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Upstart Exchange Looks to Profit From Wall Street Fear

Lead Stories

Upstart Exchange Looks to Profit From Wall Street Fear
Gunjan Banerji – WSJ (SUBSCRIPTION)
Just after the stormiest week for U.S. markets in months, investors may get a new way to bet on Wall Street fear.
Miami International Holdings Inc., a small but rapidly growing exchange operator, won regulatory approval on Friday for options on an index that tracks expectations for U.S. stock volatility. The measure, called SPIKES, competes head-to-head with the already established Cboe Volatility Index, known as the VIX.
/on.wsj.com/2CKKtQC

****SD: Recall that Bats (pre-CBOE acquisition) gave SPIKES a try, but it never had a product offering with the index as the underlying. The key differences between the SPIKES Volatility Index and Cboe’s VIX is that SPIKES is based off of SPY options prices rather than SPX options prices and SPIKES uses a “price-dragging” technique which helps to “reduce erratic movements of the index that could result from illiquid out-of-the-money options.” MIAX press release here. (Also, by this point, is MIAX really an “upstart”?)

VIX Spike No Threat for S&P 500 Bulls, JPMorgan Says
Elena Popina – BloombergQuint
The Cboe Volatility Index’s spike during last week’s flash selloff in U.S. stocks pushed it to levels from which the market has typically recovered, according to JPMorgan equity strategists led by Misla Matejka.
Based on an analysis of the S&P 500’s performance after the VIX spiked 50 percent above the prior month’s moving average since 1990, which happened last week, the strategists found that equities were higher more than 90 percent of the time over the next six and 12 months, outside recessions.
/goo.gl/kyWvQM

With risky bets back in play, stock selloff revives ‘Volmageddon’ memories
Trevor Hunnicutt – Reuters
Months after he lost millions when an esoteric corner of financial markets cratered in February, former Target Corp store manager Seth Golden is betting against volatility again.
/reut.rs/2yDdA3x

****SD: Just as with every story that references Target manager turned vol trader Seth Golden, I feel obligated to remind everyone that he has never offered proof of his P/L.

Uncertain Brexit endgame keeps big sterling bets off agenda
Tom Finn, Saikat Chatterjee – Reuters
London and Brussels are nearing the Brexit endgame, but sterling may be subject to big swings regardless of whether they soon cut a deal – keeping investors looking to bet on the next big direction for the currency on their toes.
/reut.rs/2yOzFwv

Bitesize: Premium Delirium II
Nicholas Vause – Bank Underground
In a recent post, my co-author and I showed some charts suggesting that investors have been accepting less compensation for bearing credit risk. This type of risk can be very costly when it materialises, but the probability of that happening is typically very low. A similar risk is inherent in deeply out-of-the-money options. Here too, investors seem to be accepting less compensation for risk.
bit.ly/2yAoJST

Citi’s equities business slows in third quarter
Alex Morell – Business Insider
…Cash equities was fingered as the culprit, with losses overshadowing gains in the prime and derivatives businesses.
/read.bi/2yIzcvM

Exchanges and Clearing

September Options Review – CME Group

CME Group

Deutsche Boerse’s Xetra Open Delayed Due to Technical Glitch
Jan-Patrick Barnert – Bloomberg (SUBSCRIPTION)
Deutsche Boerse faced technical issues on Monday that delayed the market opening on the company’s main stock exchange Xetra by more than an hour. This is the second time the exchange provider was unable to ensure a timely opening this year.
/bloom.bg/2yDZDT1

Nasdaq, User Groups Fire Opening Salvoes in Looming Battle Over SIP Data Fees
Max Bowie – WatersTechnology (SUBSCRIPTION)
As the SEC prepares to host a two-day event to tackle market data access and fee issues, industry user groups and Nasdaq have laid out their positions on SIP reform. Max Bowie reports.
/goo.gl/mdAp2z

LME Week metals puzzle is how to trade a trade war
Andy Home – Reuters
Donald Trump didn’t make it to LME Week, the annual jamboree of the global metals trading community.
bit.ly/2yGOReP

CME Group Receives DOJ Clearance for Proposed NEX Acquisition
CME Group
CME Group (Nasdaq: CME), the world’s leading and most diverse derivatives marketplace, today announced that it has received clearance under the Hart-Scott-Rodino Act from the United States Department of Justice – Antitrust Division for its proposed acquisition of NEX Group plc (NXG.L).
bit.ly/2yDijCj

