Observations & Insight
Spencer Doar – JLN
Yes, the VIX has been on the rise, but VIX activity pales in comparison to that of Cboe’s Brazilian volatility gauge (VXEWZ), which is the VIX methodology applied to the iShares MSCI Brazil Index Fund (EWZ) instead of the S&P 500. It averages much higher readings than the VIX, spending most of 2017 between the high 20s and mid 30s.
In light of the results of Brazil’s general election – in which Jair Bolsonaro dominated 12 opponents (46 percent of the vote compared to the 29 percent of his closest opponent) and appears likely to win the subsequent runoff against Fernando Haddad – VXEWZ has been all over the board. Last week it traded from 48 to 58 before falling off a cliff on Monday’s open to the 44 handle. (The link is to Cboe’s VXEWZ page where you can play with a chart of the historical performance going back to 2011, when Cboe started publishing the figure along with volatility indicators of five other big ETFs.)
As for U.S. volatility, as of this writing, the front month VIX futures contract is (still) trading higher than the November contract.
ALTSO’s Rocktoberfest in Chicago is this Thursday evening. For those of you who aren’t familiar, ALTSO (A Leg To Stand On), raises money to provide prosthetic limbs for people in developing nations. If you can’t make it, donations can be made here. As we say, “mobility is more than movement.” If you’re not in Chicago, the New York edition of Rocktoberfest is October 25 at the Hard Rock Cafe in Times Square. John Lothian News is a proud media partner of ALTSO.
IEX might be at war with the other exchange franchises, but at least everybody can come together for another good cause – Wall Street Rides FAR charity bike ride – which raises money for autism research. It will be held this Saturday in White Plains, NY.
U.N. Ambassador Nikki Haley resigned.
The Montreal Exchange is now live with extended trading hours. Learn more here.
Unrelated to options: Yesterday I found myself saying, “Wasn’t Google+ already dead?”
Women In Listed Derivatives Tackle Sexual Harassment at Work
Sarah Rudolph – John Lothian News
Women In Listed Derivatives, aka WILD, held a workshop on “Sexual Harassment at Work in the #MeToo Era” on Thursday at Chicago’s Union League Club. The good news is that it was well attended and very participatory; the audience listened avidly to Jennifer Gilbert, an attorney with the employment discrimination firm Stowell & Friedman, and asked a great many questions and follow up questions.
The bad news is that even though the raucous, anything goes atmosphere of the old trading floors is all but gone, sexual harassment is not. The types of sexual harassment Gilbert outlined were familiar to the women in the audience in one way or another from both long past and recent events, including the Brett Kavanaugh hearing that was then taking place (the WILD event was scheduled well before the hearing).
Blockchain tokenization: a simplified explanation
Matt Raebel – John Lothian News
436 & 442 East 13th Street, Manhattan, New York: that’s the address of Manhattan’s first tokenized real estate asset, a 12-unit luxury condo building valued at $30 million. Forbes posted a story last week about the building, which turned its shares into tokenized securities in order to “remove the unruly pressure of traditional bank financing.”\
The blockchain space is full of both technical jargon and empty, flashy buzzwords. It is sometimes hard to tell which is which – this can make trying to learn anything about the space a vexing task.
****SD: Not options, but great work from JLN’s newest addition. Matt has immersed himself in all things crypto and the results are showing. (Unlike myself, he knows the difference between all the companies with “bit” in their name.)
The OCC Capital Plan – The Other Side of the Coin
Russell Rhoads’ – Tabb Forum (Free w/ Registration)
While the Options Clearing Corporation’s capital plan has been approved by the SEC three times, it is once again under review, as it is unpopular with many segments of the industry. The main thrust of the argument is that the plan overly enriches the OCC and its shareholder exchanges and penalizes the rest of the industry. TABB’s Russell Rhoads examines the arguments against the current plan.
LME’s Copper Dominance Tested as Rivals’ Options Trading Jumps
Mark Burton and Jack Farchy – Bloomberg (SUBSCRIPTION)
Options trading volumes are surging in New York and Shanghai; LME to invest more to develop options business next year: CEO
Metals bourses trying to muscle into a copper market dominated by the LME are getting a helping hand from options.
Fear Gauge’s 58% Surge Leaves Stock Strategists Asking What Next
Joanna Ossinger – BloombergQuint
The VIX is stirring.
After spending most of the summer below 15, the Cboe Volatility Index climbed as high as 18.38 on Monday, a level not reached since June 28. The so-called fear gauge climbed as much as 58 percent in the past three days, and its futures curve has inverted in each of the past two sessions, which suggests traders anticipate more near-term turbulence in stocks. That has strategists talking about what comes next.
