Breaking News

Cboe turns to machines to police VIX; OCC’s capital plan; Chinese copper options

Observations & Insight

T.G.I. (Almost) F. or: How I Learned to Stop Worrying and Love Pot Stock Volatility
Spencer Doar – JLN

Weed stocks are way more volatile than the connoisseurs of the industry’s products it seems, man.

Reuters had this story yesterday – Tilray options on fire as pot-stock frenzy grips market. The craziest stat from that article was “For the week so far, the combined trading volume for Tilray and Cronos Group options was roughly 680,000 contracts, or about 2.7 percent of overall U.S. single stock options activity, Trade Alert data showed.”

That stat is followed by a great quote from Trade Alert President Henry Schwartz – “This is nearly the most insane thing I have ever seen in my entire life.” (I’ll have to make a note to ask what takes the cake as THE most insane thing he’s ever seen…)

One thing to keep in mind about Tilray in particular is that its float is only 17.8 million shares and there are a lot of shorts. Yesterday’s volume exceeded its float by nearly 14 million shares.

In the wake of Tilray’s crazy action, Nasdaq changed Tilray’s minimum quote size from 10-up to 1-up. Symbols with a 1-up requirement generally run more than $150. I’m sure this was a relief to some market makers. (At Cboe, Citadel is Tilray’s DPM.)

Also, see the following from Business Insider – Weed stocks have become so popular that Robinhood is having trouble executing trades for one of the most-popular names.


See you in a month (or 2592000000000 microseconds)
Sniper In Mahwah
It is a paradox: when I work on high-frequency trading I’m always late (as a trader I would never be at the top of the queue for sure). Human beings don’t live in a world where micro, nano and picoseconds matter, and I’m not a white rabbit. I have planned to write here the last episode of Bob Van Valzah’s series Shortwave Trading (about the sites in Europe), and other posts about HFT but I’m currently trying to write this 96-page book – the (quite crazy) history of the microwave networks (both in the US and in Europe – my backyard). Since I’m so late, I decided to disappear for a month (more or less 2592000000000 microseconds) to finish the book.

****SD: Also, I believe Matt Hurd of Meanderful is busy writing his “accidental HFT firm” memoir now. So we can look forward to two high level books pertinent to the options industry coming down the pipe in time for the holiday season.

Lead Stories

OCC’s Capital Plan: The Value of a Bird in the Hand
Russell Rhoads – TABB Forum
There is a unique and precedent-setting decision before the U.S. Securities and Exchange Commission (SEC) that will have significant implications for the exchange-listed options industry. An already-approved and implemented Capital Plan for ensuring that the Options Clearing Corporation (OCC) complies with rigorous post-crisis capital requirements was remanded to the SEC by the U.S. Court of Appeals for the D.C. Circuit. The SEC may reapprove the Capital Plan for the fourth time (yes, for the fourth time), or it may disapprove the plan.

****SD: More quality work from Rhoads.

Cboe exchange turns to machines to police its ‘fear gauge’
Saqib Iqbal Ahmed and John McCrank – Reuters
Hard pressed to quash allegations that its popular “fear gauge” is being manipulated, Cboe Global Markets (CBOE.Z) is turning to artificial intelligence to help put those concerns to rest.
The exchange, which owns the lucrative volatility index the VIX, has taken several steps to confront manipulation claims that have helped drive the Cboe’s stock down about 15 percent this year, putting it on pace for its worst year ever.

****SD: Robocop? Is that you?

With copper options, China steps up challenge to London, New York rivals
Tom Daly – Reuters
The Shanghai Futures Exchange (ShFE) will launch copper options trading on Friday, aiming to take a slice of a $270 billion global market in one of its biggest challenges yet to London and New York rivals.

Friday Is Going to Be a Huge Day for Stock Traders
Lu Wang – BloombergQuint
Buckle up, traders. Two major market events that have the potential to send U.S. equity volumes sky-high will collide Friday.
The first is the quarterly event known as “quadruple witching” — when futures and options on indexes and individual stocks expire.

****SD: Also, get ready for index options liquidity to dry up a bit for the remainder of the month…

What sector overhaul means for tech stocks, Wall Street
Alden Bentley – Reuters
The most significant changes to Wall Street’s broad industry sectors since 1999 will take effect Monday, reclassifying many of the hot growth companies that have been nearly synonymous with the “tech” rally that has fueled the stock bull market.

****SD: For more depth/technical stuff, see these two blogs from S&P – Before & After The Sector Shakeup In The S&P 500 – Part 1 and Part 2

Wall Street ‘fear gauge’ – manipulated or maligned?
Saqib Iqbal Ahmed and John McCrank – Reuters
Cboe Global Markets is taking several steps, including recruiting artificial intelligence, to put to rest concerns that its VIX volatility index was prone to manipulation and that contributed to a blow-up of some complex volatility products in February.

