FLASHBACK FRIDAY – New York Stock Exchange Roils Options World
Mark Longo – Traders Magazine
It was a time of acquisition mania in the options mart back in 2005 as the NYSE has just purchased rival Arca Ex, which in turn had itself just acquired the Pacific Coast Exchange. The grab for market share in these equity derivatives was the key to profitability, the thinking went.
But what about competition and the NYSE having an unfair advantage? Compared to today’s trend of increased fragmentation in options, the idea of monopoly or oligopoly seems ludicrous.
****SD: Good context.
Options Are Effective Means to Increase Alpha
John D’Antona Jr. – Traders News
There’s more than one way to grab alpha in today’s equity markets than just buying or selling stocks. And that’s using options.
According to Grant Johnsey, Head of Institutional Sales at Northern Trust’s Brokerage division, who recently spoke with Traders Magazine, options can be effectively used in a buy-side trader’s portfolio easily and boost his alpha capture. Grant explained that when working with institutional clients, he’d seen a traditional reluctance to incorporate option strategies into their investment strategies, fueled in part by the perceived additional risk they carry. Part of that reticence comes from the traditional divisions of labor inside investment firms – options based strategies do not fall neatly into the traditional buckets of equity, fixed income, or alternatives.
****SD: A key takeaway I had from OIC in Arizona was that there are a ton of untapped potential options users.
A Signal from the Options Market – Oil’s Rout Isn’t Over
Gunjan Banerji – WSJ
Oil prices recently plunged to their lowest level since November but activity in the options market indicates that traders don’t think the damage is done.
Recent options contracts show traders are hedging for the price of oil to dip below $41 a barrel in the months ahead, according to Chris Kettenmann, chief energy strategist at New York-based Macro Risk Advisors, a derivatives strategy firm. At midday Friday, U.S. oil prices were up slightly, trading around $44.66.
****SD: I bet the maintenance team at OPEC HQ is busy spackling over all the holes staff has punched through the walls.
Swiss Stock Traders Are Hedging Like It’s 1998 as Rally Fizzles
Roxana Zega – Bloomberg
June has been the weakest month for SMI in past 10 years; Investors have been boosting bearish options bets on the index
This year’s rally in Swiss stocks is waning, and traders are preparing for tougher days ahead.
Market Volatility Disappears, Even From Volatility Indexes; Wall Street’s favorite measure of market movements hasn’t been this dead since 2009
Cecile Vanucci – Bloomberg
The swings in stocks have fallen to a more than two-decade low, and investors increasingly are betting even more calm lies ahead. That’s left many warning about the risks of sudden spikes in market turmoil.
****SD: Depends on how you view things. Look at the VVIX 5- or 10-year chart and you can draw a different conclusion about relative “deadness” over time. Also, when I was looking for the VVIX chart I noticed the most active call today at CBOE is the Aug 55 VIX call with 35,000 traded. If they were trading for between .47 and .53 I’d know who was responsible, but, obviously, they’re not.
Will quadruple witching spook the market this time?
Mark DeCambre – MarketWatch
It is so-called quadruple witching day, but it may not be as frightful as it sounds.
The spooky-sounding term occurs on the third Friday of the past month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of options and futures tied to individual stocks and stock-indexes.
ChoiceTrade Introduces Flat Fee Option Commissions
ChoiceTrade, a leader in low-cost online trading, has unveiled a two-pronged pricing model for options traders. Now, for the first time, customers may choose a flat fee options trading commission plan.
****SD: Yet another entry into the ongoing broker fee wars saga.
Exchanges and Clearing
CME Group Announces Record Volume and Open Interest on June 14
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached an all-time open interest record of 129 million contracts on June 14, 2017, surpassing the previous open interest record of 125.7 million contracts reached on May 11, 2017. June 14 also represented the highest-volume trading day in 2017 to date at 29.8 million contracts.