In Search of Contagion: Spotting Italian Stress as Markets Boil
Samuel Potter, Siddharth Verma and Todd White – BloombergQuint
A global bond rout has made the task of keeping up with Rome’s political drama even thornier — investors are having to sift through a broad surge in borrowing costs to try to isolate the Italian impact.
Pressing the PaaS button
Gerry Turner – Vela
Investment banks have generated impressive revenues this year, thanks in part to strong cash equities trading. But long-term trends in the derivatives markets tell a different story. Figures from the Bank for International Settlements show the market value for rate, currency and equity-linked contracts almost halving to around $11 trillion from more than $21 trillion during the latest two-year period for which data are available.
Hedge Funds Retreat as Markets Advance
Rachael Levy – WSJ (SUBSCRIPTION)
Three hedge funds have closed in less than a week as investors question a once-highflying industry plagued by weak returns.
Tourbillon Capital Partners LP on Monday told clients it would return money and close its main fund. Last week, Highfields Capital Management and Criterion Capital Management announced they would return billions of dollars to clients.
The closures are the latest in a multiyear re-evaluation of such investment vehicles by managers and investors
Hanweck Enhances Borrow Intensity Indicators; Extended Data History Supports Development of Alpha Generation Strategies
Hanweck, a leading provider of real-time risk analytics on global derivatives markets, has enhanced its Borrow Intensity Indicators with the addition of five years of historical data and new real-time liquidity metrics. Launched earlier this year, the Borrow Intensity Indicators apply machine learning to mine data from the equity options market to generate stock borrow rates and term curves in real time. Indicator data is available for all securities that have listed options.
Cloud Goes Higher and Higher
Neena Dholani – Traders News
“The year 2016 is to the cloud as 1996 was to the internet,” according to a speaker at the New York regional event of the FIX Trading Community, held at Thomson Reuters headquarters in Times Square on October 3. The comment underlines the strongly held opinion, expressed by all key speakers at the meeting, that cloud usage for data storage in financial services is at take-off point.
The Big Problem With Machine Learning Algorithms
Jon Asmundsson – Bloomberg (SUBSCRIPTION)
Machine learning is enabling investors to tap huge data sets such as social media postings in ways that no mere human could. Yet, despite the enormous potential, its record remains mixed. The Eurekahedge AI Hedge Fund Index, which tracks the returns of 13 hedge funds that use machine learning, has gained only 7 percent a year for the past five years, while the S&P 500 returned 13 percent annually. This year the Eurekahedge benchmark dropped 5 percent through September.
Interactive Brokers Providing Powerful Free Tool to Help Investors Consolidate, Track and Analyze Performance Across All their Financial Accounts
Interactive Brokers Group, Inc. (IEX:IBKR) an automated global electronic broker, is now offering its PortfolioAnalyst tool to the general public for free. This powerful online application provides consolidation, tracking, and analysis across financial accounts.
Itiviti Introduces Packaged FX Trading Solution
Itiviti, the leading global provider of multi-asset trading technology and financial infrastructure, today introduced Itiviti FX, a comprehensive foreign exchange trading solution built for today’s dynamic FX market landscape and designed for compliance with the latest regulatory requirements including MiFID II.
R.J. O’Brien Completes Its Middle-Office Migration To Lisa Clearing Engine From ATEO Finance
ATEO Finance, a leading provider of Post-Trade solutions for the Listed Derivatives space, is pleased to announce that R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, and its UK affiliate R.J. O’Brien Limited (RJO Limited), have completed their migration from a legacy middle-office solution to ATEO’s LISA Clearing Engine platform.
Sterling Trading Releases Expanded RaaS Analytics for Risk Engine
John D’Antona – Traders News
Sterling Trading Tech (STT) unveiled its first major expansion of sophisticated analytics for its RaaS (Risk as a Service) solution, The Sterling Risk Engine. The cloud-based, high performance solution calculates intraday, real-time risk-based haircuts and portfolio margin using the OCC’s TIMS methodology, in addition to simulating portfolio risk under user-defined market shocks and volatility shifts.
****SD: In case you missed this news from Sterling.
Exchanges and Clearing
OCC adds to stock loan data set
Andrew Neil – Global Investor Group (SUBSCRIPTION)
Chicago-based clearing house OCC has added to its stock loan data offering.
The firm, which operates two stock loan programs for clearing members, now publishes loan volumes and stock loan balances by securities online on a daily basis.
