Breaking News

Bond Trader’s $10 Million Volatility Bet Is Paying Off; ECB wary of putting end-date on quantitative easing; Low volatility blamed for poor investment bank results

Observations & Insight

On The Move: Vela Makes its second fintech acquisition in the last two months, acquiring Object Trading in addition to the OptionsCity deal that closed in June.

Sarah Rudolph – John Lothian News

Vela Trading Technologies has been on an acquisition binge since rebranding from its former incarnations as SR Labs and Wombat Financial Software – at least, if you can call two a binge. Less than a month after buying OptionsCity, the fintech company that provided electronic options and futures trading, Vela has announced it will acquire Object Trading, a global direct market access provider located in London.

According to Vela’s CEO, Jennifer Nayar, Vela is very strong in the market data space but not as much in direct market access, and the Object Trading acquisition helps Vela to be a “much more full-service provider” to its clients, giving it the DMA piece of the puzzle as well as pre-trade risk and analytics capabilities and post trade reporting.

To read the rest click HERE.

Lead Stories

Bond Trader’s $10 Million Volatility Bet Is Paying Off
Edward Bolingbroke and Brian Chappatta – Bloomberg
A bet of potentially record proportions in the U.S. Treasury options market might just pay off after all.
The benchmark U.S. 10-year yield fell as low as 2.277 percent Friday, with futures prices jumping to 126-01, after weaker-than-forecast readings on inflation and retail sales. At those levels, a so-called strangle trade in 10-year Treasury options, initiated Tuesday, likely turned profitable for the first time.

Exclusive: ECB wary of putting end-date on quantitative easing
Balazs Koranyi – Reuters
The European Central Bank is keen to keep its asset purchases open-ended rather than setting a potentially distant date on which bond-buying will stop, to retain flexibility in case the outlook sours, three sources familiar with the discussion said.

****SD: The results of this will determine the success of the above bond bet.

Low volatility blamed for poor investment bank results
John Bakie – The Trade
Both Citi and JP Morgan cite low volatility as cause of falling markets revenue.

****SD: Looks like some people were caught wrong-footed – Investors bullish on financials ahead of bank earnings. XLF was down about a percent earlier today though has clawed back some of that.

Bullish oil funds lead hedge fund losers at half-year mark
Maiya Keidan and Amanda Cooper – Reuters
Many of last year’s most successful oil market bulls have seen their winnings dissolve in the first half of this year, as the crude price has wallowed below $50 a barrel despite output cuts by some of the world’s largest producers.
Three of the top five worst-performing hedge funds in the first half of the year specialize in trading oil, directly or indirectly, according to a list compiled by HSBC. Two of those had led the performance charts in 2016.

Nerves over ECB’s pain threshold keeps euro in check
Patrick Graham – Reuters
Many stars would seem to be aligned for further euro appreciation against the dollar, but there is an absence of properly bullish forecasts.
This owes more to European Central Bank sensitivities than market dynamics or economic drivers.
Forward-looking pricing from the options market EURVOL= and investor positioning against the dollar are the strongest in years and show a head of steam building for a significant euro rally.

****SD: More on currencies from Reuters – Yen in the dumps as carry trades flower and Aussie scales 8-month highs as risk appetite blooms.

Exchanges and Clearing

A shouting human can sometimes be more effective than a computer
Amy Scott – Marketplace
When you think of the trading floors at the New York Stock Exchange or the Chicago Board Options Exchange you might picture traders shouting and throwing hand signals.
It’s known as “open outcry,” and in the last few decades, it’s steadily declined as electronic trading has taken over.
Now a company called Box Options Exchange is planning a bit of a throwback by opening up a new trading pit with about 40 human traders.
Wall Street Journal reporter Gunjan Banerji joined us to talk about why Box Options Exchange’s rivals have been protesting the move and why an exchange would want an open outcry floor.

****SD: Where do shouting robots fit in?

JSE celebrates tenth anniversary of currency derivatives market
Africa Business Communities
Both the total value and total number of contracts traded on the JSE’s Currency Derivatives market has effectively more than doubled every year since the launch of the market in 2007.

****SD: JLN sat down with JSE CEO Nicky Newton-King a bit ago to talk about the exchange. If you missed it, check out the video here.

Regulation & Enforcement

Ten Nominations Sent to the Senate Today
Rostin Behnam, of New Jersey, to be a Commissioner of the Commodity Futures Trading Commission for a term expiring June 19, 2021 vice Mark P. Wetjen, resigned.

Macron says European financial transaction tax must make sense
French President Emmanuel Macron said in a newspaper interview published on Thursday he would push for a European financial transaction tax (FTT) as long as it made sense and was effective.

****SD: Ruh-roh.

STT anomaly on exercised options pose serious risks for stock traders, brokers and Exchanges
Retail investors trading in stock options beware. The Securities Transaction Tax (STT), which is a massive multiple of their entire trade, has been hitting unaware investors on options expiry day. And, neither the market regulator not the National Stock Exchange (NSE) has put up any warning signs.

****SD: Speaking of trading taxes…


Redline Upgrades Feed Handlers Ahead of MiFID II
John D’Antona Jr. – Traders News
RedlineTrading Solutions, the provider of high-performance market data and order execution systems for automated trading, announced updated InRush feed handlers for European trading venues as the industry prepares for MiFID II compliance in January 2018.

