Research in Motion (RIMM) shares closed down Wednesday, under-performing the broader market, which finished near break even. RIMM didn't report any news of its own accord, but investors likely reacted to an ill-received earnings guidance from mobile-phone peer Nokia Corporation (NOK). A large-scale options trader evidently used yesterday's pullback as an opportunity to scoop up some longer-dated call options.

Early yesterday, a block of around 7,000 out-of-the-money January 85 calls hit the tape for $1.45 per contract ($145 apiece), for a total premium of slightly more than $1 million paid. While open interest is already 10,000 at this strike, it appears these calls were bought to open, judging from an increase in implied volatility (and the fact that these options have more than six months until expiration).

CBOE Volatility Index (VIX) up 3.50 to 20.98, above 50-day moving average of 17.83; S&P 500 recently down 1.71%.

Goldman Sachs (GS) is recently up 81c to $152.88. GS call option volume of 60,274 contracts compares to put volume of 63,724 contracts. May put option implied volatility is at 44, June is at 41; above its 26-week average of 33 according to Track Data. GS June 175 calls volatility is at 37, June 125 put volatility is at 58, suggesting traders taking positions for downside price movement.

Update is by Stock Specialist Paul Foster of theflyonthewall.com.

The issue of regulating derivatives trading has been festering since last year. The banking industry's lobbying to bury the legislation has been fierce.

So far, derivatives trades, including credit default swaps (CDSs) and collateralized debt obligations (CDOs), have been kept secret between parties. Proposals to make this information public are creating a warlike atmosphere between lobbyists and Congress.

Last year, American International Group (AIG) lost up to $2 billion because its Financial Products group unwound most of its remaining trades with Goldman Sachs (GS). Of course, this was the situation that led to the insurer's near-collapse in September 2008. The losses sustained last year resulted from AIG's continued efforts to extract itself from a precarious financial situation.

AIG's realized losses came on approximately $3 billion in mortgage-collateralized debt positions. After last year's extrication, AIG has $1.3 billion in CDOs with Goldman Sachs, because the company believed the positions could perform better than their current prices would reveal.

One trend that has to reverse for the U.S. economy to return to premiere economy status: the trend of top talent toward financial services and away from other fields, including engineering, and the natural sciences.

The income gap between those who went into finance (for example as hedge fund managers and/or product designers of derivatives, credit default swaps, and other investment instruments) and those who went in to mechanical engineering or civil engineering widened considerably during the past 20 years: and where do think a lot of the talent went? You guessed it, in to designing derivatives, etc.

House Financial Services Committee Chairman Barney Frank has a new proposal to regulate bank transactions. Some of it is OK and some of it perpetuates the abuses that brought Lehman and other financial institutions to their knees.

First the OK part. Frank's proposal would require over-the-counter derivatives to be traded on listed exchanges and sold on exchanges or processed through a regulation platform. This is not good enough. We need transparency for each and every trade done by each and every financial institution. That means that all trades must be done on a listed exchange and cleared through a clearinghouse. All of this data can be put on computers and monitored daily. Then if some trader goes beyond established guidelines, he will be shut down immediately.

If you think the health care debate is a big brouhaha, its nothing compared to the behind the scenes battle over government regulation of derivatives.

On the government side we have a proposal that would require the most standard derivatives to be processed through a clearinghouse, whose members would make good on any default. This is the way the commodity markets operate. For "nonstandardized contracts," banks would have to put up more capital or margin.

First of all, let's look at what hedging really is. Take, for example, a farmer who grows corn. He knows that his cost for growing corn is, say, $3.00 per bushel. But he doesn't know what price the price of bushel of corn will be come harvest time. He looks at the September futures contract for corn and sees that the price is $3.30 per bushel.

To guarantee that he will get $3.30 at harvest time, he sells September corn contracts equal to his crop (each corn contract equals 5,000 bushels). When harvest time comes he delivers his corn to the appropriate delivery point designated by the Chicago Board of Trade exchange (CBOT) where the contracts are traded. It should be noted that if the price of the futures contract goes above $3.30 per bushel, the farmer may be called for margin money until he makes delivery, at which time his account is settled out.

Who is going to crackdown on the speculators? The agency responsible for supervision of the commodities markets is the Commodity Futures Trading Commission (CFTC.)

