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‘Stealth hedging’ shows investors not so complacent; Bitcoin’s Trading Star Is Chicago High-Speed Firm

Lead Stories

‘Stealth hedging’ shows investors not so complacent
Saqib Iqbal Ahmed – Reuters
With the U.S. stock market at a record high and daily stock gyrations near multi-decade lows, some investors have raised concerns about the lack of fear in the market, but U.S. equity options market data suggests investors are far from complacent.

Bitcoin’s Trading Star Is Chicago High-Speed Firm That Nods to the Grateful Dead
Alexander Osipovich – WSJ (Subscription)
One of Chicago’s largest high-speed traders has taken a central role in the bitcoin market, stepping into the vacuum created by Wall Street’s hesitant response to the booming investor interest in digital currencies.

****SD: The most pragmatic way to view the phenomenon – “Mr. Wilson, who started his career in the CME’s eurodollar options pit in 1989, acknowledges that bitcoin is a risky business. Unlike many crypto enthusiasts, he says the jury’s still out on whether bitcoin will succeed.” And for DRW/Cumberland, success of the asset doesn’t really matter – it’s a growing market to make. How big? From CNBC – Global cryptocurrency market breaks through $300 billion mark as bitcoin heads to $10,000

Momentary VIX Low Was More ‘Blip’ Than Milestone, Cboe Says
Lu Wang – Bloomberg
The Cboe Volatility Index touched an all-time low amid a flurry of trading at the close of Friday’s shortened session. Exchange officials advised not making too much of it.

EU banks have cut exposure to Britain since Brexit vote
Huw Jones – Reuters
Banks on mainland Europe have cut their exposures to Britain since the Brexit vote last year and are concerned about the legality of cross-border deals once the UK leaves, the European Union’s banking watchdog said on Friday.

Unknown traders gain influence in commodities markets
Gregory Meyer – Financial Times (Soft Paywall)
A mysterious group is exerting growing influence in commodities markets: the “other reportables”.
The vague term is a catchall for speculative traders that are not money managers published in a weekly report by the US Commodity Futures Trading Commission, a crucial market weathervane.

“The Strangest Thing…”
Highly Evolved Vol
A few weeks ago I wrote an entry about the historical context of current equity volatilities. The conclusion was that volatility is low (startling I know), but if we compare it to the years from the pre-VIX era it isn’t quite the extreme outlier it appears. Since 1950, two years have had lower volatilities (1964, 1965) and four others (1952, 1963, 1972, 1995) are about the same.

Weekend Review of VIX Options and Futures – 11/20/2017 – 11/24/2017
Russell Rhoads – Cboe Blog
After showing some signs of life VIX fell back to a single digit closing handle three out of four days last week. The curve shifted in a very parallel fashion as even the longer dated futures gave up some ground.

****SD: Other reviews – Volatility Indexes and ETPs and Russell 2000 Options and Volatility

Exchanges and Clearing

Bitcoin Futures: Risky Business for Cboe, CME
Steven Sears – Barron’s (Soft Paywall)
Last Monday, as Bitcoin traded above $8,000 for the first time, shares of Cboe Global Markets and CME Group set 52-week highs. The rallies probably reflected expectations that the launch of Bitcoin futures will prove lucrative for the exchanges.
It is unknown how much the exchanges will charge to trade the contracts, or if the Commodity Futures Trading Commission will approve Bitcoin futures, but that has not stopped Cboe (ticker: CBOE) and CME (CME) from announcing their intentions. Bitcoin, after all, is the world’s most volatile trading product, which is what many investors crave, and exchanges need to make more money.

****SD: This article is from the 25th but feels so much older due to the $8k BTC reference… Here’s a fun Bloomberg article putting the crypto market cap into some context.

NSE revises limit for risk reduction mode in currency futures
Leading bourse National Stock Exchange (NSE) today said it has decided to revise the threshold for activation of risk reduction mode for clearing members on its currency derivatives segment from Wednesday.

NYSE Group Announces 2018, 2019 and 2020 Holiday and Early Closings Calendar
Intercontinental Exchange
NYSE Group announced today the 2020 holiday calendar and early closing dates for its cash equity markets: New York Stock Exchange, NYSE American and NYSE Arca Equities, as well as NYSE American Options, NYSE Arca Options and NYSE Bonds markets. The previously-announced 2018 and 2019 holiday and early closing dates are also included below.

