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Nasdaq Volatility Gauge; BlockTower Capital behind $1m bitcoin options bet; Field Guide to 2018 Volatility Trades

Lead Stories

Watch Out VIX: Nasdaq Amps Up Volatility Game Nasdaq is working on an alternative to Cboe’s market fear gauge
Gunjan Banerji – WSJ
The VIX is getting a rival. Nasdaq Inc. is working on launching futures and options linked to an index that uses a different way to track volatility in the S&P 500, the benchmark gauge for the U.S. stock market, said people familiar with the matter. The launch is subject to regulatory approval and would compete against the market’s so-called fear gauge from Cboe Global Markets Inc.

****SD: Not the first time a rival product has been attempted. I believe the most recent try was Bats’ launch of SPYIX in the beginning of 2016.

We now know who was behind the $1 million bet that bitcoin will soar to $50,000
Frank Chaparro – Business Insider
The Wall Street Journal reported earlier this week that a trader or group of traders made a $1 million bet on bitcoin going to $50,000 by next December. People familiar with the matter told Business Insider that it was the hedge fund BlockTower Capital.

****SD: Former Susquehannan at the helm of this op. I’m so accustomed to people being generally uber-secretive about trades that this feels weird. Sure, sometimes we find out, but usually not directly from the horse’s mouth.

Betting Against Boredom: A Field Guide to 2018 Volatility Trades
Elena Popina – Bloomberg
Volatility has been below 10 about 20% of the time this year; Global short vol trade has $2 trillion in strategies: Cole
It’s pretty simple: in three decades since the Cboe Volatility Index was invented, 2017 will go down as the least exciting year for stocks on record. There are three trading days left and the VIX’s average level has been 11.11, about 10 percent lower than the next-closest year.

The VIX: 2017 was the least volatile year in decades
Preeti Varathan – Quartz
In a year of hurricanes, wildfires, nuclear threat from North Korea, and a #MeToo movement that toppled powerful men, the markets remained eerily calm. The VIXóthe market’s collective “fear gauge”óhit an all-time low, bottoming at 9.14 in November, dropping more than 17% over all of 2017.
If you had invested $1,000 in the the S&P 500 on the first day of this year and done nothing else, you would be $189 richer.

It’s Time to Embrace the Reality of Rising Volatility
Bill Luby – Barron’s
Two years ago, when I penned “The Case Against High Stock-Market Volatility in 2016” (Jan. 2, 2016) in this space, I felt like the lone bear railing against what most saw as the inevitable rise in volatility. In the intervening period, the barrage of record-low volatility readings in both realized and implied volatility (for example, the CBOE Volatility Index, or VIX) has failed to quell the cacophony of predictions of increasing volatility.
In a more recent column, “Putting Low Stock Volatility to Good Use” (Feb. 18), I emphasized that low volatility has a tendency to cluster and persist for extended periods, often two years or more, defying skeptics.

A partner at one of the top bitcoin trading firms told us why crypto is ‘such an amazingly fun space to be in’
Frank Chaparro – Business Insider Premium
Akuna Capital, a Chicago-based trader, was one of the first firms to trade bitcoin futures. Partner Toby Allen told Business Insider why the cryptocurrency market provides an amazing opportunity for trading firms.
The news that Cboe Global Markets was going to launch a futures market for bitcoin was a landmark moment for trading firm Akuna Capital. “That’s when we started dedicating resources,” Toby Allen, a partner at Chicago-based Akuna Capital, told Business Insider, referring to crypto trading.

****SD: They’re trading on LedgerX, too.

Weekend Review of VIX Futures and Options – 12/18/2017 – 12/22/2017
Russell Rhoads – Cboe Blog
December VIX went off the board and January became the front month this past week. VIX moved higher for the week, however, all the standard futures moved down a bit. The contango is still steep as traders start to brace for 2018.

****SD: Also see the Review of Volatility Indexes and ETPs and the Review of Russell 2000 Options and Volatility

Exchanges and Clearing

CBOE: Toward a Bitcoin ETF?
Vittoria Onufrio – Inside Futures
After successfully launching Bitcoin Futures on December 10, the Chicago Board Options Exchange (CBOE) decided to further expand its market share in the crypto currency game and for this reason petitioned the U.S. Securities and Exchange Commission (SEC) to list the following six Bitcoin-based exchange traded funds (ETFs): First Trust Bitcoin Strategy ETF, First Trust Inverse Bitcoin Strategy ETF, REX Bitcoin Strategy ETF, REX Short Bitcoin Strategy ETF, Granite Shares Bitcoin ETF, Granite Shares Short Bitcoin ETF.

Default management: behind the scenes with Eurex Clearing
At Eurex Clearing, we have implemented a default management process to handle the default of one or more of our Clearing Members. Both the default management process and the margin methodology Eurex Clearing Prisma are based on a liquidation group set-up.

BOX Options Exchange Fee Change – January 2018
Effective January 2, 2018, BOX Options Exchange (“BOX”) is amending Section II.C of the Fee Schedule (QOO Order Rebate). Floor Brokers will now receive a $0.075 per contract rebate for all QOO Orders presented on the Trading Floor. The rebate will not apply to Public Customer executions, executions subject to the Strategy QOO Order Fee Cap, or Broker Dealer executions where the Broker Dealer is facilitating a Public Customer. The total monthly rebate for Broker Dealer executions will continue to be capped at $30,000 per month per Broker Dealer.