Exchanges and Clearing

BME: The Strategy And Volatility Index Series With IBEX 35 Options To Be Disseminated As Of Tomorrow
As of tomorrow BME will start disseminating – through the major stock market data vendors – the family of strategy and volatility indices based on IBEX 35 options that it created in October last year. These indicators, which will be published at the end of each trading session, measure the market’s implied volatility and show the performance of certain investment strategies based on derivative products traded on MEFF, BME’s derivatives market.

****SD: I like the name VIBEX.

SGX welcomes Lion Futures as Derivatives Trading Member
Singapore Exchange (SGX) today welcomed Lion Futures Limited as a Trading Member of its derivatives market.



Regulation & Enforcement

Korean brokerages permitted to sell options to U.S. investors
South Korean securities firms have been allowed to sell options to the U.S. institutional investors as the nation’s sole stock exchange operator Korea Exchange (KRX) obtained class no-action relief (Class Relief) from the U.S. Securities and Exchange Commission (SEC), KRX announced Wednesday.

Trade-data analytics help firms detect insider trading and policy violations
Jason Wallace – Reuters
Testing is a key attribute of an advisory compliance program, and examination of trading data is one element of testing that can protect a firm from unnecessary risk.

Time to revisit stock exchanges, SEC Commissioner Jackson says
Hazel Bradford – Pensions and Investments
The Securities and Exchange Commission should rein in the lopsided power of for-profit stock exchanges, SEC Commissioner Robert Jackson Jr. said Wednesday.
“The SEC has stood on the sidelines while enormous market power has become concentrated in just a few players. That’s a key reason why among our 13 public stock exchanges, 12 are owned by just three corporations. And that’s how the stock exchanges that are a symbol of American capitalism have developed puzzling practices that look nothing like the competitive marketplaces investors deserve,” Mr. Jackson said at a conference sponsored by the Healthy Markets Association and George Mason University in Arlington, Va.

OSE, TSE take disciplinary action against Mitsubishi UFJ Morgan Stanley Securities over spoofing
Maria Nikolova – FinanceFeeds
Osaka Exchange, Inc. (OSE) and Tokyo Stock Exchange, Inc. (TSE) today announce they have taken disciplinary action against Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.. over a practice known as spoofing.


QuantHouse and Enyx introduce FPGA-accelerated market data as a service
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 welcomed Enyx to the qh API ecosystem. The addition of Enyx, the premier provider of low-latency, FPGA-based market data and order execution systems, provides trading firms with immediate access to a high performance, FPGA accelerated end-to-end market data service.

David Kent – Optiver Tech Blog
This series of posts has thus far examined technical principles and context. After diving into the CME’s iLink architectural change, we examined our overall approach to engineering. In our previous post we went deeper and discussed principles for pursuing simple designs. The final post in our series takes a very different tack. Today we examine a mindset driven by an aspect of humanity rarely examined in engineering circles: the emotion of fear.

Interactive Brokers introduces further search enhancements to TWS platform
Maria Nikolova – FinanceFeeds
Electronic trading major Interactive Brokers Group, Inc. (NASDAQ:IBKR) has made further improvements to the search process in the latest version of its TWS platform.


Theta: Different Levels of Reliability
Sage Anderson – tastytrade blog
One of the most successful traders I’ve come across in my career was one that completely embraced the “positive theta” (i.e. collecting theta) philosophy. You might even say he was obsessed with it.
In options trading, if the overall portfolio level theta is positive, it is often described as “collecting.” This means the overall contribution of short premium positions offering positive theta outpaces those that might be “paying theta.”

Dollar Traders See the Fed’s Next Rate Hike as a Big Sell Signal
Lananh Nguyen – Bloomberg
Could plunge 10% in 6-9 months – BNP Paribas Asset Management; FX markets may be caught off guard if Fed flags tariff risks
When a nation’s central bank raises interest rates, it’s often a bullish sign for the currency. Not so in the U.S., where expectations for a Federal Reserve rate hike next week are flashing sell signals for the dollar.


How to use JPMorgan’s free stock-trading platform, You Invest
Graham Rapier – Business Insider
JPMorgan’s new You Invest product has a major competitor in its sights: Robinhood.
The zero-fee trading app has caused headaches among traditional brokerages ranging from Wall Street banks to online trading sites like TDAmeritrade or Fidelity, all of which have been forced to lower their commissions in response to the pricing war among platforms.

Goldman Regains Commodities Top Spot in Tie With Banking Rivals
Jack Farchy – BloombergQuint
Goldman Sachs Group Inc. regained its top spot in commodities in the first half of 2018, but had to share that position with rivals Morgan Stanley and JPMorgan Chase & Co., according to research group Coalition Development Ltd.

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Graduate of University of Minnesota School of Journalism and Mass Communication