Le Pen Tail Risk Puts Traders on Alert as Volatility Creeps Up
Tanvir Sandhu, Vassilis Karamanis and Simon Ballard – Bloomberg
Investors are just about waking up to the risk of Marine Le Pen emerging victorious in the French election, some early bets in the options market show.
While a Le Pen win is still seen as a tail risk and the first round of the election is still more than two months away, the unexpected outcomes of last year’s votes in the U.K. and the U.S. have raised investor awareness of political risk. The National Front candidate’s threat to take France out of the euro could call into question the fate of the common currency.
Traders Seek $100-Million-Plus Bonanza From Bund Bets on Le Pen
Stephen Spratt – Bloomberg
A payout of more than 100 million euros ($106 million) may be beckoning for options investors if the German 10-year yield drops to zero in the aftermath of France’s elections.
Traders have been snapping up bund options at a brisk pace to gain from the potential possibility of National Front candidate Marine Le Pen becoming president. While the latest opinion polls show she is likely to lead the first stage of voting before faltering in the second round, the political shocks of 2016 have left traders on edge about the potential for more surprises.
What the Vix Is Really Telling the Markets Now
The last time U.S. stock market volatility started the year this low was in 2007, shortly before the subprime crisis hit. Before that, it was 1994, a year when the U.S. Federal Reserve shocked markets and hedge funds blew up.
Hedge Funds Keep Killin’ It
Crystal Kim – Barron’s
eVestment just released its monthly hedge fund performance report and the results are good. More than 70% of hedge funds reported gains in January.
How a Jazz Pianist Took a Top Post at Wall Street Hedge Fund
Tom Redmond and Brian Fowler – Bloomberg
Larry Richards, a trained jazz pianist and former phone-company executive, is an unlikely entrepreneur in the esoteric world of stock options.
Just three years after taking an online course on equity derivatives, Richards set up his own company in 2013 to develop trading software for individual investors and small funds. At the end of 2016, the 53-year-old sold the firm to Wall Street hedge fund Gammon Capital, becoming that company’s chief technology officer.
A Top Bond Strategist Looks at Stocks and Recoils
David Ader – BloombergView
I am solely a U.S. interest rate strategist, so it is with no shortage of anxiety that I dare delve into the equity market, which hit new highs again today. I’m typically bullish on bonds and bearish on stocks, so what follows panders to a career bias. With that out of the way, I do look at the evidence, and there are things out there that make me wary of equity valuations which, all things being equal, should serve as a brake of sorts on a sharp rise in bond yields.
Institutional FX Trading Sees Strong Advance in January – SEF Tracker Shows
Jeff Patterson – Finance Magnates
FIA, a global trade organization for futures, options and centrally cleared derivatives, has released its latest swap execution facility (SEF) tracker for January 2017, which showed a healthy increase in FX trading and other instruments on a monthly basis relative to December 2016.
Exchanges and Clearing
CME Targets Data for Growth
Rob Daly – Traders News
Expanding its market data business and continuing to rein in costs are the CME Group’s top two themes for 2017, according to Chairman and CEO Terry Duffy.
“After doing an in-depth review of our strategy, we believe that through derived data and additional services like our cloud-based and more robust audit functions, we can deliver a 5 to 6% annual growth in this business,” said Duffy during the CME Group’s fourth-quarter earnings call.
Listed equity swaps hit EUR1bn on Eurex
Helen Bartholomew – Reuters
Total Return Futures referencing the EuroStoxx 50 have traded over EUR1bn notional since their launch last December, putting the instruments on track to become a viable alternative to over-the-counter equity swaps.
Regulation & Enforcement
Barney Frank worries weakening Dodd-Frank may lead to another crash
Roger Yu – USA Today
Barney Frank, 76, is retired and hopscotching around the world for speeches and conferences.
But the former Democratic congressman from Massachusetts is speaking out, worried that President Trump’s assault on one of Frank’s signature legislative achievements could trigger another financial crash.
Wall Street Should Put All Clients First
Barry Ritholtz – BloombergView
President Donald Trump has asked for 180-day review of the U.S. Department of Labor’s new rule requiring that those who give investment advice on retirement savings accounts put client interests ahead of their own. It is, of course, reasonable to assume that this is the prelude to the new administration’s effort to kill the so-called fiduciary rule.
Sebi to open commodities route for AIFs
The board of the Securities and Exchange Board of India (Sebi) has initiated the process of opening up the country’s commodity derivatives market to new participants.
However, according to a finance ministry official, the Sebi board, which met on Saturday, did not take up amendments to Sebi rules to permit launch of commodity options. All three persons declined to be identified.
CBOE Benchmark Indexes and More Interest in Mitigation of Drawdown Risk
Matt Moran – CBOE Options Hub
Investors recently have shown increased interest in protection from large peak-to-trough drawdowns in their portfolios.
In the 27 years from 1990 through 2016, the average value of the CBOE SKEW Index (SKEW) was 118.4, but in the 20 recent trading days since January 13, the SKEW Index averaged 134.5, and ranged between a low of 128.80 and a high of 146.33. A high SKEW Index value could be indicative of high demand for S&P 500 (SPX) protective put options.
Listen to the Message of the Markets
Bob Lang – CBOE Options Hub
There is no disputing the fact markets are in a bullish trend right now. Since the election there has been few corrective days, and that seems to disturb some people. Investors prefer to wait for those dips to buy, but that was require superior timing and execution. Some are very good at this skill, and using technical analysis gives one a leg up on this timing – especially when the signs point to an overbought condition.
A Simple Options Strategy To Capture Upcoming Event Risk
The S&P 500 vaulted further into record territory last week, boosted by President Trump’s announcement of “big league” progress on tax reform within weeks. The rally pushed the S&P 500 up against trendline resistance, while the ongoing compression of volatility sent the VIX towards single-digit territory. Once again, gains in stock prices were fueled by optimism about the future. However, next week, the market will be forced to trade on the reality of hard economic data, with a slew of new data on inflation (both PPI and CPI), retail sales, industrial production and jobless claims.
Trading VIX Update – SVXY Nearly Doubles Since Election
Well folks, this is what low volatility regime feels like and we are still only eight months into it notwithstanding some very short spikes in September and November. VIX index closed below 11 for the third week in a row and there is nothing on the horizon to change market’s perception of risk.