Observations & Insight
Top Options Stories of 2017 Countdown
Listicles are occasionally the butt of jokes – Buzzfeed knows – but what about listideos?
With 2017 in the bag, we at JLN thought we’d recap the year in options with a list of the big stories and trends – and there were a number. Below are links to stories referenced in the countdown.
As Stocks Reach New Highs, Investors Abandon Hedges
Gunjan Banerji – WSJ
Big stock-market gains are leading a number of investors to abandon defensive positions taken to protect against a market downturn, the latest sign that many doubters are shedding caution as the long rally rolls on.
Investors with significant positions in stocks often look to offset that risk by buying put options on stocks or major stock indexes, like the S&P 500. These contracts are a form of insurance that pay out when stocks fall.
****JB: In a related story also from Bloomberg, Signs of Euphoria Are So High Investors Are ‘Having a Hard Time Imagining a Decline’
The bond market is doing something it hasn’t done in 52 years
Bill Baruch – CNBC
Volatility in the Treasury market has sunk to a multidecade low, and that could have sweeping implications for the bond market this year.
Treasury volatility as measured by realized volatility in the U.S. 10-year Treasury note has fallen to a 52-year low, according to a new report from Bank of America Merrill Lynch. I believe this is going to open the door to an inverted yield curve, wherein the longer-dated Treasuries carry a lower yield than those that are shorter-dated; this development is classically taken as a troubling signal for the broader market.
****SD: BAML’s MOVE index is looking like it needs renaming.
Gone Today, Here Tomorrow? Making Sense Of Market Volatility
Janus Henderson Investors via Seeking Alpha
Years from now, history may define 2017 as the period when volatility disappeared from the markets. The CBOE Volatility Index (VIX) – which measures the options market’s expectations of equity market volatility – hit a record low and spent the majority of its days below 12, compared with a long-term average of 19. Factors that have historically triggered elevated volatility, including geopolitical events and natural disasters, were nonevents for the market. To some investors, this may appear to be a paradigm shift, but we do not believe the recent trend represents a “new normal” for volatility in financial markets.
Hedge Funds’ Indian Revenge, by Way of Singapore
Andy Mukherjee – Bloomberg
Six months ago, India’s regulator had the brilliant idea of destroying a market it believed existed only for “naked speculation.” Now’s the time for hedge funds in Singapore to put on some clothes and plot their revenge.
Offshore derivatives in which the underlying securities are themselves futures contracts — i.e., derivatives of Indian stocks — were an $8 billion market at the start of last year.
Exchanges and Clearing
HKEX Markets Set New Records In 2017
Hong Kong’s securities and derivatives markets set several new records in 2017 after an active and busy year, according to full year market statistics released today (Tuesday) by Hong Kong Exchanges and Clearing Limited (HKEX).
****SD: Options trading set a new annual volume record of ~137m contracts – 18 percent higher than the previous record.
How much of a systemic risk is clearing?; Critics of central counterparties claim the CCP structure is unstable
Patrick Jenkins – FT
At the Financial Times’ annual banking summit late last year, two experienced financiers gave a stark warning. Jean-Pierre Mustier, boss of Italy’s leading bank, UniCredit, and Paul Tucker, the former Bank of England deputy governor who runs the Systemic Risk Council think-tank, said clearing was now the biggest systemic risk in finance.
****SD: Keep in mind the story yesterday about OCC increasing its clearing fund contribution.
Record year for dairy derivatives
Otago Daily Times Online News
The NZX dairy derivatives market reached a significant milestone last year as record trading volumes were achieved across its full suite of futures and options contracts.
NZX head of derivatives Nick Morris said yesterday trades on the market were up 57% on 2016, reinforcing the aggressive growth and significant success the market had shown since it launched in late 2010.
****SD: Love the occasional kiwi dairy derivatives stories, despite my serious allergy to the underlying.
MIAX Options & MIAX PEARL Holiday Schedule
Please be advised the MIAX Exchanges will be closed on Monday, January 15, 2018 in observance of Martin Luther King Jr. Day.
Regulation & Enforcement
FINRA Releases 2018 Regulatory And Exam Priorities
The Financial Industry Regulatory Authority (FINRA) today released its 2018 Regulatory and Examination Priorities Letter, highlighting topics that FINRA will focus on in the coming year, including new and ongoing areas of focus.
****SD: Full PDF of FINRA’s 2017 Examination findings.
Intel CEO’s Stock Sales May Warrant SEC Examination
Alicia Ritcey and Anders Melin – Bloomberg
Intel Corp. Chief Executive Officer Brian Krzanich’s sale of a chunk of company stock in the fourth quarter of last year has prompted questions about the transaction’s timing because it happened after the discovery that modern processors are vulnerable to hackers.
****SD: Also from Bloomberg – SEC Needs to Quit Taking Executives’ Word on Stock Sales
ESMA Publishes First MiFID II Position Management Controls For Commodity Derivatives
Cboe to Provide Market and Trade Data to Thomson Reuters
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced that it is now providing its Cboe One real-time stock quote and trade information to Thomson Reuters, one of the world’s leading sources of news and information for professional markets.
Wedbush Futures joins FIS Derivatives Utility
Wedbush Futures, one of the largest capitalized non-bank futures commission merchants (FCMs) in the United States, has selected the FIS (NYSE: FIS) Derivatives Utility to support clearing operations processing and manage the technology for its exchange traded derivatives (ETD) business.
VIX Surge Appears Imminent As Correction Looms Over Stocks
Victor Dergunov – Seeking Alpha
2017 has been a record year for volatility, or for the lack thereof do be more precise. The VIX hit numerous records this year, such as the most consecutive closes below 10, the lowest intraday move ever, the lowest close ever and so on. With such moves in the VIX it’s safe to say that this was one of the lowest volatility years in decades, if not ever.
Big-Time Stock Market Volatility Is Just Around the Corner
Helene Meisler – TheStreet
I was asked, after my column yesterday, if I thought it was possible that we would not see a weakening of breadth prior to a top in the market. It is possible and I realize the markets are different now than they have been in the past but it is hard for me to imagine we would not see breadth weaken first.
Cohen Point72’s Reveals High Leverage as Firm Recruits New Money
Miles Weiss – Bloomberg
Steve Cohen had about $90 billion of market bets outstanding at the beginning of this year, indicating his Point72 Asset Management was using large amounts of leverage as the firm prepared for outside investors.
Weak future outlook drives producer sentiment lower
Agricultural producers indicated they have reduced optimism heading into 2018, according to the December reading of the Purdue University/CME Group Ag Economy Barometer.
The barometer fell to 126 in December, a two-point drop from November’s 128 and the second straight month of declines in producers’ sentiment toward the health of the agricultural economy. The barometer is based on a monthly survey of 400 agricultural producers from across the country.
Cryptocurrency market will see crash, consolidation: Ethereum co-founder
Ryan Browne – CNBC
The cryptocurrency market will strengthen after bitcoin alternatives that lack substance have failed, a former chief executive and co-founder of Ethereum said.
“My personal opinion is that we’re going to see a consolidation after a crash,” Charles Hoskinson told CNBC in an interview Friday. Hoskinson now runs blockchain research firm IOHK, but was previously in charge of Ethereum, which develops the underlying technology for the cryptocurrency ether (also known as ethereum).