****SD: Finance Magnates with some analysis here
Intercontinental Exchange Sets New Volume Records in Short Sterling Futures and FTSE 100 Index Futures
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced a new daily volume record of 3.35 million contracts for the Three Month Sterling (Short Sterling) futures contract set on June 15, 2017. The previous record was 2.89 million contracts set in June 2014.
Stacey Cunningham: feeling the heat on the trading floor and in the kitchen
Nicole Bullock – Financial Times
Stacey Cunningham, chief operating officer at the New York Stock Exchange, reaches up among a long row of silver pots, pans and ladles hanging from a rack in the industrial kitchen of the exchange’s in-house restaurant. Watermelon, bunches of rocket, ginger root, uncooked rice and a few courgette flowers sit in a metal tray, ingredients for a meal Cunningham is preparing, drawing on a lifelong love of cooking and a stint at culinary school — a mid-career tangent from a decade ago.
****SD: I realize I actually have a neighborhood hookup for courgette flowers.
Regulation & Enforcement
The Wish List From Business for How to Change Finance Rules
Elizabeth Dexheimer – Bloomberg
BlackRock Inc. wants Congress to change an aspect of the Volcker Rule that is causing headaches within its hedge fund business. Billionaire Paul Singer wants risky derivative bets curtailed and says regulators should lose their authority to step in when large banks are failing. Uber Technologies Inc. says Washington should eliminate red tape that makes it difficult for the private ride-hailing company to issue shares to its drivers.
NASDAQ Case Study: Identifying the Signature of Spoofing
Alan Jukes – Traders News
Spoofing’ is under very high scrutiny at the moment, following several recent high profile cases, including the criminal prosecution of Michael Coscia (Panther Trading), and financial sanctions against Igor Oystacher (3Red), Citigroup, and Navinder Sarao. ‘Spoofing’ occurs when a trader gives other market participants the (false) impression that ‘something’ is about to happen, that ‘something’ could be heavy buying or heavy selling, resulting in price movement, and is created using large flows of orders to one side of the book. This influx of orders persuades other market participants to trade, in the belief that the volume will continue into the book, and move the price in that direction, which they can then profit from.
FIA Compliance Committee produces Block Trade Fundamentals document
FIA’s Compliance Committee has produced a Block Trade Fundamentals document to assist firms in their understanding of Block Trades. The document identifies certain general characteristics and requirements that may govern a firm’s execution of Block Trades, as well as potential good practices in relation to such activities. Market participants are advised to consult specific rules of the relevant exchange and applicable laws and regulations, market participants before facilitating or engaging in Block Trades.
U.S. weather concerns may not be enough for summer corn rally: Braun
Karen Braun – Reuters
This is the time of year when traders hinge their bets on every single weather model run for the U.S. Corn Belt, and the past week has been no exception.
But even with the seemingly back-and-forth weather models, large global supplies may keep the lid on any potential seasonal rally in Chicago corn futures this summer.
Bitcoin is suddenly on pace to have its worst week since 2015
Mark DeCambre – MarketWatch
After surging briefly to an all-time high of $3,000, bitcoin has been undergoing a dazzling reversal of late, with the digital currency on track to post its worst weekly decline in more than two years.
****JB: I think I found the market’s missing volatility. Now we just need options on bitcoin…
The Nasdaq-100’s Most Impressive Bull Run in Over 20 Years Is in Trouble
Lu Wang and Elena Popina – Bloomberg
The selloff that has erased $250 billion from the value of technology shares is threatening to end the industry’s longest stretch of uptrend in more than two decades.
****SD: “Ooooh, Nasdaq-100 is going to the principle’s office.” – other indices in the classroom
Bats’s Auction Plan Irks Rivals
Alexander Osipovich – WSJ via Fox Business
The New York Stock Exchange and Nasdaq Inc. slammed a plan by rival Bats to shake up the crucial closing auctions that happen daily at 4 p.m. and determine prices for thousands of stocks.
****SD: Overarching market structure story. I haven’t thought much about any ripple effect this could have.