — that they absolutely had to figure out a way to patch it together and get it going? Yes. That suddenly, ringing the Opening Bell seemed like a matter of national interest and global importance? Absolutely, it felt just like that.

But after that triumphant moment, it all went astray: a bubble burst, followed by a trail of bonuses, bailouts and bankruptcies, leaving each of us today with an important decision on which path to take forward, Ms. Noonan suggests:

In the years after 2001, they took care of themselves. But that bright shining week, Sept. 11 through 17, they took care of tradition, the exchange and their country.

So maybe wisdom begins there for them, and for those entering and living out lives in business in America: Look only to yourself and wind up with ashes. Know it’s bigger than you and wind up a hero.

If you work on Wall Street or used to — and by Wall Street I mean the financial-services industry, not just the literal place — you must read the op-ed article by Peggy Noonan in today’s Wall Street Journal, “Lessons From the Recovery of 2001; Not so long ago, there were heroes on Wall Street.”

The article begins by placing a task squarely on Wall Street’s shoulders rescuing and restoring the Street’s reputation.

This will, in fact, be the great work of a generation of American business leaders.

More is at stake than their standing. At stake is the standing of a free-market system that has flourished since America’s founding and made it the wealthiest nation in the history of man.

Ms. Noonan writes of the higher, larger purposes of capitalism: to “lift the greatest numbers out of poverty;” to bring “more services, more creativity, more opportunity, more ferment and movement—more life.” To pursue this work requires a moral, ethical foundation, out of which positive actions flow, she says:

Noble. Constructive. Admirable.

When was the last time anyone thought of Wall Street like that?

There was a moment, a very public one well within memory, that was all of those things. And it might help the coming generation of business leaders to keep its lessons in mind.

Ms. Noonan recalls, through the words of my colleagues who were there, the dark day of 9/11, and how in the tremendously difficult days that followed, people worked together as never before so that the financial markets could resume operation and again take their place as not just financial engines but highly visible symbols of economic freedom and opportunity.

I wouldn’t count those who worked around me as heroes, though the work was indeed daunting. The real heroes were the firefighters and police officers who ran into the World Trade Center when everyone was running out; and countless others who put their lives on the line to save the lives of others. But in the days that followed, their heroism resonated and inspired others. Was there a sense of higher purpose among my colleagues — that they absolutely had to figure out a way to patch it together and get it going? Yes. That suddenly, ringing the Opening Bell seemed like a matter of national interest and global importance? Absolutely, it felt just like that.

But after that triumphant moment, it all went astray: a bubble burst, followed by a trail of bonuses, bailouts and bankruptcies, leaving each of us today with an important decision on which path to take forward, Ms. Noonan suggests:

In the years after 2001, they took care of themselves. But that bright shining week, Sept. 11 through 17, they took care of tradition, the exchange and their country.

So maybe wisdom begins there for them, and for those entering and living out lives in business in America: Look only to yourself and wind up with ashes. Know it’s bigger than you and wind up a hero.

I’ll be out of the office until 20 April, so posting here will be a little lighter than usual.

In the meantime, when did they start putting glitter in the egg-coloring kits? That’s kinda neat. Move over a little, let Dad take a look. C’mon, take it easy, you’re not using this egg right now, are you? Hey, I wanted to use the purple! Then a little dip in the yellow; wow, look at that color! Whaddaya mean, aren’t I too old for this? Where is that written? I’m just supposed to put together the cardboard egg-drying stand? Do you think that’s fair? Hey, is my egg coming out great, or what? No, that’s a baby-chick face I drew with the crayon; it does NOT look like Darth Vader! Hey, when do we put the glitter on? Wow, isn’t this fun? Wait, what are you doing…there’s no need to yell for your mother. What, honey? No, we’re having fun, everything is fine. Really! Right, kids? I said, right? Well, yes, OK dear, it’s their stuff.

OK then. Guess I’d better wash up. Glad I could help. You kids finish up the rest, OK?

I said, OK?

Hey, don’t everybody look at me like that.

Maybe there’s a ballgame on.

Seriously, happy holidays to everyone celebrating one these days.