Haitong International (USA) Becomes the First Chinese Market Maker on NASDAQ
Haitong International Securities (USA) Inc. (“Haitong International (USA)”), a subsidiary of Haitong International Securities Group Limited (“Haitong International”; 665.HK) in Hong Kong, today launched its market-making business in the United States, becoming the first Chinese market maker on NASDAQ. This move is not only another milestone in the company’s global business, but it also serves as a major breakthrough in filling the gap of the absence of a Chinese market maker on NASDAQ.
Tokyo Stock Exchange system failure hits brokerages
Nikkei Asian Review
…[Japan Exchange Group chief information officer Ryusuke Yokoyama] also said the company established that the system failure was due to “overwhelming amounts of data sent from a certain brokerage.” Nikkei learned from sources Tuesday that the transmission came from Merrill Lynch Japan Securities.
****SD: Whooo – I smell a big fine coming. How much do you want to bet a new strategy was tested involving heavy gaming of messaging protocols?
Nasdaq Reports Mixed Volumes & Revenues Per Contract in Q3
Nasdaq, Inc . NDAQ recently reported mixed volumes for third-quarter 2018. While U.S. equity options volume increased 11.8% year over year to 407 million contracts, European options and futures volumes registered 18.1 million contracts, down 5.7% year over year.
Equity Index Highlights – October 2018 edition
Regulation & Enforcement
Exploring the business side of Systematic Internalisation
Jonas Lindqvist – Itiviti
Nine months into the MiFID II era, it’s time to look beyond the compliance issues and start considering the business opportunities presented to firms operating under the Systematic Internaliser regime. With the support from a value-adding regulatory solution, SI status can be used for competitive advantage, suggests Jonas Lindqvist, Principal, Trading and Trade Execution, Itiviti.
BoE warns EU that GBP41tn of derivatives at risk after Brexit; UK central bank predicts Europe will bear cost of disruption to clearing if no action taken
Caroline Binham – Financial Times (SUBSCRIPTION)
The Bank of England has issued its starkest warning to date that as much as GBP41tn of derivatives contracts maturing after Brexit are at risk unless European officials address regulatory uncertainty.
****SD: See the story Jim wrote last week when he was at the WFE conference in Athens -> Brexit Has Industry Participants Prepping For “Worst Case Scenario”. The FT also had European banks worry about clearing in no-deal Brexit
Occamizer: The Power of Cash-Secured Puts
Steve Sears – OCCAM
The U.S. stock market is at historic highs. Many investors are worried about buying stocks at a time when everything is priced as if nothing could go wrong. And yet, the Federal Reserve is raising rates, which may pressure stocks, and the yield curve remains flat, which some interpret as a harbinger of an economic recession. A lot of investors would gladly buy stocks at lower prices, but that opportunity has remained elusive to those who do not understand how to a simply strategy can help them shape events to their liking.
This Technical Measure Shows VIX Surge May Not Be Over: Chart
Brandon Kochkodin – BloombergQuint
The Cboe Volatility Index closed at the highest level in three months on Monday. And that might be just the beginning. The GTI VERA Convergence Divergence Indicator, which detects trend peaks and reversals, shows the VIX is entering a new positive phase. The so-called fear gauge climbed as much as 58 percent in the past three days, and its futures curve has inverted during each of the past two sessions, which suggests traders anticipate more near-term turbulence for stocks.
Modifying Trade Duration Based on Environment
Sage Anderson – tastytrade blog
A tasty tidbit was recently unveiled on a new episode of Market Measures and we think this data simply can’t be ignored.
During a recent Geeks on Parade event, a discussion was held on whether it might be productive to increase the duration of short premium trades in low volatility environments, and whether shortening duration might also be appropriate in high volatility environments.
Maybe You’re Not As Bullish As You Claim To Be
Heisenberg via – Seeking Alpha
One of the most striking things I’ve observed during the two (+) years I’ve been contributing posts to this platform, is that retail investors have a remarkable tendency to profess a bullish outlook on U.S. equities (SPY) irrespective of what’s happening in markets on any given day, or during any given week.
I’m obviously generalizing there, but time and again, I’ve noticed that retail investors are either bullish because stocks are rising or bullish because if stocks are falling, there’s a dip to buy.
Short sellers make $645m from Elon Musk tweets attacking short sellers
Olivia Rudgard – The Telegraph
Elon Musk’s attack on Tesla short sellers made them a profit of more than half a billion dollars in one day, analysis suggests.
The electric car maker’s chief executive embarked on an overnight Twitter rant about short sellers and the US Securities and Exchange Commission (SEC) last Friday, after the regulator sued him following a tweet in which he suggested he would take his company private.
Crypto Derivatives Exchange Awaits Regulatory License
Quedex Limited, a cryptocurrency derivatives exchange, is expected to shortly receive regulatory approval in Gibraltar which should encourage trading from institutional investors.