Observations & Insight
OCC Cleared Contract Volume Increased 42 Percent in January
OCC, the world’s largest equity derivatives clearing organization, announced today that cleared contract volume in January was up 42 percent from January 2017 with 479,812,469 contracts. Average daily volume at OCC is up 35 percent in 2018 with 22,848,213 contracts. OCC cleared futures volume is up 23 percent in January with 11,907,702 contracts. OCC’s stock loan program reported strong volume numbers with 233,482 transactions in January, up 29 percent from January 2017.
****SD: Hot darn!
We Don’t Know as Much as We Think We Do
Highly Evolved Vol
Traders don’t know much either. I’m not talking about the general ignorance of most traders, but specifically the history of markets is nowhere near as big as we often assume. For example, equity options have only been traded in liquid, transparent markets sine the CBOE opened in 1973. S&P 500 futures and options have only been traded since 1982. The VIX didn’t exist until 1990 and wasn’t tradable until 2004. And the average lifetime of a S&P 500 company is only about 20 years.
****SD: More to come regarding trading and behavior from the blog.
Beware Low Vol… Or Long Live Low Vol – Managed Futures / Global Macro 2018 Outlook Whitepaper
Forget all this alternative investment stuff… buy a basket of cheap ETFs covering the US and world stock markets, then go golf or paint or race cars or whatever you’re into. Life’s too short to be worrying about a correction that may never come. That was the message conveyed by markets in 2017. Volatility? Ha. We didn’t even see a down month in the S&P 500 for the first time…. ever. The trade was buy and hold. Or even better – sell and hold (volatility that is), rinsing and repeating monthly, or even better, better, buy some Bitcoin.
****SD: You might have to register, but it’s free.
Volatile enough? Wall Street’s fear gauge on track for largest weekly rise in 5 months
Mark DeCambre – MarketWatch
A measure of Wall Street volatility on Friday rose sharply, putting it on track for its largest weekly gain in more than 5 months as U.S. equity benchmarks tumbled and as the 10-year Treasury notes extended its 5-day climb above 2.8%–its highest level in more than four years.
Stock market hedging is broken but there’s a new way to get protection
Joe Ciolli – Business Insider (Soft Paywall)
Hedging methods that have worked for years have broken down, leaving investors wondering how they can protect their hard-earned gains from a market meltdown.
****SD: This is kind of funny, frustrating and at the same time misleading. The article is about typically inversely related assets becoming more correlated – equities v. Treasurys for example. The title does absolutely no justice to the derivatives markets. Hedging is not broken. Clever people will find a way. Actually, you don’t need to be clever at all, just informed. Then see this sentence about alternative strategies at the end – “Buy equity put options that are attractively priced at the moment — Deluard notes, however, that this is an incomplete hedge, since it only protects against losses in stocks, not bonds or the dollar.” So buy some options on bond futures. Express an opinion in one of the dozens of fixed income ETFs. You don’t need to be a big bank creating some esoteric swap to hedge. (And none of the mentioned methods are “new” either.)
Some investors are worried low volatility might be the start of a market crash
Silvia Amaro – CNBC
Market volatility has been low, meaning that stock prices have been stable for a long time.
Some investors have interpreted this as a sign of current market risk and that there could be a sudden correction in stock markets, meaning many people could be about to lose vast sums of money.
****SD: Paint it how you want if you have a brush.
Exchanges and Clearing
Miami International Holdings, Inc. Reports Record Activity for January 2018; MIAX Exchange Group and MIAX PEARL Set New Daily and Monthly Records
Miami International Holdings, Inc. today reported the January 2018 trading activity for its two fully electronic options exchanges – MIAX Options and MIAX PEARL (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 29.8 million contracts in January 2018 for a combined average daily volume (ADV) of 1,422,902 contracts, representing a total U.S. equity options market share of 7.26%.
****SD: Slowly but surely, day by day…
CME Group Reached Average Daily Volume of 19 Million Contracts in January 2018, up 18 Percent from January 2017
CME Group, the world’s leading and most diverse derivatives marketplace, today announced January 2018 average daily volume (ADV) reached 19 million contracts, up 18 percent from January 2017, and representing the second-highest monthly ADV ever. During January 2018, there were nine trading days above 20 million contracts, compared with 34 days in all of 2017, and eight in November 2016, which was the highest monthly ADV of all time. January 2018 options ADV reached a record 4.5 million contracts, up 32 percent, with record electronic options ADV of 2.9 million contracts, up 54 percent. Open interest at the end of January was 124 million contracts, up 11 percent from the end of January 2017.
****SD: Transcript of the earnings call here.
EU clearing house system passes stress test
The European Union’s overall system of clearing houses for securities remained resilient for extreme, simulated market shocks, the bloc’s securities watchdog said on Friday.
The results of the second EU-wide stress test showed the system could cope with several users of clearing houses defaulting at the same time coupled with extreme market shocks, the European Securities and Markets Authority (ESMA) said in a statement.
