Observations & Insight
The Options Industry Leader Series 2018 – Nasdaq’s Kevin Kennedy
Brought to you by the OCC
In this video from the 36th annual Options Industry Conference in Amelia Island, Fla., Kevin Kennedy, Nasdaq senior vice president and head of U.S. options, talks about how the industry weathered low volatility, Nasdaq’s proprietary product suite and capital requirement issues.
Ibbo’s Kilt Challenge
By Mark Ibbotson
I am wearing a kilt to the IDX 2018 Gala for Futures for Kids because I believe in this charity’s mission!
Each year, FIA hosts the IDX Gala in aid of Futures for Kids, an organization that raises funds on behalf of the futures and options industry for charities that strive to provide better lives and futures for children internationally. Over the last nine years, the IDX Gala has raised more than GBP1.4 million for Futures for Kids, including through the Kilt Challenge.
To donate, click HERE
The Spread – Week of 5/7 to 5/11
This week’s episode of The Spread touches on all the important things in options news last week… like pets dressed in varying historical garments. (But it all makes sense because it has to do with the Consolidated Audit Trail, otherwise known as the CAT.)
Mexico Takes First Steps in Annual Oil Hedging Program
Javier Blas and Catherine Ngai – Bloomberg
Annual sovereign hedge is Wall Street’s largest oil deal; Mexico seeking quotes from counterparties to lock-in income
Mexico has taken the first steps in the world’s largest annual oil deal, asking Wall Street banks and other traders for quotes to lock-in its income from production through next year, according to people familiar with the matter. The country has been asking counterparties this week for quotes to hedge output, the people said, asking not to be identified because the information is confidential. One of the people said the ministry has begun executing trades. Mexico’s Finance Ministry declined to comment on the hedging program, which usually begins each year in May or June.
****SD: And so this year’s “Hacienda hedge” begins.
US Options Volumes Slip in April But Remain on Record Pace
Tabb Forum Options Liquidity Matrix
US options volumes slipped in April 2018 compared to the feverish pace set in Q1 2018, but they still remain on pace to hit record levels for the year. Even with the pullback, April 2018 volumes fell just short of the 400 million contracts that would have resulted in a record month pre-2018. April 2018 volumes represented a 28.7% increase compared to April 2017.
Stock Market Returns to Calm After Epic Jump
Gunjan Banerji and Peter Santilli – WSJ
Wall Street’s fear gauge has been getting less scary by the week.
The Cboe Volatility Index, or VIX, closed below its 200-day moving average last Wednesday for the first time since January and has remained there since.
The VVIX, a measure of how volatile the VIX itself is, dipped under its average weeks ago. The VVIX, also known as “the VIX of the VIX,” is based on options prices on the volatility index.
Exchanges and Clearing
CME Group in deal to offer ether reference rate
CME Group Inc said on Monday it had launched the CME CF ether-dollar reference rate along with crypto-trading platform Crypto Facilities Ltd to provide real-time ether price in dollars.
****Press release here.
SGX’s profit jumps to decade high, focus on new India products
Anshuman Daga – Reuters
Singapore Exchange Ltd (SGX) (SGXL.SI) reported its highest profit in a decade on Friday as a strong performance in derivatives and securities powered a 21 percent rise in net profit for the quarter to March 31.
Derivatives Trading Hours: Extended trading hours for derivatives is bad news for retail investors
Dhirendra Kumar – Economic Times of India
The news a few days ago was that Sebi would allow stock exchanges to extend derivative trading hours to 11.55 pm.
At present, derivatives are traded along with stocks till 3.30 pm. But from October 2018 onwards, the stock exchanges can extend the trading hours for these instruments to almost midnight.
Obviously, this is good news for the stock exchanges. Longer trading hours will mean more trading. Given that well above 90% of the trading volume on the exchanges is algorithmic trading of derivatives, it’s possible that the volume of trading will rise almost in proportion to the increase of hours. That would be a windfall for the stock exchanges.
A senior equity derivatives trader left Deutsche Bank
Deutsche Bank is supposed to be in the process of scrutinizing its equities business, and has yet to make a firm decision about its future. Even so, some senior people are being ejected already. One of them is Martin Evans, a London-based managing director at Deutsche who formerly headed Deutsche’s linear corporate and special situations trading group within the bank’s equity derivatives business in London. Evans left Deutsche Bank last month after 16 years according to his LinkedIn profile.
Regulation & Enforcement
SEC’s Hester Peirce blasts agency for pursuing small infractions
Commissioner says agency’s past ‘broken windows’ philosophy put undue pressure to keep pushing up the number of enforcement actions
Crypto derivs first real-world test for CCPs, banks – Fitch
Jack Ball – Global Investor Group
Banks have avoided direct exposure, but their role as clearing members may create a secondary channel for crypto risk
Goldman Sachs: Key market indicator is broken, trade to take advantage
Joe Ciolli – Business Insider
Something is not right with the VIX.
So says Goldman Sachs, which thinks the gauge — officially known as the Cboe Volatility Index and viewed as a proxy for market fear — is too low.
At the core of the firm’s stance is the disparity between how much the benchmark S&P 500 has moved in past weeks, relative to the comparatively small move in the VIX.
Beware of the Technical Death Cross Factor in the Euro
Bob Iaccino – Nadex
Andrew Smith is credited with saying “People fear what they don’t understand.” People also fear things with scary names and a technical analysis event that is known as the “death cross” fits both of these. If you don’t know what a death cross is, it occurs when a security’s or commodity’s long-term moving average breaks above its short-term moving average and it is seen as being very bearish. The death cross is most commonly associated with the 200-day moving average breaking above the 50-day moving average. This cross has appeared this past week on both the cash and the futures euro fx charts.
Cut Down Option Risk With Covered Calls
Cory Mitchell – Investopedia
The covered call is a strategy employed by both new and experienced traders. Because it is a limited risk strategy, it is often used in lieu of writing calls “naked” and, therefore, brokerage firms do not place as many restrictions on the use of this strategy. You will need to be approved for options by your broker prior to using this strategy, and it is likely that you will need to be specifically approved for covered calls. Read on as we cover this option strategy and show you how you can use it to your advantage.
Computers drive trading in coffee and cocoa markets
Emiko Terazono – Financial Times
Are computers driving the cost of your chocolate bar or cappuccino? Specialised markets such as cocoa and coffee are becoming the next frontier for the waves of buying and selling generated by algorithmic trading, which has long since carved out a presence in currencies, equities and interest rates.