Get those brokers back in here!: The CME signals the end of open outcry trading pits

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An official at the Chicago Mercantile Exchange admitted Thursday that the company’s decision to close its New York open outcry trading floor at the end of the year is a sign of the times, but rejected the assertion that the move is a “nail in the coffin” of pit trading for the commodities and futures industry.

(John McDermott gives a terrific historic overview of the 168 year history of the open outcry era here)

A CME Group spokesperson told Tradestreaming that while the world of finance has largely digitalized, the Chicago trading floors for options and S&P 500 futures remain profitable, and that the traditional form of commodities trading would not disappear completely.

“We do not have a plan or timetable to close the Chicago floor,” the spokesperson said via email. “The majority of markets traded through open outcry in Chicago continue to meet predetermined volume and/or revenue requirements to keep them open. The remaining trading pits generate approximately $160-$170 million annually, or about 5 percent of total company revenue.”

Asked about traditionalist claims that some options trading is “too complicated” to be left to computers, the CME official agreed that electronic options volumes are growing, but added “we still see a number of options on futures trading strategies that are only possible via open outcry at this time.”

Despite CME’s insistence that there is a future for open outcry trading, even company spokespeople appear to believe that the writing is indeed on the wall. While insisting that traditional trading would continue, they also admitted that “our clients prefer to trade NYMEX and COMEX options electronically.” Looking to the future, they also said that “keeping our floors open for the last several years has allowed time to adjust to this overwhelming shift to the screen.”

The derivatives marketplace announced on April 13 that it would close its New York trading floor at year’s end, citing a sharp decline in open outcry options volume on the New York floor, with just 7,500 contracts at present, a 53% drop from 2015 and 0.3 percent of the company’s overall energy and metals trading volumes.

The move is the latest in a trend that began in November of 2000, when the London International Financial Futures Exchange closed its open outcry pits in favor of electronic trading. More recently, CME announced last year the closure of its open outcry futures pits in Chicago and New York, leaving the company with just two remaining trading floors, the Chicago-based options and S&P 500 futures contracts pits.

CME reported 2015 revenue of $3.3 billion and operating income was $2.0 billion. Net income was $1.25 billion and diluted earnings per share were $3.69.

Become an indomitable investor — with Steven Sears

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To build and protect wealth, Investors don’t need another get-rich-quick scheme.

Instead, look at history’s best investors to understand the basics of investing, the players in the market and their different priorities, what works and what doesn’t, and how to manage steven sears

Steven Sears, editor and columnist at Barron’s, has written just such a book. His writing has a lifetime of experience and advice witnessing what works for the best investors…and what doesn’t.

He joins us on Tradestreaming Radio to discuss his new book, The Indomitable Investor.

Listen to the FULL episode

Continue reading “Become an indomitable investor — with Steven Sears”

The Best Way to Play Earnings with Options — with John Shon (transcript)

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This transcript comes an interview with John Shon that you can find here.  You can also find our archives of interviews with some of the world’s best investors here.

Announcer: Live from the Internet, it’s Tradestreaming Radio, with your host,’s own Zack book by john shon

Zack: Hey, this is Zack Miller. You’re listening to Tradestreaming Radio, the place on the Internet where investors can learn directly from experts.

One thing I’ve found in my individual investing practice, both my own investing and the work I do with clients, is that, although I know basic options strategies, I’ve struggled to really implement them. More than anything, I feel that options are a great way for a lot of investors to lower the risk in terms of playing out a thesis that they have on a particular stock.

The hardest thing to do with options is to pick a direction, and this is what many investors do, is to buy a call or buy a put, and basically say, “I’m making a bet that the stock’s going to go up or down.” It’s (a) very hard to pick which direction, and (b) a lot of times even if we’re right, meaning earnings season is particularly good, there’s some good news out, the stock may not react the way we’re predicting it.

I was really interested to read this book that was put out recently on the FT Press by John Shon, who’s a professor of accounting at Fordham. He has a Ph.D. from University of Chicago at Booth School. He wrote a book along with Ping Zhou called “Trading on Corporate Earnings News: Profiting from Targeted Short-Term Options Positions.” I invited John on to the show today to discuss the book. Continue reading “The Best Way to Play Earnings with Options — with John Shon (transcript)”

The Best Way to Play Earnings with Options — with John Shon

Investors should always be on the prowl for investment strategies to improve returns while lowering risk.

new book by john shon

While everyone knows that options can help here, very few individual investors I’ve met actually have a good strategy to implement options.

John Shon, author of Trading on Corporate Earnings News: Profiting from Short Term Options Positions and a professor of accounting at Fordham University, joins us on this episode to discuss:

  • why earnings announcements are good times for investors to make money
  • why stocks continue to move big after earnings, even though they’re being scrutinized
  • how to use options regardless of whether we’re right about earnings strength/weakness
  • how to capitalize on post-earnings announcement drift (stocks continue to move AFTER earnings announcement)
  • advice on how to increase chances of success in options strategies around earnings announcements Continue reading “The Best Way to Play Earnings with Options — with John Shon”