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VIX Activity Spikes; Nasdaq Patent Infringement Claim Dismissed

Lead Stories

Options Activity in `Fear Gauge’ Spikes as U.S. Stocks Sink
Luke Kawa – Bloomberg
October’s living up to its reputation as a volatile month for equities. Trading activity in options linked to the stock market’s so-called fear gauge spiked as the S&P 500 Index was poised for its longest losing streak since U.S. President Donald Trump’s election win.
VIX options are tied to the Cboe Volatility Index, a measure of traders’ expectations for swings in the benchmark U.S. equity gauge. Volume has averaged more than 1 million a day over the four sessions ended Tuesday. That’s the most since February, which saw a record one-day spike in volatility and felled a number of exchange-traded funds that let retail investors bet on enduring market calm. The VIX, which has averaged about 14 over the past year, rose above 18 Wednesday.
/bloom.bg/2pJkO25

****SD: It had normalized a bit by the end of yesterday, but there is even more funk in the VIX futures curve today with Oct and Nov trading higher than Dec.

Nasdaq Patent Infringement Claim Voluntarily Dismissed with Prejudice Against MIAX; Three Other MIAX Petitions for Review Granted By Patent Trial and Appeal Board Against Nasdaq Patents
PRNewswire
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options and MIAX PEARL exchanges (MIAX), today announced that the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO) has granted MIAX’s petitions for review of three Nasdaq patents (one Nasdaq and two Nasdaq ISE patents). In granting MIAX’s petitions, the PTAB found that it is more likely than not that the claims of these patents are unpatentable under current law. The patents were asserted as part of Nasdaq’s complaint filed against MIAX.
/goo.gl/XfnxQv

****SD: MIH Chairman and CEO Thomas Gallagher said in the release, “The great news is that the US options market has voted with its trading volumes, as the MIAX Exchange Group’s volume is up over 75% since this baseless lawsuit was filed.”

Sebi allows foreign entities to hedge commodity exposure via derivatives
Business Standard
Capital markets regulator Securities and Exchange Board of India (Sebi) on Tuesday allowed foreign entities to participate in the commodity derivatives segment of stock exchanges for hedging their exposure.
/goo.gl/3tJDAu

Check Those Hedges Before Volatility Blows Up Again, SocGen Says
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
Volatility is set to increase, making this a good time for investors to reassess their hedges, according to Societe Generale SA.
After a blowup in February, traders have piled once again into short-volatility strategies, “increasing the probability of a violent swing back” when the trend reverses, SocGen strategists led by Vincent Cassot wrote in a note. He warns that broad correlation across markets is likely to return in the near term and spur higher volatility.
/bloom.bg/2pNryfg

Two-Decade Rupture in Stock-Bond Link Flashes Global Market Pain
Sid Verma, Emily Barrett, and Sarah Ponczek – BloombergQuint
The biggest post-crisis shift in the investment landscape may be looming, threatening more pain for investors besieged by an uptick in real interest rates and cross-asset volatility.
Bonds and equities are doing something they don’t usually do — fall in unison — with the latest move driving their normal inverse correlation to the weakest levels of the past two decades. The relationship has come completely apart only three times in that period, and each episode was followed by an equity market slump, including the last one, in 2014.
/goo.gl/TScbZo

Consider More Volatility Heading Into the Midterm Elections
Jacob Sonenshine – TheStreet
It’s easy for investors to focus on the recent downturn in stocks. It also has been easy for investors to focus on what record stock market highs mean.
bit.ly/2pK3gmj

****SD: This piece has a chart of midterm election results going back to 1946 and ensuing market returns. One year after every one of those elections, the S&P 500 has been higher. I’m not sure who this “Barak Obama” [sic] person is that they mention, but the data is interesting.

Investors Underestimate Risk of a Financial Shock, IMF Warns
Andrew Mayeda – Bloomberg (SUBSCRIPTION)
Investors may be ignoring the risk that financial conditions could tighten sharply and send tremors through the global economy, the International Monetary Fund warned.
“Asset valuations appear to be relatively high in some markets, notably in the United States,” the IMF said Wednesday in its latest Global Financial Stability Report. “Overall, market participants appear complacent about the risk of a sharp tightening of financial conditions.”
/bloom.bg/2pMBWnO

****SD: The IMF does like to warn. Bloomberg in April – IMF Warns of Rising Threats to Global Financial System

Exchanges and Clearing

European bitcoin exchange in “final stages”
Luke Jeffs – Global Investor Group (SUBSCRIPTION)
A former Merrill Lynch quant has said his crypto-currency start-up is close to receiving regulatory approval to launch a Europe-based bitcoin future and options, a possible breakthrough for the nascent European market.
Wiktor Gromniak, co-founder and CEO of Quedex Limited, said his firm is confident of shortly receiving regulatory approval from the Finance Ministry of Gibraltar, an emerging crypto-currency regulatory specialist, to launch a full service crypto-exchange.
bit.ly/2yvoRDe

****SD: I don’t think I’ve ever seen the phrase “emerging regulatory specialist” before.

Fixed Income Highlights – October 2018 edition
Eurex Exchange
bit.ly/2pOWagl

****SD: There was a huge uptick in volume for options on Euro-Schatz futures compared to Q3 2017 – 4.2 million vs. 1.7 million contracts.