Majority of Buy- and Sell-side Leaders Lack Tech Capabilities to Drive Growth; FIS Report
John D’Antona Jr. – Traders News
New research released by FIS revealed that only 25% of buy-side and sell-side executives surveyed believe their firms have the technology capability to support their growth ambitions.


Traders Are Massively Short These Commodities
Seeking Alpha
Traders are extremely short platinum, cocoa, and coffee futures. Cotton and WTI crude have been recent examples of how crowded positioning can violently unwind.
EUR/USD and MXN/USD are very crowded on the long side. Speculators were caught off guard with their CAD/USD shorts.
Spec positioning in the S&P is long, but not extremely so. Traders have steadily grown less short of VIX futures.

Snap shares draw bullish options bets after slipping below IPO price
Options traders were placing bets this week that shares of Snap Inc (SNAP.N) were primed for a rebound after slipping below their initial public offering price of $17.

****SD: No other single stock of late has gotten the options coverage like SNAP.

4 Signs Stocks Are Climbing a ‘Wall of Worry’
Andrea Kramer – Schaeffer’s Research
Even though the stock market’s “fear gauge” — the CBOE Volatility Index (VIX) — is on pace for its lowest daily average ever in 2017, expectations for a volatility pop are approaching fever pitch, per recent VIX options activity. Echoing that, despite stocks’ recently renewed quest for record highs, additional data suggests Wall Street remains wary. Below, we’ll discuss the latest evidence of growing skepticism, including a major exodus of cash from domestic stock funds and a revived appetite for short positions both in and out of the options pits.

****SD: Also from Schaeffer’s VIX Options Trader Braces for August Volatility Spike

VXX: Fed Policy Changes To Drive Volatility
Seeking Alpha
Stock market activity has slowed to a near halt, and market investors are starting to look for potential catalysts that might propel trends in the iPath S&P 500 VIX ST Futures ETN (NYSEARCA: VXX). The ETF has become notorious for its lack of movement but there are building market forces that could start to jar these expectations.

****SD: News does frame it this way – ‘Gradual and patient’ Fed sends stocks to new highs, dollar dips.

Award-Winning PUT Index Now Has 31-Year Price History with Strong Risk-Adjusted Returns
Matt Moran – VIX Views
Over the past couple of years more investors have expressed interest in the cash-secured put writing strategy. The leading performance benchmark for this strategy is the CBOE S&P 500 PutWrite Index (PUT), an index that measures the performance of a hypothetical portfolio that sells one-month S&P 500 Index (SPX) put options against collateralized cash reserves held in a money market account.

What’s Trading Now? Abercrombie & Fitch (VIDEO included)

****SD: A&F stores make me queasy.


When the Trading Stops—Trading Halts: Part I
FINRA via Nasdaq
Thousands of stocks are quoted and traded every day in U.S. securities markets. Trading in most stocks takes place without interruption throughout the day-but sometimes a stock may be subject to a short-term trading halt or longer-term trading suspension.
In this first of a two-part series, we’ll look at why and how trading halts occur.


Vietnam bourse to launch derivatives market
Nikkei Asian Review
The Hanoi Stock Exchange plans to open a derivatives market next month, aiming to boost investment in Vietnam’s capital markets.

****SD: Just futures for now.

Interest in Cattle Futures Has Never Been Higher
CME Group OpenMarkets
Beef producers are building the U.S. cattle herd at one of the fastest paces on record, as higher cattle prices and stronger exports fuel healthy profit margins. The expansion comes just a few years after the U.S. herd shrank to a six-decade low amid severe drought in the Southern U.S. Plains and near-record corn prices.

****SD: Market shifting slightly back into the hands of dyed in the wool cattle folks/producers/processors.

GlobalCapital Global Derivatives Awards 2017: the nominees
GlobalCapital is pleased to announce the nominees for its Global Derivatives Awards 2017.

At Goldman, He’s David Solomon. At the Club, He’s D.J. D-Sol.
Kate Kelly – NY Times
On a sunny afternoon in the Bahamas this month, dozens of beachgoers mingled and danced to a soundtrack mixed by a man using a Pioneer sound system on a platform at the local tiki bar.
Nothing was unusual about this island scene — except, perhaps, the disc jockey: David M. Solomon, the co-president of Goldman Sachs, possibly the most powerful investment bank in the world, was the man at the controls.

****SD: This story is written to be fun and light, but frankly a 55-year-old “DJ” playing hackneyed EDM at a Bahamian tiki bar is more depressing than anything else as far as I’m concerned. And I’ve been to plenty of garbage EDM shows in my former life as an A&E writer.

Jamie Dimon tells financial journalists to stop writing about finance
Laura Noonan – Financial Times
JPMorgan boss Jamie Dimon has called on journalists to stop writing about fixed income results and instead turn their attention to the plethora of policy issues that are “holding back and hurting the average American”.

****SD: Wait a second, you don’t ever see stories about big policy issues? What are you reading? Old copies of People at the doc’s office? (And maybe if the Street wasn’t fascinated with earnings the press wouldn’t be so much either, though I realize that is more of a feedback loop phenomenon.)

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Graduate of University of Minnesota School of Journalism and Mass Communication