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Investors Have Never Been More Short Volatility Futures; Some Credit Investors Are Getting Ready for a Market Correction; US equity volatility hits five-decade low

Observations & Insight

Rebranding in Three Easy Steps – Brian Cassin

“Your brand is what people say about you when you’re not in the room.”

In this video from MarketsWiki Education’s World of Opportunity event in New York, Brian Cassin, head of product and strategy with Vela Trading Technologies, breaks down the three steps in rebranding a company. Cassin uses Vela as a case study when going through the importance of rebranding, as Vela is the result of the Wombat and SR Labs tie-up. Cassin says timing is everything, but having a clear message for customers is equally important. The most critical thing to remember is how to make sure your corporate brand can intertwine with your personal brand.

Read the rest and watch the video »

Lead Stories

Investors Have Never Been More Short Volatility Futures
Cecile Vannucci – Bloomberg
Bets against volatility are back.
Never mind strategists warning of a potential VIX rebound, or historical data showing the index tends to jump the most in August. The number of short positions on VIX futures has hit a fresh peak, and an exchange-traded fund that benefits when volatility falls just saw its biggest weekly inflows since June, following three weeks of withdrawals. That’s even as the CBOE Volatility Index hovers within 1 point of its record-low close.

Some Credit Investors Are Getting Ready for a Market Correction
Tracy Alloway – Bloomberg
Credit-index options volume more than twice past-year average; Surge in tail-risk hedging comes as debt ceiling, Fed loom
Trading in an obscure corner of the credit-derivatives market shows that some investors are preparing for a looming sell-off in corporate bonds.

US equity volatility hits five-decade low
Robin Wigglesworth – Financial Times
The last time the US stock market was this becalmed, Richard Nixon was sitting in the White House and Sly & The Family Stone topped the US singles charts.

****SD: Of all the Sly songs, I guess the most applicable for this market is “Higher.” (Or maybe “You Can Make It If You Try”?)

In a Calm Market, Investors Still Seek ‘Volatility Funds’
Bailey McCann – WSJ
It sure is quiet out there—but not quiet enough for some investors to relax.
The stock market is remarkably stable these days. The CBOE Volatility Index, or VIX, a prominent measure of stock-market volatility, reached a record intraday low in July.
But investors are gravitating toward volatility funds anyway—investments that offer them the opportunity to either calm their own worries that the market will suddenly move against them or trade on the fears of others. A net total of $1.49 billion flowed into volatility-focused mutual funds and exchange-traded funds and notes in the first seven months of this year, according to research firm Morningstar Inc.

As short sellers target Chinese companies in Hong Kong, hostility mounts
Michelle Price – Reuters
Short sellers are increasingly targeting Hong Kong-listed Chinese companies they allege have committed accounting tricks, market manipulation and fraud. And that’s despite mounting hostility faced by investors who bet against stocks.

****SD: Related from Bloomberg about Hong Kong – World’s Top Stock Market Really Just a Handful of Top Stocks

Hedge funds get bullish again on oil (third time lucky?)
John Kemp – Reuters
Hedge funds and other money managers are becoming bullish again about oil prices, for the third time this year, as investors conclude the market is showing clear signs of rebalancing.
Hedge funds raised their combined net long position across the five major futures and options contracts linked to petroleum prices by 135 million barrels in the week to Aug. 1

For VIX Index, It’s the Time of the Season to Move Higher: Chart
David Wilson – Bloomberg
The VIX Index may just be starting to rally from a record low set last month, according to Jeff Hirsch, editor of the Stock Trader’s Almanac and the Almanac Trader newsletter.

Exchanges and Clearing

This Is How The Options Clearing Corporation Transformed To A Risk-Oriented Culture
Jason Bloomberg – Forbes
Options trading is central to the complex, risk-adverse equity derivatives industry, and leading the clearing of such trades is The Options Clearing Corporation (OCC).
Founded in 1973, OCC is the largest such organization worldwide. As a highly regulated enterprise, it must promote the stability and financial integrity in the equity derivatives marketplace. The company also acts as a guarantor, ensuring the fulfillment of options trading contracts.

LME chief plots evolution not revolution at metal exchange
Neil Hume – Financial Times
Three days after he was appointed chief executive of the London Metal Exchange in April, Matt Chamberlain kicked off a debate about its future.
The 35-year-old former investment banker published a wide-ranging discussion paper that laid out the big questions facing the exchange, which has been roiled by falling volumes and rows with its members.

Symbol Migration Schedule for MRX transition to INET
Effective Monday, August 14, 2017 , Nasdaq MRX (MRX) will begin migrating symbols to the INET platform. Participants will be required to begin using INET Specialized Quote Feed (SQF) and/or Ouch to Trade Options (OTTO) connections for the migrated symbols on the dates provided in the Detailed MRX Symbol Migration Schedule, while continuing to utilize existing MRX DTI connections for symbols that have not yet migrated.

Regulation & Enforcement

MiFID Threatens Global Market Rupture as EU Pursues Trading Fix
Silla Brush – Bloomberg
EU working on equivalence decisions for law’s Jan. 3 start; Ashurst’s Cant says rules could result in ‘fortress Europe’
Trading in blue-chip stocks and trillions of dollars of derivatives could be thrown into turmoil by the European Union’s MiFID II regulatory overhaul unless the bloc acts fast to give financial firms full freedom to transact in foreign markets.

Knesset committee to vote Monday on watered down binary options bill
Simona Weinglass – The Times of Israel
Days after Israel Police made the stunning declaration that established crime syndicates are behind Israel’s binary options industry and described the industry as a “vast criminal enterprise,” the Knesset Reforms Committee will vote Monday on watered-down legislation to ban it.

Regulators’ Penalties Against Wall Street Are Down Sharply in 2017
Jean Eaglesham, Dave Michaels and Danny Dougherty – WSJ
Wall Street regulators have imposed far lower penalties in the first six months of Donald Trump’s presidency than they did during the first six months of 2016, a comparable period in the Obama administration, according to a Wall Street Journal analysis.

****SD: I wonder if Clayton saying the agency will go after more affronts to the retail investing community will equate to the average fine size getting smaller. Less big money from big banks and more small money from small fry mountebanks?


Big data is changing risk — and could bend US trading rules
Samuel Agini – Financial News
Revolutionary new data-driven techniques are transforming how banks manage their risk, but traders and quants working with the new system are worried that these innovations may be putting them at odds with a US ban on banks trading on their own account.


Amsterdam shines as financial groups seek EU access
Philip Stafford, Emma Dunkley and Jim Brunsden – Financial Times
Amsterdam is emerging as one of the beneficiaries as banks and traders search for a new base to access the EU when Britain leaves the bloc in 2019.


For Stock Investors, It’s Time to Play Defense
Steven M. Sears – Barron’s
The options market is developing a nervous tic as stocks keep rallying higher and volatility remains historically low.
This newfound caution is increasingly evident in the CBOE Volatility Index, or VIX.

Be afraid — everybody seems to agree on where the stock market is headed
Shawn Langlois – MarketWatch
The danger, it seems, is that it feels so obvious. And the obvious, of course, is always a risky proposition in the stock market. But it’s hard to imagine the lack of volatility lingering much longer, especially in the face of … well, everything.
Just how calm has it been?

Traders look to Jackson Hole for dollar’s direction
Roger Blitz – Financial Times
Investors hoping for something to bite on in the dog days of August cannot have failed to notice one major event that may go some way to determining the direction of the US dollar.
The annual symposium of central bankers at Jackson Hole in Wyoming, starting in two weeks, is always a must-watch market event, but it could be especially eye-catching this year.

Take The Markets Seriously, Even When Others Won’t
Bob Lang – CBOE Options Blog
There is a buzz around markets these days, many are in complete disbelief or denial that the bull market continues to rage on. The length of this run is now about nine years, and we have barely had any correction. That is not to say we won’t have one coming, and certainly with the bias toward short volatility (skew, tail risk), short SPX puts, and other more esoteric products – there will likely be an unwind that will feel monumental.


The Weekly Options News Roundup – 8/6/2017
Kevin Hornsby – CBOE Options Hub
The Weekly News Roundup is your weekly recap of CBOE features, options industry news and VIX Index and volatility-related articles from print, broadcast, online and social media outlets.


Single Trader with Enormous Bankroll is Manipulating Bitcoin Price, But to What End?
Rumors are swirling about a trader with nearly unlimited funds who is manipulating the Bitcoin markets. This trader, nicknamed “Spoofy,” received his nom de guerre because of his efforts to “spoof” the market, primarily on Bitfinex.

****SD: ZeroHedge with expanded coverage here.

The warnings from history that Wall Street ignored
John Authers – Financial Times
After the credit crisis began to unfold in the summer of 2007, many on Wall Street and in the City of London complained it was unprecedented and had been impossible to see coming. They were wrong. Speculative bubbles are rooted deep in human nature, and have been widely studied. History’s most famous bubble took root in the Netherlands almost four centuries ago — for tulips.

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About Author

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