Breaking News

Concerns about Nasdaq’s options data service; Chinese hedging; CME’s bitcoin specs

Lead Stories

Wall Street Fears Nasdaq Proposal Would Expose Trading Secrets
Alexander Osipovich – WSJ
Some Wall Street heavyweights are crying foul over a proposal by Nasdaq Inc. NDAQ 0.29% that they say will expose hidden trading strategies—the latest clash between traders and exchanges over Big Data.
A dispute has erupted over Nasdaq’s plan to launch an options-data service called the “Intellicator Analytic Tool.” Critics say that if approved by the Securities and Exchange Commission, the service could enable sophisticated algorithmic traders to exploit investors.
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****SD: The Intellicator sounds like something hawked in a ’50s Life magazine ad. Lots of smart options guys sharing their thoughts in this WSJ piece – Dash’s Peter Maragos, QB’s Thomas Peterffy and Trade Alert’s Henry Schwartz. The central theme is “How do we best go about democratizing data without going too far?” Maragos and Peterffy say it goes too far/exposes too much, while Schwartz says maybe these fears are overblown. Reminds me of some comments at FIA about the benefits of creating an options market structure committee ala EMSAC. (There was some debate as to whether OPSAC would be a garbage name or not.)

China’s Exporters Are Trading Their Way to a More Global Yuan
Bloomberg
Exporters at Canton Fair are increasingly using hedging tools; Some sellers are taking yuan payments instead of dollars
Faced with a currency now moving more freely in both directions, smaller-scale Chinese exporters are embracing hedging strategies and even ditching the dollar when it comes to writing invoices.
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****SD: TL;DR – more demand for options in China.

CME’s planned bitcoin futures will attempt to rein in big price swings
Evelyn Cheng – CNBC
CME will apply limits to its bitcoin futures’ trading range when the product launches, the exchange says.
Bitcoin is notoriously volatile and the limits on the futures product could help reduce overall volatility.
The development of a less volatile bitcoin futures product may also help the case for a bitcoin exchange-traded fund.
jlne.ws/2hoE5Fn

****SD: Keyword: “attempt.”

Lethargic bond investors could get caught napping
Robin Wigglesworth – Financial Times (Subscription)
The bond market is acting like an apathetic teenager. The Federal Reserve has started the slow but seismic trimming of its balance sheet ahead of an expected increase in interest rates next month, and will soon be under new management. The White House is trying to push through tax cuts that would balloon the budget further. Some forward-looking inflation measures are stirring. But bond investors are like, whatever.
The Move index, the Treasury market cousin of the more famous Vix index of equity market volatility, has plunged to new record lows this month.
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****SD: Napping at work? Time to get pranked.

Japan Stocks Close Lower After Biggest One-Day Swing in a Year
Keiko Ujikane – Bloomberg
‘Roller-coaster move’ ahead of derivatives settlement: Shimizu; Benchmark Topix retreats from highest close since 1991
Japanese stocks see-sawed, with the benchmark Topix index retreating from a milestone a quarter century in the making as investors consolidated bets ahead of the settlement of some derivatives.
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****SD: Action of the day but included for the expiry angle. Reuters here. Japan is not the only place with some action – S&P and Dow down almost a percent (which in today’s environment is noteworthy) and VIX marching towards 12 as of this writing. But if recent action is any indicator, it’ll be viewed as another chance to buy the dip/short more vol. UPDATE: yup, looks like we’re already recovering…

FCM Rankings & Concentration: Q3 2017
Clarus Financial Technology
The latest batch of FCM data has been assembled. Lets dig in.
jlne.ws/2AodKLy

From Circuit Breaker to Record Maker: Trump’s Year in Charts
Sid Verma, Dani Burger and Luke Kawa – Bloomberg
It’s been a year since America awoke to Donald Trump, president-elect. While the victory upended the American political landscape, no such transformation occurred in financial markets, where calm has prevailed as risk assets have rallied.
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****SD: Another installation in the “it’s been a year” storyline.

Exchanges and Clearing

New Cboe Vest Fund Targets Distributions of 3.5% Above the S&P 500 with Proportional Price Returns
Cboe
The newest mutual fund from Cboe Vest Financial LLC (“Cboe Vest”) seeks to track the recently launched Cboe S&P 500 Dividend Aristocrats Target Income Index (SPAI), an index designed to track the hypothetical performance of a partial buy-write strategy applied to stocks contained in the widely utilized S&P 500 Dividend Aristocrats Index.
jlne.ws/2hnoExx

CME Group Declares Dividend
Markets Insider
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a fourth-quarter dividend of $0.66 per share, payable December 27, 2017, to shareholders of record as of December 8, 2017.
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****SD: In other CME news – Seven FX Market Participants Agree To Clear CME OTC Non-Deliverable Forwards

Record VIX Trading Continues to Catalyze Cboe Global Markets’ Earnings
Asit Sharma – Motley Fool
Options exchange operator Cboe Global Markets, Inc. (NASDAQ:CBOE) reported record revenue on its release of third-quarter 2017 earnings on Tuesday. In addition to enjoying acquired revenue from its Bats Global Marketplace purchase earlier this year, the company was also able to boast of vigorous organic top-line growth.
jlne.ws/2hnYD0X

MOEX announces all-time high fee and commission income, up 15% YoY in Q3 2017
Valentina Kirilova – LeapRate
…Weekly options on USD/RUB were introduced on the Derivatives Market, complementing the existing offering of maturities for USD/RUB options.
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Regulation & Enforcement

Here’s Where the GOP Tax Plan Stands Right Now
Bloomberg
It’s crunch time for Republican tax-writers on Thursday. The House Ways and Means Committee enters its final day of hammering out its tax-cut legislation, while a Senate panel plans to reveal its own version. Here are the latest developments, updated throughout the day
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****SD: Updates throughout the day on the tax plan.