ICE Clear may need stronger defences, European watchdog finds
Huw Jones – Reuters
Clearing house ICE Clear Europe (ICE.N) may need to bolster its defences against extreme market shocks and customer defaults after a sector-wide test of resilience, the European Union’s securities watchdog said on Friday.
CME pushes energy suite with new incentive schemes
Julie Aelbrecht – Global Investor Group (SUBSCRIPTION)
The CME Group has launched seven new incentive schemes related to its oil and natural gas derivatives.
According to documents filed with US regulator the Commodity Futures Trading Commission, the exchange has received permission to launch seven new incentive programs on February 1.
****SD: Mostly futures but includes expansion of its Brent liquidity provider program as well as it’s incentive program in crude and refined options.
Moscow Exchange Trading Volumes In January 2018
…Derivatives Market volumes amounted to RUB 5.4 trln (January 2017: RUB 7.0 trln) or 92.0 mln contracts (January 2017: 122.5 mln), of which 86.2 mln contracts were futures and 5.8 mln contracts were options.
CME Takes Cautious Stance Toward Crypto-Futures Besides Bitcoin
Annie Massa – Bloomberg
CME Group Inc. doesn’t plan to offer futures based on cryptocurrencies other than Bitcoin any time soon, in contrast to rival Cboe Global Markets Inc.’s openness to the idea.
Regulation & Enforcement
Deutsche Bank Fined $70 Million for Trying to Rig Benchmark Rate
David Scheer – Bloomberg
Deutsche Bank AG agreed to pay $70 million to settle a U.S. regulator’s claims its traders sought to manipulate a benchmark for interest-rate derivatives and other financial instruments.
For years, traders at Deutsche Bank Securities sought to rig the ISDAfix to benefit the firms’ positions on cash-settled options on interest-rate swaps, the Commodity Futures Trading Commission said in a statement late Thursday announcing the settlement. Investigators said the bank’s personnel attempted to steer the rate with a pair of strategies and that abuses occurred from 2007 until May of 2012.
****SD: A more in depth look here.
EU lawmaker seeks to soften euro clearing plan as Brexit looms
Huw Jones – Reuters
A tougher test is needed when deciding if clearing of euro denominated assets conducted outside the European Union should be relocated to the bloc, a senior EU lawmaker said on Friday.
Gelber Group Signs with Trillium Surveyor for Trade Surveillance
Trillium announced today that Chicago-based proprietary trading firm Gelber Group will now use Trillium’s Surveyor platform for trade surveillance.
BGC Brokers’ Capitalab Launches Combined Options and LCH Cleared Swaps Compression
Capitalab, a division of BGC Brokers L.P. (“BGC Brokers”), an entity within BGC Partners, Inc. group of companies (NASDAQ: BGCP) today announced that its Swaptioniser portfolio compression service has successfully executed the first combined compression cycle in Swaptions, Caps, Floors and LCH cleared interest rate Swaps and Forward Rate Agreements (FRAs).
Trade Management Targets
Sage Anderson – tastytrade blog
Applying a methodology to a discipline can often represent the difference between sustained success and intermittent success.
Here at tastytrade, we’ve identified a range of trade management approaches that have shown historical success in optimizing performance – combining the maximum potential reward with the minimum possible risk.
Buy Protective Puts While You Can
Volatility is back for stocks and the major stock indices. But the return of volatility is not a precursor to the next bear market. However, it can be; it has been and will be again. Still, a rise in “Vol” can be ephemeral too, as it was for the two years that preceded the Crash of 1987.
Many Investors Request Steady Returns, and BXM Index Rises a Record 24 Months in a Row
Matt Moran – Cboe
Over the years I have spoken to many investors and advisors who have expressed a strong desire for consistent and steady returns in their investment portfolios.
I am pleased to highlight the fact that the Cboe S&P 500 BuyWrite Index (BXM) has risen in each of the last 24 months, the longest streak of “up” months ever for the BXM Index.
Interactive Brokers Group Reports Brokerage Metrics and Other Financial Information for January 2018, includes Reg.-NMS Execution Statistics
Interactive Brokers Group, Inc. (NASDAQ GS: IBKR) an automated global electronic broker, today reported its Electronic Brokerage monthly performance metrics for January.
****SD: Average options order size around 9 contracts with commissions averaging $6.03 per order.
Dow drops below 26,000 as bond market turmoil deepens
Chris Isidore and Matt Egan – CNN
The Dow dropped about 300 points on Friday morning. Investors weren’t put in a better mood by strong wage growth revealed in the latest jobs report. It only reinforced concern about inflation and the bond market.
The dip put the Dow back below 26,000. Both the Dow and S&P 500 are on track for their worst week in two years — down more than 2% each.
****SD: Sure, down more than two percent each. But down 2 percent from record highs.