Regulation & Enforcement

CFTC Chief Works to Tweak, Not Decimate, Obama-Era Rules
Gabriel T. Rubin – WSJ (Subscription)
J. Christopher Giancarlo moved to the top job at the Commodity Futures Trading Commission this year from a minority commissioner’s role, giving him a chance to push for changes on Obama-era derivatives regulations that he has criticized.

CFTC Reports Steep Drop in Enforcement Actions and Fines
Gabriel T. Rubin – WSJ (Subscription)
The Commodity Futures Trading Commission’s enforcement actions and fines plunged in the first year of the Trump administration from a year earlier, when the figures were lifted by big settlements with banks.

FIA supports EC transitional period for CCP equivalence
FIA has commented on the European Commission’s (EC) published Draft Implementing Regulation on the extension of transitional period related to own funds requirements for exposure to CCPs in the Capital Requirements Regulation (CRR)


Citi’s ex-head of equity derivatives joins AI fund manager cloning its founder’s brain
Paul Clarke – efinancialcareers
Citigroup’s former head of equity derivatives in London has joined a Dubai-based asset manager that uses algorithms to copy the brain of its founder and chief investment officer, Muhammed Yesilhark – who was head of equities at fund manager Carmignac and a long-time portfolio manager at Steve Cohen’s old hedge fund, SAC Capital Advisors.

****SD: Kinda misleading – the brain copying is a reference to attempts to train computers to trade like him. So not quite as sci-fi as it initially sounds.


Warren (Buffett) Likes Warrants, Contrary to Popular Belief
Mark Sebastian – TheStreet
There is an oft-used quote from Warren Buffett’s Berkshire Hathaway (BRK.B) annual letter from 2002: “In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
While the letter does, in fact, say this, the exact same letter also says: “Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies.”

****SD: Selling puts to “go long the world” raked in $4.5b in premiums for WB.

This Is How You Can Short Bitcoin
Camila Russo – Bloomberg
Bitcoin’s assault on $10,000 has stirred cryptocurrency bears who see fresh evidence of a bubble. Their problem? It’s difficult and expensive to bet against a downturn.
The options to short bitcoin are mostly through unregulated exchanges, and very risky given bitcoin’s volatility. Not to mention it hasn’t exactly been a good year for bitcoin bears given the 10-fold surge in price. But for those daring enough to try, there are ways to bet against bitcoin’s rise.

Everything you need to know about the upcoming OPEC meeting
Bantix Blog
…In spite of the upcoming meeting and unrest in the middle east, oil vol has been steadily ticking down since the middle of the year and is currently at lows not sustained since 2014. Pictured below are the constant maturity volatilities for 7, 14, and 30 day ATM options:

****SD: From Bloomberg – Oil Options Are the Cheapest in Three Years With OPEC Meeting Approaching


Will a Wall St correction really matter to the rest of the world?
Philip Baker – Financial Review
Record-breaking sharemarkets can make investors happy but it can also make some very nervous.
Surely after such a great run there’s a crash just around the corner?
Thinking about how much money you can make, or lose, in the next few years is probably more important but with the S&P 500 at above 2600 for the first time – at least it was heading into Monday night’s trading – there’s more talk that a correction is imminent.

Short Activism: The Rise in Anonymous Online Short Attacks
Jeff Katz and Annie Hancock, Ropes and Gray LLP – Harvard Law
Short seller activism is generally associated with prominent hedge funds and “celebrity” activists, such as David Einhorn and Bill Ackman. These short sellers often launch short attacks capitalizing on their notoriety and name recognition. In recent years, however, a new breed of short activism has emerged: individuals who anonymously post negative research reports and articles about targeted public companies on widely followed online financial and research platforms, such as Seeking Alpha. According to Activist Insight, “activist short sellers are more often than not anonymous entities and funds.”

What Leonardo Tells You About Bitcoin
David Fickling – Bloomberg
How high can bitcoin go?
Since the digital currency cleared $7,000 earlier this month, an asset known for its wild swings has gone ballistic. On Monday morning, just over a week after it smashed through the $8,000 barrier, it surged past $9,000. As this column was published, Bitcoin was only $300 short of $10,000.

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About Author

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