Hot summer brings liquidity to European dairy futures
Emiko Terazono – Financial Times (SUBSCRIPTION)
Co-ops turn to the long-neglected market to hedge against persistent volatility
Europe’s nascent dairy futures market has received a much-needed liquidity boost, as concern over a dip in production following a blazing hot summer drives trading volumes higher.
/goo.gl/cvem8P

****SD: There’s an options on futures component here, albeit small.

Moves

Jeanine Hightower-Sellitto Joins Gemini as Managing Director, Operations
BusinessWire
Gemini Trust Company, LLC (Gemini), a New York trust company that is a licensed digital asset exchange and custodian, announced today that Jeanine Hightower-Sellitto has joined as Managing Director of Operations to lead the Client Services Team, which is focused on enhancing the Gemini platform experience for institutional investors. Ms. Hightower-Sellitto joined Gemini on Sept. 10, 2018, and reports directly to Gemini President Cameron Winklevoss.
bit.ly/2yxAp8L

****SD: Gary Katz has his hand in a snack food enterprise, Boris Ilyevsky joined IEX and now Hightower-Sellitto is with a crypto crew.

Britain expects 5,000 financial services jobs to leave by Brexit Day
Huw Jones – Reuters
Despite thousands of jobs set to move to the continent due to Brexit, Britain’s financial services minister said on Wednesday he would do all he can to ensure the City of London remains a major financial center.
/reut.rs/2yvUgFt

Regulation & Enforcement

Bank and City urge EU to tackle Brexit derivatives uncertainty; Timely action called for as threat of no deal risks rendering void GBP41tn of derivatives
Caroline Binham, Philip Stafford and Jim Brunsden – FT (SUBSCRIPTION)
The Bank of England and the financial services industry on Tuesday pressed the EU to urgently tackle legal uncertainty surrounding vast amounts of derivatives because of Brexit.
/jlne.ws/2yCFBIT

Strategy

A stealth correction is happening in the S&P 500, but history suggests it could be bullish
Keris Lahiff – CNBC
While the S&P 500 remains just over 2 percent from its all-time highs, a surprisingly large number of stocks are still in correction territory or worse.
“The average S&P 500 stock is 13 percent below its 52-week high. But … the index is only 2 percent below its 52-week high,” Michael Batnick, director of research at Ritholtz Wealth Management, said Tuesday on CNBC’s “Trading Nation.”
/cnb.cx/2pLfJGD

This VIX Signal Has Been Hot in 2018
Karee Venema – Schaeffer’s Investment Research
The U.S. stock market has struggled recently, with the major market indexes testing key support levels. As such, Wall Street’s “fear index” — the Cboe Volatility Index (VIX) — jumped nearly 28% from last Wednesday’s close at 11.61 to Friday’s settlement at 14.82. This is the fifth time this year the VIX has surged more than 25% over a two-day time span, according to Schaeffer’s Quantitative Analyst Chris Prybal, and could signal short-term outperformance for the S&P 500 Index (SPX).
bit.ly/2pNFV3n

Why the stock-market selloff could be an opening for bulls, in one chart
Ryan Vlastelica – MarketWatch
The U.S. stock market has been struggling of late, with the S&P 500 index on track for its longest losing streak in about two years, but this weakness could simply be creating an opportunity for bargain-hungry investors, according to one analyst.
Andrew Adams, senior research associate of Raymond James, on Wednesday wrote that the amount of bearishness in the market had hit extreme levels, creating conditions that have in the past been followed by pronounced market gains.
/on.mktw.net/2pKLa3J

Miscellaneous

Signs Suggest China May Tolerate Yuan Weakening Past 7 Per Dollar
Emma Dai and Tian Chen – Bloomberg (SUBSCRIPTION)
Should be no intervention even if yuan hits 7: ex-PBOC adviser; U.S. is due to release report on Chinese currency next week
There are growing signs China’s yuan may weaken past 7 per dollar, a key psychological level it hasn’t breached in a decade.
/bloom.bg/2yuIX0p

****SD: According to Bloomberg, “the notional value of new options betting the yuan will weaken past the psychological milestone of 7 per dollar is at the highest since depreciation pressure really began to pick up in June.”

Company Profit Forecasts Trailing Analysts by Most in Two Years
Vildana Hajric – Bloomberg (SUBSCRIPTION)
The evidence is mounting: U.S. companies are growing less confident they’ll be able to hit analyst profit targets.
Looking at forecasts issued by S&P 500 members last month, Bank of America found that more than two times as many projections were below the Wall Street consensus than above. It’s the most shortfalls in 2 1/2 years.
/bloom.bg/2pK3EBo

GAM Is Said to Be in Early Stage Talks With Potential Buyers
Patrick Winters, Jan-Henrik Foerster and Dinesh Nair – Bloomberg via Pensions & Investments
GAM Holding AG has held informal talks with potential buyers for all or part of the business as it explores options to stabilize the firm after the suspension of a star fund manager, according to people familiar with the discussions.
/goo.gl/wEqrhK

Making Money in Any Market
Sarah Max – Barron’s
At first glance, convertible bonds issued by Tesla would seem at odds in a mutual fund designed to provide consistent returns and low volatility in every kind of market. Yet when Elon Musk says or does something that rattles shares of the electric-car maker, it can work to the advantage of investors in the $6.3 billion Calamos Market Neutral Income fund.
bit.ly/2yvWd4L

****SD: Dissection of a fund that splits its assets between a convertible security strategy and covered-call-writing.

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Graduate of University of Minnesota School of Journalism and Mass Communication