Breaking News

OCC Clears the Path to Greater Capital Efficiencies for Clearing Firms in U. S. Exchange-Listed Options Markets

Observations & Insight

Trump’s trade ‘extortion’ won’t work, China state media says
Andrew Galbraith, Michael Martina – Reuters
Chinese state media on Monday lambasted U.S. President Donald Trump’s trade policies in an unusually personal attack, and sought to reassure investors anxious about China’s economy as growth concerns battered its financial markets.

****SD: Also see CNBC’s Beijing is more worried about domestic issues than its trade war with Washington, research firm says and Bloomberg’s chart recap Here Are the Shots Fired So Far in U.S.-China Trade War

Lead Stories

OCC Clears the Path to Greater Capital Efficiencies for Clearing Firms in U. S. Exchange-Listed Options Markets
Craig Donohue – OCC
At OCC, we constantly are searching for ways to promote stability and market integrity through effective and efficient clearance, settlement and risk management services while providing thought leadership and education to market participants and the public about the prudent use of the products we clear.

The Warren Buffett Put Trade Begins to Expire
Russell Rhoads – TABB Forum
Warren Buffett may have called derivatives ‘weapons of mass destruction,’ but Berkshire Hathaway uses these weapons of mass destruction as trading tools. TABB Group’s Russell Rhoads examines one of Berkshire’s more high-profile option trades.

****SD: This is Rhoads’ first piece with Tabb. He has covered the Buffett puts before, but it seems that post no longer exists on the Cboe blog.

The Great American Covered-Call Scam
Logan Kane – Seeking Alpha
Covered call strategies are heavily marketed by financial advisors but fail to improve returns.
Using buy-write/covered call strategies limits your upside and does a poor job of protecting against market crashes compared to bonds.
Covered call strategies are disastrous from a tax standpoint.

Meanderful: The secrets to OSE option trading and the Canadian interlisted arb
Matt Hurd – Meanderful
The Korean trading will get some more meat on the bone beyond the original piece. We’ll have a new meander around how successful trading can work for futures and options at the OSE for the Nikkei-225. This was a feat my old firm failed at after I left. Silly people. It wasn’t that hard. We’ll talk about the main elements of success for OSE. As a tease, hardware was no help. Tricks were more important than low latency hardware. You’ll find out why.

****SD: Given the time frame he laid out, I’d wager Hurd’s book will be ready at the beginning of 2019 (or maybe he wants it ready for the holiday season?).

China Reminds Hedge Funds That the Yuan Is a Dangerous Short
Tian Chen, Emma Dai, Saijel Kishan and Klaus Wille – Bloomberg
It’s exactly the kind of shock that many hedge fund managers feared as they mulled whether to bet big against China’s currency.

****SD: For related news see China reimposes reserve requirements for some FX options

Exchanges and Clearing

HKEX Report: Monthly Market Highlights
…The average daily turnover of futures and options for the first seven months of 2018 was 1,207,294 contracts, an increase of 51 per cent when compared with the 799,786 contracts for the same period last year.

NZX trading activity increases in July, touts improving on-market transactions
Paul McBeth – Newsroom Pro
NZX trading activity was busier in July from a year earlier, although with smaller values changing hands, and the stock market operator touts more than half its transactions took place on-market.

July 2018: month of the Mini-DAX
Eurex Exchange
In July, our Mini-DAX Futures performed impressively: with 676,223 cleared contracts, the number was up 56 percent from 432,370 in July 2017.
A total of 5,457,758 Mini-DAX Futures contracts have already been traded this year. This corresponds to a daily average of over 36,000 contracts. Thanks to high liquidity, we have bid-ask spreads of only one tick in the main trading phase.


QuantHouse On-Boards Actant’s Automated Trading Solutions
QuantHouse, the leading independent global provider of end-to-end systematic trading solutions including innovative market data services, algo trading platform and infrastructure solutions, today announced that Actant’s derivative trading solutions have now been added to the ever-growing QuantHouse API Ecosystem.


Goldman Sachs names Jim Esposito co-head of trading division
Goldman Sachs (GS.N) on Monday named Jim Esposito global co-head of the Wall Street bank’s trading division, according to an internal memo seen by Reuters.

Citi equities trader Armando Diaz fired after disagreement over central risk book
Dakin Campbell and Alex Morrell – Business Insider Prime (SUBSCRIPTION)
…To understand one of Wall Street’s latest fads, it’s important to understand its origins.
Central risk books sprouted out of the rubble of the financial crisis, after firms like Goldman Sachs moved more quickly and effectively to respond to market developments. The bank possessed an unrivaled view of risk that uncovered early signs of trouble and helped managers see positions across the bank, according to an August 2017 report from consultant TABB Group. Rivals took note.

Regulation & Enforcement

FIA Publishes FIA Terms Of Business 2018
Press Release
FIA today announced the publishing of a fully updated and comprehensive set of industry standard contractual terms for derivatives clearing – the FIA Terms of Business 2018.

Firms should assess trading charges after BoE decision – NEX triCalculate
Louisa Chender – Global Investor Group (SUBSCRIPTION)
The cost of derivatives trading is expected to go up for corporates as banks increase CVA charges, an expert says


Warren Buffett’s favorite metric suggests some serious pain awaits investors
Shawn Langlois – MarketWatch
The eight best stock-market indicators are all flashing warning lights — some yellow, others a shade or two closer to red — and the takeaway is that returns are looking pretty grim over the next decade, according to Mark Hulbert, a longtime MarketWatcher and founder of the Hulbert Financial Digest.
“Of course, it is impossible to say that there aren’t other indicators with even better long-term records than these eight,” Hulbert wrote in a piece for the Wall Street Journal. “But I’m not aware of any.”

Jamie Dimon warns of 5% Treasury yields but sees stock run lasting a few more years
Rachel Koning Beals – MarketWatch
Never mind bracing for 4% Treasury yields, Jamie Dimon now says. Square up for 5%.
The JPMorgan Chase & Co. CEO said Saturday that economic and market conditions already support a benchmark 10-year-note yield at 4%, regardless of what the bond market is saying.


Elon Musk: ‘Dang, turns out even Hitler was shorting Tesla stock’
Shawn Langlois – MarketWatch
Elon Musk clearly relishes poking the bears, especially when his Tesla Inc. stock is in rally mode, like it was after last week’s earnings report. He wasn’t about to let that opportunity pass.
Early Sunday, Musk tweeted a doctored scene from “Downfall,” a 2004 film about Adolf Hitler’s final days. In the actual clip, which has been parodied many times since its release, Hitler is yelling at his generals as Allied forces close in.

****JB: Another “Downfall” meme Tesla bit.

No slowdown for FX markets in July
Currency trading on Thomson Reuters platforms rose in July compared to last year as increased volatility across financial markets led to greater trading.

U.S. bond market takes looming Treasuries deluge in stride
Richard Leong – Reuters
U.S. government debt supply will likely continue to boom, but bond market investors seem to be taking it in stride.

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About Author

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