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Unhedged traders get hit by $30 billion bank bloodbath following earnings; JPMorgan Warns S&P Faces Large “Negative Gamma”; Scott Nations: Options are very ‘cheap right now for a reason’

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Unhedged traders get hit by $30 billion bank bloodbath following earnings
Joe Ciolli – Business Insider
It’s good to invest with conviction. Just not too much conviction.
That lesson rang true Friday, as overconfident traders found themselves on the wrong side of a massive bank sell-off, which at its worst erased more than $30 billion in market value.
The weakness was spurred by earnings reports from three of Wall Street’s biggest banks: JPMorgan, Wells Fargo, and Citigroup. Despite sales and profit results that largely met analyst expectations, the three firms slipped more than 1%, dragging broader financial indexes lower.

JPMorgan Warns S&P Faces Large “Negative Gamma”, Could Exaggerate Any Drop Next Week
Zero Hedge
Earlier in the week we noted the ‘odd’ surge in downside protection demand even as tech stocks were soaring, and now JPMorgan is noting the S&P has shifted to a large ‘negative gamma’ underhang which “could boost volatility if we were to sell off.”

Scott Nations: Options are very ‘cheap right now for a reason’
Jacqui Frank and Kara Chin – Business Insider
Scott Nations, chief investment officer of NationsShares and author of “A History of the United States in Five Crashes”, talks about the current low level of volatility in the market and what to do in the event of a crash.

Investors braced for volatility in tech stocks
Adam Samson – Financial Times
Investors are braced for a bout of volatility in US technology stocks over the next month, underlining the high stakes for this year’s best performing sector as second-quarter earnings kicks into gear this week.
Equity and bond markets have been tranquil in 2017, unnerving some money managers who are concerned about geopolitical tensions, tighter monetary policy, lofty valuations and whether the global economic recovery will endure.

Wall Street’s ‘fear gauge’ logs 3rd lowest close in its history
Mark DeCambre – MarketWatch
One measure of fear on Wall Street posted its third lowest finish ever, according to FactSet data. The CBOE Volatility Index VIX, +3.36% closed down 3.9% at 9.51, which marks the lowest level for the so-called fear gauge since 1993. The indicator, also known as VIX, has only closed lower on two other occasions both in December 1993 at 9.48 and 9.31.

It really is different this time for high-flying stock market
Anora Mahmudova – MarketWatch
The phrase “it’s different this time” has a bad reputation in financial circles.
It’s often the tag line for bullish investors who dismiss stock-market warning signals to their own detriment. Take the late 1990s, the critics will say. Many believed then that the internet would change the world. It did, sure. But the sector still had just as many losers as winners. Investors dismissed sky-high valuations—it really is different this time, they said—only to see the market crash in 2000.

Exchanges and Clearing

Chicago and the pits: An old idea is new again
Editorial Board – Chicago Tribune
One of the wonders of the business world is the madcap trading floor of an exchange. Amid the frantic shouts and hand gestures of traders in colorful jackets, you can practically smell the capitalism.
Much of that tradition is gone today, replaced by the silent efficiency of computerized trading. But don’t ring the closing bell just yet! A limited amount of trading by humans still exists, including in Chicago, which has been a hub for the markets since the Chicago Board of Trade opened in 1848.

Can NSE show some humility, please?
The Hindu Business Line
As Vikram Limaye moves into the corner office of the NSE, everyone will be keenly watching the manner in which he navigates the first few days. Given the situation NSE finds itself in currently, the statements he makes and the manner in which he handles the regulator and media will go a long way towards assuring everyone that the exchange is on the road to repairing its dented image.

Regulation & Enforcement

Researching How SEC Detects Unusual Trading Does Not Help Alleged Insider Trader Avoid Criminal and Civil Government Prosecution
Gary DeWaal – Lexology
Fei Yan, a post-doctoral associate at a major research university, was arrested on July 12 and charged with insider trading in connection with transactions in options on the stock of Stillwater Mining Company during November and December 2016, when he allegedly knew through misappropriated, nonpublic information that the firm was subject to takeover negotiations by Sibanye Gold Limited.

Hedge funds see MiFID win in EU warning to trading platforms
Bloomberg via Pensions & Investments
Hedge funds and high-speed traders have been fighting for years to level the playing field with banks on derivatives trading. They just won a round in Europe.

At least 12 under criminal investigation for binary options, forex fraud
Simona Weinglass – The Times of Israel
As a bill that would ban the entire binary options industry makes its way through the Knesset, The Times of Israel has learned that at least 12 binary options company owners and employees are under police investigation or have been referred to the state prosecutor with a recommendation for indictment.


Rise of the Robots: The Quant Revolution
RCM Alternatives Blog
Artificial Intelligence, Algorithms, Quants, Computer Driven Strategies, FinTech. No matter how you phrase it, those buzz words are here to stay in the financial realm. And what stories they have become… with yesterday’s more “normal” quant stories of machines taking over for analysts turning into stories about hedge fund managers trying to teach computers to copy their brain.


Weekend Review of VIX Options and Futures – 7/10/2017
Russell Rhoads – CBOE
VIX finished the week at the lowest close since 1993, but the two lower closes came during a holiday week so I’m considering consulting with other VIX watchers with respect to if this is basically an all-time low. Note the dramatic move in the July contract that goes off the board on the open Monday.

Volatility slump serves up options market opps: Credit Suisse
Reuters via Times of India
The slump in volatility, both realized and implied, serves up attractive opportunities to use options to bet on further upside for stocks or to put on protection, says Credit Suisse equity derivatives strategist

VIX Cycle Setting Up For “Deja Vu”… Again?
Chris Vermeulen –
We received so many comments and accolades regarding our last few VIX articles (Part #1 : After VIX Spike And NASDAQ Sell-Off – Part #2 : Making Sense Of The Sudden VIX Spike). On June 11th, we posted a very detailed article indicating our analysis predicted a a NASDAQ market selloff as well as a VIX SPIKE potential on, or near, June 9th or 12th and June 29th. This research was actually completed June 7th by our research team – it was just posted on the 11th to our ATP members. On June 30th, we posted a follow-up article highlighting our predictions and showing how accurate our analysis had been.


The Other 496 S&P Stocks
Justin Lahart – WSJ
When one third of the S&P 500’s gain comes from four stocks, there aren’t many ways to beat the market without them.

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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.