Breaking News

Suspect trading in Equifax options; Risks From ‘Shadow Insurance’ Business; $1 Silver Options Bet

Observations & Insight

House passes hurricane aid, debt ceiling extension, government funding
Christina Wilkie – CNBC
The House of Representatives on Friday overwhelmingly backed the Senate’s version of a bill raising the nation’s borrowing limit for three months, funding the government and providing $15.3 billion in aid for victims of Hurricane Harvey.
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****SD: It’s not your imagination — there are more curveballs thrown of late. See the Sports Illustrated cover story from May – Forget velocity, the curveball’s resurgence is changing modern pitching.

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TradeStation Expands “TradeStation Salutes” Program to Include First Responders Program Now Offers Commission-Free Trading for U.S. Active-Duty Military Personnel, Military Veterans and First…
Markets Insider
TradeStation, a Monex Group company and award-winning* online broker-dealer and futures commission merchant, announced today that it will extend the TradeStation Salutes program to first responders, including police officers, firefighters, paramedics and EMTs.
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****SD: Super cool. Good for TradeStation.

Lead Stories

Suspect trading in Equifax options before breach might have generated millions in profit
Liz Moyer – CNBC
Unusual trading in Equifax options in mid-August suggests millions of dollars in profit were generated after Thursday’s disclosure of a massive data breach at the credit reporting company affecting 143 million consumers and their personal information.
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****SD: Does anyone listen to Matt Levine? When will people learn shorter-dated out-of-the-money options are not the way to go about insider trading? Especially when put options volume for the WHOLE OF JULY was 260 contracts?? And you come into the market on August 21 with a volume of 2,600 puts?!? (Note: not saying that there should be “a way” to go about insider trading.) From MarketWatch – Here’s the first big test for Trump SEC chief Jay Clayton — the Equifax insider stock sales. Funny this comes a day after I read the WSJ story No Law Needed on Insider Trading, SEC Chief Says

Is The ‘Shadow Insurance’ Business As Dangerous As The ‘Shadow Bank’ Of The Financial Crisis?
Vineer Bhansali – Forbes
There are a number of striking similarities between financial markets before the 2008 financial crisis and today. The most obvious is the low level of volatility. While everyone’s favorite indicator of risk taking is the VIX, other metrics of risk and uncertainty are even lower today than they were in 2007. For instance, the metrics of interest rate volatility today are much lower than in 2007, and could probably be the lowest ever on record.
/goo.gl/h3mQZc

The surprising rationale behind a million-dollar bet on silver
Alex Rosenberg – CNBC
Silver has surged 12 percent in the past month — but one trader appears to believe that the real rally may just be getting started. In one of Thursday’s biggest options trades, a large number of bullish calls were purchased on the iShares Silver Trust, which is better known by its ticker symbol, SLV. Specifically, 19,500 25-strike call options expiring in January 2019 appear to have been purchased for $0.47 cents per share (that exact price strongly suggests that the trade was initiated by the buyer). Since each options contract controls 100 shares, the total cost of the trade was $916,500.
/goo.gl/E3gU7H

****SD: Large demand for GLD calls, too – the 10-day moving average for GLD’s out-of-the-money put/call skew hit 0.80 on Aug. 23 — its lowest reading on record, according to Schaeffer’s Research. I am perplexed how CNBC’s “surprising rationale” behind the bet is that someone is likely “hedging a broader portfolio.” How the h*** is hedging a portfolio a surprising rationale?!?

What low volatility is (and isn’t) telling us
Blackrock via Nasdaq
A decade since the U.S. subprime housing troubles morphed into a global financial crisis, market sentiment still seems fragile and it sometimes feels as if the scars have yet to fully heal. The U.S. has experienced one of slowest recoveries on record, feeding constant fears of a new recession around the corner. Along the way, each successive high in the U.S. equity market has been doubted. Paradoxically, the lack of fear-as reflected in the VIX , the so-called “fear gauge”-is making investors fearful as equity market volatility plumbs new historical lows.
jlne.ws/2wNiH1p

Bond Manager With $6.6 Billion Just Saw the Scariest Chart Ever
Jonas Cho Walsgard – Bloomberg
Morten Steinsland, head of fixed income at Alfred Berg in Oslo, has been in the fixed income markets for three decades but the other day he saw the scariest chart he’s ever seen.
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****SD: Frightened by low vol – “There’s really no risk left in the world.” Which is true if you look at a chart, but is wrong if you just read the paper. Related bond story from Bloomberg – Bond Market’s Melt-Up Has All the Hallmarks of Fear.

Draghi’s Soft Euro Talk Suggests He’s Holding Back the Magic
Alessandro Speciale – Bloomberg
Currency rises above $1.20 after ECB president notes concern; Remarks ‘could have been more forceful,’ analyst says
Mario Draghi’s words on the euro seem to have lost a bit of their magic, but maybe he wasn’t trying very hard.
/goo.gl/1V2g98

****SD: Also from Bloomberg – ECB to Study QE Options That Don’t Need Tweak to Rules

Low Volatility Doesn’t Necessarily Mean Investor Complacency
Jean Boivin – ETF Daily News
A decade since the U.S. subprime housing troubles morphed into a global financial crisis, market sentiment still seems fragile and it sometimes feels as if the scars have yet to fully heal. The U.S. has experienced one of slowest recoveries on record, feeding constant fears of a new recession around the corner. Along the way, each successive high in the U.S. equity market has been doubted.
Paradoxically, the lack of fear – as reflected in the VIX, the so-called “fear gauge” – is making investors fearful as equity market volatility plumbs new historical lows.
jlne.ws/2wNZrAQ