CME Group Announces E-mini Nasdaq-100 Futures All-Time Daily Trading Volume Record
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced E-mini Nasdaq-100 futures reached an all-time daily volume record of 1,150,475 contracts traded on Thursday, Oct. 11, 2018. This surpasses the previous single-day volume record of 1,149,387 contracts reached on Sept. 18, 2008.
bit.ly/2CO0zZu

Technology

TD launches Oculus Go experience
Finextra
TD Ameritrade is dabbling in virtual reality, teaming up with Facebook’s Oculus Go on an “immersive learning experience” for investors.
bit.ly/2yF4qUq

****SD: I’m not sure if this has much to do with options, but it sounds cool (which I’m sure is partly what TD is going for.)

Strategy

Unleashing the Power of Options on Futures
Russell Rhoads – Tabb Forum
The options-on-futures market offers a toolset that gives speculators and risk managers the ability to adjust exposure to a wide variety of risks. And a growing awareness of options on futures has led to a significant increase in activity, creating a virtuous cycle in which rising volume and liquidity create better pricing – and better pricing leads to even greater opportunities. TABB Group’s Russell Rhoads takes a deep dive into the options-on-futures markets to explore the benefits and uses of these risk management tools.
/goo.gl/7rJKr7

Get Out of Equities Before It’s Too Late, Says Fund Manager
Gabriella Lovas – Bloomberg (SUBSCRIPTION)
The tumble in equities may go deeper than the correction earlier this year and investors should get ready to sell, according to a Budapest-based fund manager.
“Investors have to start looking for a way out from equities now,” Attila Dzsubak, investment director at MKB-Pannonia Fund Manager, who helps oversee 670 billion forint ($2.4 billion) in assets, said in Budapest. “Past experience shows that exits can quickly become too narrow.”
/bloom.bg/2CIFRKA

SPY’s Next “Lines in the Sand” After the Sell-Off
Todd Salamone – Schaeffer’s Investment Research
It did not take long. Major equity indices broke below support levels that I discussed last week, and the implications, as I warned, were a major negative for bulls. For example, the S&P 500 Index (SPX – 2,767.13) broke below potential support in the 2,840-2,860 zone, and other equity benchmarks, such as the Russell 2000 Index (RUT – 1,546.68) and S&P MidCap 400 (MID – 1,871.25), breached psychologically important round-number levels and their respective 200-day moving averages, sending bulls running for cover as the action in the stock market looked similar to the February-March correction we witnessed earlier this year.
bit.ly/2CKsCZP

Miscellaneous

Speed Trader Hudson River Chooses Dublin as Post-Brexit Home
Will Hadfield and Peter Flanagan – Bloomberg (SUBSCRIPTION)
Citadel Securities, Susquehanna, Virtu all operate from Dublin; Hudson River is recruiting for three positions in Irish city
Hudson River Trading LLC, one of Europe’s biggest equity traders, picked Dublin to be its base in the European Union once the U.K. leaves the bloc next March.
According to its website, the speed trader is seeking to fill three jobs in Dublin: a compliance officer and two people in trading operations. The U.S.-headquartered firm ranks alongside Citadel Securities LLC, Jane Street Financial Ltd. and Tower Research Capital as one of the biggest algorithmic traders of European equities.
/bloom.bg/2yEauwk

Tesla CEO Elon Musk Is Wrong About Short Sellers
Bill Alpert – Barron’s
Elon Musk used to think short sellers were tolerable. He has changed his mind.
Back in 2012, when Tesla stock (ticker: TSLA) traded for a mere 27 bucks, the electric car maker’s chief was indulgent. “Even though they cause me grief,” he tweeted, “I would defend the right of shorts to exist. They are often unreasonably maligned.”
bit.ly/2CLqilk

Fidelity launches trade execution and custody for cryptocurrencies
Kate Rooney – CNBC
Financial services giant Fidelity is taking a huge step into cryptocurrency.
The 72-year-old firm announced the launch of a separate company, Fidelity Digital Asset Services, on Monday that will handle cryptocurrency custody and trade execution for institutional investors.
/cnb.cx/2CKxIFr

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About Author

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