If you remember, last year the spike in oil prices to $147.00 per barrel was done through speculation in oil futures contracts. A futures contract gives the trader to right to bet on the prices of various commodities, on whether they will go up or down. Contracts usually last for three months, at which time the longs and the shorts are paired down to zero, leaving the speculators out of the final trading. However, the speculators simply move their positions to another forward contract, keeping their positions in place.

The rub has been on the concept of "position limits." In most commodities the CFTC imposes a limit on the number of contracts that a single person or firm can hold. The real bone of contention is that the CFTC does not impose limits on oil or oil products contracts. That has been left up to the various exchanges.

Are financial stocks a buy now? Jeffrey Palma, a strategist for UBS says yes. He is recommending a modest "overweight" for this sector. He goes on to say that financials had the biggest gains among 10 industry groups in the MSCI World Index in the second quarter.

Let's be clear here. Mr. Palma is referring to the second quarter. The second quarter is done, finished. The real question is whether or not, going forward, the rally will continue.

During the years leading up to the financial meltdown, banks primarily took mortgages and other loans and bundled them together. Rating agencies were called in to bless them -- we now know those ratings were bogus. No one bothered to ask what was in the packages and no one cared as long as the value kept rising. Then when the crash came, it was too late. Not knowing what was in the packages, investors could not sell because no one on the other side of the trade wanted to buy. The markets froze and the meltdown was on.

Now U.S. Treasury Geithner wants to change the rules and force lenders to retain at least 5% of the loans they generate. In a way, this is akin to a margin requirement for these securities. Obviously the banks oppose such a measure because it would tie up a portion of their capital.

JP Morgan Chase & Company (NYSE JPM) held its annual shareholder meeting with Jamie Dimon, chief executive officer holding court.

Among his jabs against the Administration he complained that the rules against hiring foreigners was a "complete and utter disgrace." We might ask Mr. Dimon if he plans to hire another Chinese mathematician such as David X Li, whom JP Morgan Chase hired in 2000. Mr. Li developed a formula that created a single number from which traders bet billions of dollars in the past decade in derivatives which eventually brought the country to its knees when the housing bubble burst. This may help to explain why JP Morgan Chase has $87.7 trillion of derivatives "off the books." We might ask Mr Dimon to disclose the exact position in derivatives that he holds "off the books." Wouldn't that make fascinating reading?

Why is it that bankers will not come to grips with the fact the derivatives are destructive and have taken this economy down and turned it to ruin? Toxic assets are derivatives and we are throwing about $3 trillion of taxpayer money into this black hole.

Instead they are stubbornly holding on to derivatives and playing mickey mouse with a few changes. Listen to this one: -- 1400 banks and asset managers are adopting a new "big bang" protocol to make it easier to know what will happen in the case of defaults. What in the world do they think they are doing -- creating a new universe? This just a sugar coating. Also, the US market will introduce a standardized pricing for CDS contracts which hitherto have been unregulated. The CDS market is not the main culprit. The main culprits are the CDOs and CLO's and the banks don't have a "big bang" for these derivatives.

In the film version of Tennessee Williams' 'Cat On A Hot Tin Roof' (1958), Maggie 'The Cat' (Elizabeth Taylor), knows her husband Brick (Paul Newman) is hiding something, but she can't figure out what it is.

Later, we learn that Brick is hiding the truth about his father, millionaire Big Daddy (Burl Ives), and he slowly gathers the courage to end the mendacity that has permeated their lives.

At some point the nation will, likewise, end the mendacity about American International Group (NYSE: AIG) and announce the full, probable cost of the orderly stabilization of AIG. For economic conservatives, market absolutists, most Republicans, and others who oppose government intervention, the above would be bad news, but at this juncture, it appears to be unavoidable.

Like so many others, you probably wanted to be a fly on the wall when Warren Buffet gave his fourth-quarter report to shareholders of Berkshire Hathaway Inc. (NYSE BRK.A). Well, here's the bad news: Net profit fell 96%, the fifth quarterly straight decline and Berkshire's net worth dropped a whopping $10.9 billion in the final three months of 2008.

Omaha-based Berkshire Hathaway is a diversified company that invests in insurer Geico Corp. and such things as carpeting, ice cream, paint, and real estate services. But to quote Mr. Buffet: "the economy will be in shambles throughout 2009."