Exchanges and Clearing

Moscow Exchange Launches Weekly Options On USD/RUB Futures Contracts
Mondovisione
On 14 September 2017, Moscow Exchange will launch trading in weekly options on the USD/RUB futures contracts. The new instrument will complement MOEX`s monthly and quarterly options offering.
jlne.ws/2weIFrj

****SD: Other MOEX news – Moscow Exchange: On Transition To Daily Calculation Of The Exchange Fee For Derivatives

Moves

Washington University Hires Wilson to Run $8 Billion Fund
Janet Lorin – Bloomberg
Scott Wilson has managed Grinnell’s endowment since 2013; He was previously a trader at Barclays, Bank of America
Washington University in St. Louis named a portfolio manager with trading experience to run its $8 billion endowment, the latest among several wealthy schools to fill these top investment jobs
jlne.ws/2weDirY

****SD: This story reminded me how when I toured Grinnell back in high school, the tour guide made a point of mentioning its large endowment (and consider it’s a school of ~1,600 students). And the relevant part: “Wilson was previously head of the Asia interest rate option trading desk at Barclays Capital in Tokyo. He was also a quant and options trader at Bank of America Securities in Chicago, London and Tokyo, focusing on interest rate, equity and currency derivatives.”

Regulation & Enforcement

ITG’s Selway drops out of running for key U.S. SEC job
Reuters
Jamie Selway, the leading candidate to head the U.S. Securities and Exchange Commission’s Division of Trading and Markets, has withdrawn his name from consideration, according to a person with direct knowledge of the matter.
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Technology

Buy Side Demands More from Connectivity Providers
John D’Antona – MarketsMedia
So, what does the buy side want when it comes to connectivity?
The fastest connection? The most secure? The one that allows them to find the largest asset liquidity in the market? Ask any and they’ll tell you all of the above.
jlne.ws/2wf17Qr

Reducing Reputational Risk in Trading Systems: Prevention Is Better Than Cure
Jay Patani, ITRS Group – TABB Forum
It took just 30 minutes for Knight Capital to lose a staggering $440 million because of glitches in newly deployed code. The catastrophe in 2012 became the infamous poster child of the perilous reputational consequences of poorly monitored trading infrastructure. Since then, creating safeguards to monitor and anticipate problems in complex IT systems has become essential.
jlne.ws/2weBAa9

Broker wheel of fortune
Hayley McDowell – The Trade
MiFID II will see an increased emphasis on justifying choices made when executing a transaction. It requires traders to take ‘all sufficient steps’ to ensure best execution for clients on price, cost, speed, likelihood of execution and more. The key difference come January 2018 will be how firms plan, monitor and ultimately prove they have attempted to achieve best execution.
jlne.ws/2werc2f

How to Find Alpha Needles in Unstructured Data Haystacks
Barry Star, Wall Street Horizon – TABB Forum
There is untold value and potential alpha tied up in the vast amounts of unstructured data now available. But a bad trade based on a poor assessment of that unstructured data could cost a firm millions. How can a firm best identify, extract, and leverage unstructured data to improve trading and investment results? Wall Street firms that want to leverage unstructured data to generate profits and avoid losses have three choices.
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Strategy

‘Black Swan’ Investors Lose Big as Stocks Thrive
Mark Kolakowski – Investopedia
Black swan funds, designed to hedge against major market declines, have suffered huge losses as the stock market has soared since the financial crisis, the Wall Street Journal reports. On average, their value has fallen by 6.3% for the year-to-date through July, and they lost money in four of the previous five years, per data from eVestment cited by the Journal. Indeed, after hitting peak performance in September 2011, these funds have fallen by about 55%, according to data from CBOE Eurekahedge reported by the Journal.
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****SD: In case you missed the story from the Journal earlier this week, this is a recap.

Something’s Going On With the VIX
Helene Meisler – The Street
I could easily discuss the breadth of Thursday’s market, which was flat as a pancake — so much so that even net volume was literally zero, with the same number of shares up on the day as down. Or I could point out that the transports held their own even when the market went red.
jlne.ws/2wNTYu7

Events

CME Group Chairman and Chief Executive Officer and Chief Financial Officer to Present at Barclays Conference
Markets Insider
CME Group announced today that Terry Duffy, Chairman and Chief Executive Officer, and John Pietrowicz, Chief Financial Officer, will present at the Barclays Global Financial Services Conference in New York on Tuesday, September 12, at 11:15 a.m. (Eastern Time).
jlne.ws/2weYqOK

Miscellaneous

Investor psychology is now in a brand new post-crisis phase, fund manager says
Ryan Browne – CNBC
Investor psychology has moved on from the memory of the 2008 financial crash and the recession that followed, a fund manager told CNBC.
“I think what’s very interesting at the moment is why equity markets are not really moving very much in response to what you might have expected to be events that would move the equity market a lot,” Eric Lonergan, fund manager at M&G, said.
jlne.ws/2wO3ptw

U.S. firm backing ether-based ETF says to refile listing application
Reuters
The U.S. firm behind an effort to start an exchange-traded fund based on the cryptocurrency ether said on Thursday it planned to refile an application to list the security on Intercontinental Exchange Inc’s NYSE Arca exchange after an initial filing was withdrawn.
jlne.ws/2wf3EtX

Harvey, Irma, and the Future of Weather Volatility
RCM Alternatives Blog
In a time where Volatility seems to be everywhere (policy uncertainty) and nowhere (the markets), one place it has reared its head of late is in the weather – specifically severe weather. First came Hato (Hong Kong Typhoon), then Harvey, with damages totaling in tens of billions, and now there are three active hurricanes targeting Mexico and Florida.
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Graduate of University of Minnesota School of Journalism and Mass Communication