OTC Global Holdings Brokers first CME Bitcoin Futures Block
Press Release
Choice! Natural Gas, a portfolio company of leading independent interdealer broker OTC Global Holdings (OTCGH), announced it brokered the first CME Bitcoin Futures Block trade on Dec. 22, 2017. “While OTC Global Holdings has traditionally been known as an energy-focused firm, in recent years we’ve grown to cover the entire spectrum of commodities to meet the expanding needs of our clients,” said Eric Scharf, Director of Sales and Marketing, EOX Holdings, who drove the company’s efforts to bring on the product. “We anticipate brokering more of the fix price commodity like we did with this trade as well as to supporting the options market when it becomes listed.”

Jan 14 date set for options trading in guar seed
Business Standard
The National Commodity and Derivatives Exchange (NCDEX) is all set to launch the ‘guar seed options’ contract on the occasion of Makar Sankranti to be held on January 14.

****SD: Random.

Crypto Derivatives Exchange DydX Raises Seed Led by Andreessen Horowitz and Polychain Capital
Maricel Custodio – BlockTribune
Crypto Derivatives Exchange DydX has raised an undisclosed amount in its seed round.

Regulation & Enforcement

Exempting Small Banks From Volcker Rule Is Popular, but Not With Their Regulator; FDIC officials have concerns about Senate bill, saying it could pose new risks for the financial system
Ryan Tracy – WSJ
A Senate proposal to exempt thousands of small U.S. banks from the Volcker rule restrictions on speculative trading is winning broad supportóexcept from the regulator that oversees most of those banks. Officials at the Federal Deposit Insurance Corp. say the exemption could let new risks creep into the banking system.


Tail Hedging a High Yield Bond Portfolio With VIX Futures
Hong Xie Director – S&P Dow Jones Indices Indexology Blog
In one of my previous blog posts, we demonstrated that high yield bonds exhibited a strong negative correlation with VIX and an even stronger one with VIX futures, which comes mostly from down markets. This prompted us to think that VIX futures may hold tail-risk hedging opportunities for high yield bond portfolios. In this blog, we explore allocating VIX futures to tail hedge a high yield bond portfolio, with back-tested results for the following two hedging strategies.

Does a foolproof first-quarter anti-volatility trade exist?
Bernie Schaeffer – Schaeffer’s
With a new calendar year nearly upon us, Schaeffer’s Quantitative Analyst Chris Prybal recently compiled detailed seasonality stats on a list of over 60 exchange-traded funds (ETFs) and indexes. While there was, understandably, quite a bit of data to review and digest, one anomaly jumped out — an apparent pattern of first-quarter outperformance by an ETF built to track the daily inverse of short-term S&P volatility. Among all 60-plus tickers on Prybal’s list, the ProShares Short VIX Short-Term Futures ETF (SVXY) boasted some of the strongest average monthly returns during the months of January, February, and March (looking at all monthly returns since inception).

Small Traders Should Avoid Bitcoin Bourses
Theresa Carey – Barron’s
Two derivatives exchanges, the Chicago Board Options Exchange and the CME, recently launched futures trading on the digital cryptocurrency bitcoin. These securities don’t trade actual bitcoin, but instead are based on indexes of bitcoin prices that are calculated slightly differently. Putting aside the risk reflected in last week’s roughly 40% bitcoin plunge, these aren’t retail-friendly products in their current form. However, market observers expect that to change over the next six months.

Five things to know about 2017: Forex
EUR, MXN exceeded expectations in 2017; Yuan ‘far and away’ the most overvalued currency; US bond market in focus for January


SPX and VIX Option Market Discussion at Cboe RMC Asia
Russell Rhoads – Cboe Blog
The final presentation of the first day at Cboe RMC in Hong Kong matched Eric Frait, Vice President, Product Advancement and Strategy at Cboe Global Markets with Kristin Boyd a Director with Credit Suisse. Their session was titled Sourcing Liquidity in Index Options.


JPMorgan Dips a Toe Into Analysis of Bitcoin Futures Volatility
Joanna Ossinger – Bloomberg
Jamie Dimon may think bitcoin is a “fraud,” but that isn’t stopping JPMorgan Chase & Co. strategists from analyzing volatility for the cryptocurrency. “At a time when volatilities across asset classes have plummeted, this presents us with the oddity of an asset with extreme daily moves,” strategists Matthias Bouquet and Marko Kolanovic wrote in a note to clients Thursday. “Realized vols in BTC are unlike anything we’ve seen in other asset classes.”

From the Bitcoin bonanza to the Cenovus swoon, here’s a look back at some of the best and worst investments of 2017
Geoff Zochodne – Financial Post
For investors, 2017 started with a seemingly precarious Trump Rally, but ended as one of the best across-the-board years in recent memory. Along the way, strong global growth numbers helped push North America’s major indices to all-time highs, while lighting the fuse on an investing mania or two for good measure. From car parts to cryptocurrencies, winners were so easy to come by that most portfolios that resisted the sin of under-diversification came out ahead of the game, even if they held a train wreck or two (and there were more than a few). Here, Financial Post’s Geoff Zochodne counts down some of the best and worst investments of 2017.

Bitcoin (BTC) price: The market value of cryptoassets has risen to a near-record
John Detrixhe – Quartz
Bitcoin prices are showing signs of stabilizing after a sharp selloff on Friday that cascaded through most digital assets, from litecoin to ethereum. Despite the short panic, the market value of the most popular cryptoassets, around $618 billion, is marching back toward its highest ever. It’s near-impossible to know where the mania goes from here, but recent price swings have provided a narrative for everyone.

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Graduate of University of Minnesota School of Journalism and Mass Communication