Observations & Insight
Vision: What Richard Sandor Saw And Still Sees In Carbon Markets
Richard Sandor has seen just about everything in his career as the “father of financial futures.” From creating the first interest rate futures contract to founding the Chicago Climate Exchange, he tells it all in his latest book, “How I Saw It: Analysis and Commentary on Environmental Finance”. He spoke with John Lothian News about just how far carbon markets have come since 1999.
“It’s amazing to me, where we came from in the last two decades and during the period of this book, from 1997 or 1999 to 2005,” Sandor said. “What became a theoretical construct became a reality today adopted around the world.”
Markets calm in the face of March madness
This was an anxious week, with a Federal Reserve meeting, Dutch elections, the National People’s Congress in Beijing, and a “triple witching” day on Friday when a mass of derivatives contracts expire. But far from bewaring the Ides of March, we have had the March of the Bulls.
For Once, the Fed Is Showing It’s Smarter Than the Markets
Enda Curran, Chris Anstey, Jeff Black and Matthew Boesler – Bloomberg
The shoe is on the other foot.
That’s the takeaway from the past three weeks, which have shown the Federal Reserve regaining command of the outlook for U.S. monetary policy. Traders have moved more into step with Fed officials’ dot-plot chart for projected interest-rate increases — a big contrast from last year, when the market called the central bank out on its plans for four rate hikes.
Politics Hedges Become Pain Trade for Europe Stock Investors
Traders’ choice to hedge against European equity volatility is proving to be a costly one, especially in light of the Dutch vote dealing a blow to the surge of populism in the region.
Central bank hikers push world stocks near peak
John Geddie – Reuters
World stocks perched near a record high on Friday after a week when most of the world’s biggest economies either raised rates, or signaled hikes, in a strong sign of confidence about global growth and inflation.
Market angst about France infects whole of EU
France’s presidential election is fomenting deep anxiety in markets. Currency options prices show investors have rarely been so worried about how a single event might weaken the glue that holds the European Union together. Blame far-right candidate Marine Le Pen, whose promise to reshape ties with the EU if she wins would be an existential test for the whole bloc.
The Fed Gave Itself a Safety Net
Tim Duy – Bloomberg
The Federal Reserve concluded its March meeting with a widely anticipated 25 basis-point interest-rate increase. But it was a dovish hike. While officials coalesced further around their projection of three more for 2017, the median did not rise to four as some, including myself, had expected. This was entirely a risk-management move: The Fed saw a strong enough economy to pull forward a rate hike, but not enough actual change to warrant a faster pace of increases.
CME Group Index Derivatives Expert Sean Smith joins FTSE Russell
Valentina Kirilova – LeapRate
FTSE Russell, the global index and data provider, announced that Sean Smith has joined the firm as Managing Director of Derivatives Licenses, to lead the company’s efforts to further expand its options and futures business.
Kolanovic: The VIX is low, strangely low
Mark Melin – ValueWalk
Watch out for near term market volatility, warns JPMorgan’s quant master Marko Kolanovic in a March 16 research note. But there are two factors that are likely to present investors an opportunity if they know what to watch.
CHX ‘Speed Bump’ Draws Fire
FIA PTG submitted a comment letter to the Securities and Exchange Commission (SEC) in response to the Chicago Stock Exchange, Inc. (CHX) proposal to introduce a Liquidity Enhancing Access Delay (“LEAD”).
LEAD replaced the Liquidity Taking Access Delay (LTAD), which FIA PTG opposed in two separate comment letters (available here and here).
Regulation & Enforcement
IRS imposters trying to scam money from Binary Options traders: FINRA
Valentina Kirilova – LeapRate
The Financial Industry Regulatory Authority (FINRA) today issued an Investor Alert warning anyone involved in binary options trading through unregistered non-U.S. companies to be on guard for a one-two punch: losses followed up by potentially fraudulent pitches to help recoup those losses. Ploys include recovery scams and IRS impersonation scams.
France forbids sponsorship deals as part of ban on derivatives advertisement – SMN Weekly
Juana Wells – SMN Weekly
France’s prohibition on marketing to retail clients of over-the-counter (OTC) financial derivatives, such as forex, binary options and contracts for difference (CFDs), also includes sponsorship agreements, according to an informational document published by the country’s financial regulatory body, the Autorite des Marches Financiers (AMF).
Dow Jones Industrial Average Futures Rise on Quadruple Witching Friday
Schaeffer’s Investment Research
Dow Jones Industrial Average (DJIA) futures are above fair value, suggesting a modestly higher start for stocks on this quadruple witching Friday. The large-cap index is looking to keep hold of its slim weekly lead, after finishing yesterday’s session lower on slipping oil prices and concerns over President Donald Trump’s fiscal 2018 budget proposal, while Trump’s meeting with German Chancellor Angela Merkel is likely to be in focus today. Traders will digest data on industrial production and consumer sentiment later today, and next week’s calendar is set to be rather quiet on the economic and earnings fronts, though several Fed officials — including Janet Yellen — are slated to speak.
Replicating Berkshire Hathaway With Options
The way Warren Buffett (Trades, Portfolio) has constructed Berkshire Hathaway is incredibly clever.
From the very beginning (when Buffett took over), Berkshire was built around the insurance business with the purchase of National Indemnity Co. in the late 1970s. The great thing about insurance businesses is they tend to be highly profitable and capital light, so return on capital invested is high. As well as throwing off plenty of cash, insurance companies have what is called a float, which simply put is retained profits held back to pay out any losses stemming from customer claims.
The Yen Vs. The VIX: 2 Aspects Of Attitude Towards Risk
Much has been written about the yen’s safe haven status. A quick look at the charts shows that, during the great recession, USD/JPY went from almost 124, down to about 75.60. I am not going to get into the details about why the yen acts as a safe haven, and instead will simply link to “Why Is the Japanese yen a Safe-Haven Currency?,” which does a fairly decent job of explaining various reasons. The point of this article is to examine what the yen is showing us about risk appetite vs. what the VIX tells us about risk assessments.
Small-Caps Vs. Volatility: Who Blinks?
A couple times in recent months (here and here), we have written posts pointing out odd behavior between the S&P 500 and the S&P 500 Volatility Index, a.k.a., the VIX. Since stocks and their related volatility indices typically move in opposite directions, it was odd to see the 2 moving in concert, even if it was just in the very short-term.
Swim Lessons: Options Strategies for Quiet Markets
Scott Connor – TD Ameritrade
One of the advantages that options offer is the potential to profit in an upward, downward, or range bound markets. Even in quiet markets where low implied volatility is keeping option prices stagnant, potential opportunities can be found.
Recently, volatility has been painfully muted. The CBOE Market Volatility Index (VIX ), the market’s so-called “fear index” has been hovering around its lowest level in 20 years. So what better time to spotlight a low volatility options strategy than right now? And that is, the Calendar Spread.
Harnessing Twitter Sentiment and the Volatility Risk Premium – Events in NYC on March 28th and in Chicago on April 5th
CBOE Options Hub
At the 33rd Annual CBOE Risk Management Conference in California last week, several speakers discussed ways to use sentiment analysis and the volatility risk premium in their quest to add alpha and enhance the risk-adjusted returns of their portfolios.
I am pleased to report that two upcoming events will provide more details and analysis of the topics of developing investable and actionable intelligence from analysis of sentiment trends on social media, and generating attractive risk-adjusted returns with certain sentiment-based and options-based benchmark indices: