Breaking News

Options Traders Aren’t Sweating the Debt Ceiling; China Inc.’s Next Debt Headache Is $580 Billion of Put Options Coming Due; Banks relying on volatility resurgence to boost trading profits

Observations & Insight

OCC Cleared Contract Volume Up Two Percent in July
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in July was 324,718,888 contracts, up two percent from the July 2016 volume of 317,045,566 contracts. OCC’s year-to-date average daily cleared contract volume is also up two percent with 17,045,133 contracts in 2017.

Lead Stories

Options Traders Aren’t Sweating the Debt Ceiling
Chris Dieterich – WSJ
The bond market recently appeared jittery about a protracted fight on Capitol Hill over the debt ceiling.
Options? Not so much.
A reading of the options market shows investors expect little uptick in S&P 500 volatility in October, after extraordinary steps taken to pay the U.S. government’s bills are expected to run out.

****SD: My theory about ceilings – people care when they’re glass, when they’re beautifully painted and when you whack your head on a low one. Other than that…

China Inc.’s Next Debt Headache Is $580 Billion of Put Options Coming Due
Chinese companies battling to cope with the government-induced tightening in funding markets are bracing themselves for the next shoe to fall: a wave of early bond redemptions.
The nation’s businesses sold about 65 percent of all corporate bonds with put options worldwide, at 3.9 trillion yuan ($580 billion). Creditors holding some 2 trillion yuan of mainland notes will be able to exercise those options in the next two years, forcing issuers to either increase interest payments or redeem the debt early. Bonds sold by property companies are most affected, accounting for about a quarter of the 2 trillion yuan pile.

****SD: I love it when a funky options story gets play. Can’t recall the last time someone wrote about puttable bonds. Regarding the companies in trouble, I doubt very many businesses will have success simply asking investors not to exercise their holdings.

Banks relying on volatility resurgence to boost trading profits
Jamie McGeever – Reuters
Q2 was another tough quarter for bond trading at the world’s biggest banks, many of whom blame some of the lowest market volatility in a generation and can only wince at Q3 prospects given persistently low vol through July at least.

****SD: Some more bank struggle stories – from the WSJ Inside Goldman’s Struggle to Climb Out of Last Place in Trading and from Bloomberg Banks May Need $50 Billion New Capital After Brexit

Investors hedge against sharp stock market correction
Dan McCrum and Nicole Bullock – Financial Times
Money last month poured into funds and securities that offer some protection against a sharp correction in the US stock market, the latest sign of cautious behaviour from both professional and retail investors in response to equities at record levels.

S&P 500 Volatility Hits 50 Year Low
Peter Tchir – Forbes
The VIX index was below 9 very briefly after last week’s Federal Reserve announcement and has risen to a little over 10 right now – which actually seems expensive relative to realized volatility.

****SD: Bloomberg has a story with a headline that made me do a double take – Should Traders Worry If Volatility Rises? Not Necessarily. Worry? I was under the impression players are anxiously awaiting some vol? I mean, look at our third story, “Banks relying on volatility resurgence to boost trading profits.” I think the Bloomberg story needs to differentiate between traders and investors.

Internal Cracks Are Showing In The Market – Nasdaq’s Bad Breadth & Options Skew
Zero Hedge
Last week we warned of ‘low volume highs’ as internal cracks began appearing in the markets. Today, J. Lyons’ Fund Management’s Dana Lyons points out another ‘crack’ – The recent string of Nasdaq new highs occurring with negative breadth has only been matched by a stretch in 1999-2000.

****SD: Hah! Nasdaq with the halitosis.

SocGen: “Low Vol Can Misprice High Yield By Up To 30%”
Zero Hedge
As we’ve repeatedly stated in the past, not a day seems to pass without some broker, investor, sellside analyst or pundit (this website certainly included) opining on i) how low the Vix has fallen, ii) how much lower it will fall, and iii) how the inevitable surge will lead to unpleasant consequences.


Joe Mecane joins Citadel Securities
Mark Dugdale – Securities Lending Times
Joe Mecane has joined Citadel Securities as head of execution services.
In his new role, the former Barclays executive will take charge of Citadel Securities’s equity, options and exchange-trade funds businesses.

MiFID II will ravage sales and trading jobs. Are you ready?
If you work in a markets job in Europe, something dark and foreboding is lurking on the horizon. It seemed it would never arrive, but is now approaching with alarming alacrity: MiFID II will be implemented from January 2018. Everyone knows about the unbundling horror for equity research jobs. Less has been said about the upheaval for equities salespeople and traders.

Vela’s CEO Jen Nayar Joins Board Of Directors Of The Security Traders Association Of New York
Vela Press Release
Vela Trading Technologies LLC (Vela), a global leader in high performance trading, market data, and analytics technology, is pleased to announce that Jennifer Nayar, CEO at Vela, has joined the Board of Directors of the Security Traders Association of New York (STANY) starting from August 1, 2017 for a three-year term.

Exchanges and Clearing

CME Group Inc. Reports Strong Second-Quarter 2017 Financial Results
Press Release
CME Group Inc. (NASDAQ: CME) today reported revenue of $925 million and operating income of $606 million for the second quarter of 2017. Net income was $416 million and diluted earnings per share were $1.22. On an adjusted basis, net income was a record $419 million and diluted earnings per share were a record $1.23. Financial results presented on an adjusted basis for the second quarters of 2017 and 2016 exclude certain items, which are detailed in the reconciliation of non-GAAP results.

MCX can act as clearing corporation
Times of India
The Multi Commodity Exchange of India Ltd (MCX) on Monday informed the BSE that its wholly owned subsidiary MCX Clearing Corporation Ltd (MCX CCL) has received in-principle approval from SEBI to act as a clearing corporation.

Japan Exchange Group: Trading Overview In July 2017

****SD: “For Nikkei 225 Weekly Options, trading volume reached 40,320 contracts.”

REMINDER: Nasdaq Announces ISE, GEMX, and MRX FIX Bridge Retirement
Effective September 15, 2017, Nasdaq will decommission the INET FIX Bridge. The INET FIX Bridge was put in place to allow ISE, GEMX, and MRX FIX users to continue to utilize their legacy FIX connections throughout each of the exchange symbol migrations to INET.

****SD: More Nasdaq options updates – Nasdaq ISE, Nasdaq Options Market and Nasdaq PHLX Updated Pricing, Effective August 1, 2017, Nasdaq ISE Introduces Quote Mitigation and Nasdaq Updates Option Compliance Reports

SGX welcomes I-Access as Derivatives Trading Member
Singapore Exchange (SGX) today welcomed Hong Kong-based I-Access Investors Limited as a Trading Member of its derivatives market.

BME: Trading Volume On The Spanish Stock Market Rose 4.2% Year-On-Year In July To EUR52.2 Billion
Trading in Financial Derivatives in July rose by 20% from the same month last year

****SD: “A total of 1.3 million Stock Options contracts were traded, down 6% year-on-year, while trading in IBEX 35 Options increased by 9.8% year-on-year, to 186,519 contracts.”

Regulation & Enforcement

From Debilitating to Devastating – The Senate Needs to Act
Bart Chilton, Former CFTC Commissioner – TABB Forum
To say the US Congress hasn’t done much this year would be a great understatement. However, the inaction is going from bad to worse. One of the unsung victims could be financial market oversight regulation, which could be crippled in the not-too-distant future.

Wall Street Regulators Are Set to Rewrite the Volcker Rule
Benjamin Bain and Jesse Hamilton – Bloomberg
Wall Street regulators have agreed to rewrite the Volcker Rule, according to three people familiar with the matter, moving to loosen industry-despised restrictions that were central to the U.S. response to the financial crisis.

Apple, Google Drop Trading Apps After Australian Intervention
Emily Cadman – Bloomberg
Apple Inc. and Google have removed over 300 so-called binary trading applications from their online stores after intervention by the Australian Securities & Investments Commission, according to an ASIC statement on Tuesday.