Large oil traders escape EU’s MIFID II trading rules, for now
Julia Payne, Dmitry Zhdannikov – Reuters
Less than two months before strict European Union rules on derivatives come into force, most large oil traders have persuaded regulators to exempt them for now from limits on the positions they can hold, arguing they are not speculators.
jlne.ws/2AoFe3y

Could Brexit Be Delayed to Give the U.K. Transition Wiggle Room?
Ian Wishart – Bloomberg
European Union officials have started questioning whether the U.K. could remain a member of the EU beyond March 2019 as a smoother alternative to a transition deal.
jlne.ws/2AnZliq

Strategy

Sky-high stock market has investors looking to commodities
Devika Krishna Kumar, Chris Prentice – Reuters
A growing number of investors are plowing money into commodities, seeking to diversify their holdings on gnawing concerns about a stock market correction as equities scale new highs almost daily.
/goo.gl/kFdgLz

Risky Business: Investors Take to Leveraged, Inverse ETFs…Big Time
Crystal Kim – Barron’s
Leveraged and inverse exchange-traded products are attracting more and more assets. Independent research firm ETFGI’s data show that assets in these vehicles have risen more than 14% year-to-date through the end of September to $77.1 billion.
jlne.ws/2hnXgzl

Diesel Dip Gives Record Bullish Oil Traders Pause for Thought
Alex Longley, Bill Lehane and Firat Kayakiran – Bloomberg
The soaring diesel market has taken a turn for the worse. That could be bad news for oil bulls who amassed record bets on a rally in crude.
jlne.ws/2Ar9URT

The Importance of Being Neutral
Sage Anderson – tastytrade blog
Today we are taking a closer look at historical data that helps illustrate how a delta-neutral approach performs over the long term, particularly as compared to directionally-biased volatility trading.
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****SD: I wonder what Oscar Wilde would think of options trading…

In 2017, Investors Can Either Buy Bubbles or Be Left Far Behind
Luke Kawa – Bloomberg
The best way to crush the crowd in 2017? Buy the things everyone insisted would never keep going up.
A portfolio stuffed with allegedly over-inflated assets would have returned more than 120 percent so far in 2017, trouncing the S&P 500 Index and underscoring the challenge for investors facing a plethora of pricey securities.
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Snap share plunge a volatility boon? Not as much as you’d think!
timesofindia.indiatimes.com
…At the close of trading Tues, an options straddle buyer (betting on volatility) needed an at least 17.2 pct swing in SNAP shares by Fri, to merely break even
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****SD: We’re not heavy on individual stock price action, but I found the excerpted portion above quite amusing.

Market Volatility Bulletin: Trading Skew Via Unbalanced Risk Reversals
Seeking Alpha
Today we’ll discuss a trade suggestion by leading VIX commentator and vol trader Pat Hennessy, CMT.
Mr. Hennessy brings up a good point on skewness that merits the attention of readers: skew, while not at all time highs (those were put in earlier this year), is nonetheless high enough where it becomes worthwhile to replace outright ownership of stock with structures that grant a lot of upside with minimal risk of volatility decay in the event of a market rise.
jlne.ws/2hm8Omu

Market Voice: Volatility Hiding In Plain Sight
Seeking Alpha
A recurrent theme in the Market Voice has been the lack of volatility in asset markets which has extended through this year. As shown below, realized 3-month bond volatility has dropped to a post-financial crisis low while equity market realized volatility is pushing at all-time lows. The persistent low realized equity volatility put gravitational force on the VIX (implied volatility) dragging it to all-time lows.
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FX Option Market Update: November 9, 2017
Dan Larsen – TradingFloor.com
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Education

VIX & Volatility Trading and Investing Resources
RCM Alternatives Blog
If you follow our blog closely, you know we have a thing or two or twelve to say about VIX and volatility investing. We even put some of that information together into an easily digestible whitepaper. But that still didn’t cover it all. In light of the VIX and volatility investing hype, here’s every article we’ve written about Volatility and the VIX over the last year
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Events

Bush, Bloomberg Highlight Global Financial Leadership Conference
CME
The tenth Global Financial Leadership Conference begins November 13 in Naples, Florida. In the decade since the event started, former Presidents, Prime Ministers, Secretaries of State, Nobel prize winners and countless other leaders have shared their ideas with the financial leaders who attend.
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****SD: The speakers at the gala dinner are Halle Berry, Jamie Foxx, Jake Gyllenhaal and David Feherty.

Miscellaneous

Apple closes above $900 billion milestone in climb to $1 trillion market cap
Wallace Witkowski – MarketWatch
Apple Inc. is one step closer to becoming a $1 trillion company, after becoming the first public company to clear a $900 billion market cap and close there in Wednesday’s trading.
jlne.ws/2hoacoZ

China approves interbank bond derivatives trade for overseas investors
Reuters
China’s central bank said on Thursday that foreign investors would be permitted to trade in bond derivatives in the country’s interbank market.
jlne.ws/2hnei0p

How Deutsche Bank’s high-stakes gamble went wrong
Patrick Jenkins and Laura Noonan – Financial Times (Subscription)
It was the Friday before Christmas and Edson Mitchell, boss of Deutsche Bank’s London-based investment bank, was rushing home to see his family in Maine. By 5pm he was on the home stretch: his private plane had left Portland. By 5.15pm it was within sight of his destination, Rangeley airport. A minute later, in a swirl of cloud and snow, the aircraft slammed into nearby Beaver Mountain, killing Mitchell and the plane’s pilot.
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Graduate of University of Minnesota School of Journalism and Mass Communication