Fledgling quant funds seek to disrupt Wall Street
Robin Wigglesworth – Financial Times
A host of emerging investment managers imbued with a solid grounding in science and algorithms represent the cutting edge of disruption on Wall Street.
“We’re the new generation,” says Shalin Madan, chief investment officer of Bodhi Tree Asset Management, which he set up after 20 years of investing in hedge funds himself. After seeing how the industry was evolving, he said the choice was simple. “I had the choice between being the disrupter or the disrupted.”

Deutsche Bank plays ‘catch up’ with investment in trading tech
Hayley McDowell – The Trade
John Cryan said bank must accelerate technology investments to support sales and trading in equities, following a difficult second quarter this year.

****SD: “Catch up” is not a good mode to be in when it comes to tech.


Capital markets: Investors assess the challenge of QE exit volatility
Louise Bowman – Euromoney Magazine
How to monetize the central banks’ exit from quantitative easing – and the associated rise in interest rates – is the most important challenge facing investors today. It also marks the most fundamental shift in their operating environment for a very long time.

VIX: Options traders guard against volatility spike
Reuters via Times of India
CBOE Market Volatility Index options traders play defense, even as U.S. stocks flirt with new highs; VIX little changed at 10.27

A Snap Options Play for the Snapback
MKM Partners – Barron’s
One June 26 we wrote “Hedge Snap’s Lock-Up Expiration,” recommending August put spread collars for those long Snapchat stock.

CBOE Morning Call 8/1/2017
CBOE Options Blog
About 3/4’s of the companies in the S&P 500 that have already reported second quarter earnings beat their estimates. This sounds impressive, but according the Bank of America Merrill Lynch the stock price reactions have been muted (despite the S&P 500 pushing the 2500 level).

****SD: More on what’s trading at CBOE – Under Armour Call Skewed Into Earnings

WisdomTree Europe Hedged Equity Fund: New Fund Coming Soon
ETF Daily News
ETF issuer WisdomTree has filed to launch a new fund that aims to harness the power of options to benefit investors in a sideways market.


Weekend Review of Volatility Indexes and ETPs – 7/30/2017
VIX Views
On a week over week basis the S&P 500 was down fractionally. One would not assume such a small move from SPX when looking at the VXST – VIX – VXV – VXMT curve below. VXST and VIX made nice moves to the upside while the longer end of the curve moved up a bit less resulting in a slight flattening of the curve.

Weekend Review of VIX Futures and Options – 7/30/2017
VIX Views
This past week is one of those weeks where those new to VIX futures get a lesson in price behavior and the lack of fair value that exists between the futures and the spot index. VIX rose almost 10% on the week, the August contract was unchanged and the rest of the curve actually moved lower. The curve had been steep and the result was futures not budging too much when VIX got moving to the upside.


Grateful Dead Music and Wall Street Merger Still in Play
Wall Street Dead aHead Networking Events (“WSDA”) will hold their 7th Annual Sold Out Event on October 24th, 2017. The Event will be held at 404 NYC, located at 404 Tenth Avenue between West 31st and 33rd Streets.


The Russell 2000 Surge And What It Means for Futures
The small cap index has seen several records, and is up nearly 50% in the last year; Russell futures a “great fit” for retail traders

****SD: Options Insider – This Week in Futures Options 62: Rise of the Russell 2000

Purdue University/CME Group Ag Economy Barometer Indicates Farmer Sentiment Is At Highest Level Since January
Press Release
Farmers’ sentiment about the agricultural economy climbed to 139 in July – the highest level recorded in 2017 since January, according to the Purdue University/CME Group Ag Economy Barometer.

Politics drives record pound trading as London boosts hub status
Lananh Nguyen and Anooja Debnath – Bloomberg Professional Services
When it comes to stoking currency trading, nothing beats politics.
Trading volumes in sterling versus the dollar surged to a record in April, according to a biannual survey of the Bank of England’s foreign-exchange committee, as U.K. Prime Minister Theresa May called a snap election. The currency activity also shows that the world’s leading hub hasn’t yet seen any repercussions from last year’s Brexit vote.

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Graduate of University of Minnesota School of Journalism and Mass Communication