| March 27, 2018 | | | | | Spencer Doar
Associate Editor
John Lothian News | |
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| | | | Observations & Insight | | | Miscellany for 3/27
Spencer Doar - JLN
Not much of a surprise, but during the last week of talk about a potential trade war, the volatility of FXI - the main China ETF for options - has been significantly higher than SPX volatility, though still in an 8 handle trading range. Readings for FXI vol have been between 23 and 31, while VIX has moved between 16 and 24.
Yesterday, Comex April gold and May copper futures settled on strikes and since it was options expiration day, calls at 1355 and 2.97, respectively, were exercised and puts were abandoned. Hopefully none of you all had to lose sleep over that development.
Yesterday, the Financial Times had a story about institutional investors glomming on to the ETF trend. Today the Financial Times has a story titled Investors cool on ETFs. Sooo, net, sentiment is somewhere in the middle? Weird.
The WSJ has a comprehensive series of charts and graphics regarding all that has changed in the time since the financial crisis - 10 Years After the Crisis.
There are quite a few of what I call "tangentially related to options" stories in today's newsletter. | | | | | | Lead Stories | | | OCC Continues To Clear the Path for the Exchange-Listed Options Industry
OCC
In 2017 OCC achieved a number of key milestones that position our company for continued resiliency, innovation and growth while providing our exchange partners, clearing firms, and market participants with open access and reliable central counterparty services with operational excellence.
bit.ly/2GfabKY
The Dow and S&P 500 have already doubled the number of 1% moves seen in all of 2017
Ryan Vlastelica - MarketWatch
Does it feel like there's a lot more action in the stock market this year compared with 2017? It should.
Even though the U.S. stock market is still in its first quarter, with one week left to go until 2018 is 25% over, it has already seen far more volatility than occurred over all of last year. In fact, the first three months of the year have seen more than twice as many sharp gyrationsÂin both directionsÂas was seen during 2017, which was an atypically quiet year for equities.
/on.mktw.net/2Gfb3PK
****SD: Also from MarketWatch - Dow's recent surge belies fact that stock market is on the brink of an absolute breakdown
Derivatives notional fell and trading risk rose in Q4 - US OCC
Julie Aelbrecht - Global Investor Group (SUBSCRIPTION)
Derivatives notional amounts in the US decreased over the last quarter of 2017, as trading risk increased, the US Office of the Comptroller of the Currency (OCC) reports.
In its quarterly report on bank trading and derivatives activities, the US Office of the Comptroller of the Currency has said that trading risk among banks, as measured by value-at-risk increased in the fourth quarter. The total average value-at-risk across the top five dealer banking companies increased by 0.8% to $258 million.
bit.ly/2GgHJIF
Smart Money Sidelined in Risk-On Rally Shows Not All Are 'Happy'
Cecile Gutscher and Dani Burger - Bloomberg
The smart money wants more before it's happy.
As the U.S. appears to step back from an all-out trade war, credit investors are staying away from the relief rally that's stoked Asian and European stocks and spurred the biggest one-day jump in the S&P 500 Index since August 2015. That came after President Donald Trump tweeted "all will be happy!" with the results of the ongoing trade talks.
/bloom.bg/2GhFDrY
****SD: Given today's action, not quite sure "risk-on rally" applies.
A Trader's Perspective on the Post-Crisis Reforms
Will Acworth - MarketVoice
As global head of trading at Eaton Vance, Michael O'Brien has a front row seat on the changes in financial markets over the past decade. His team of 12 traders, based in Singapore, London and Boston, are responsible for executing trades in interest rate, credit and foreign exchange markets around the world, including a wide range of listed and over-the-counter derivatives.
bit.ly/2GfQ3IR
Could the Initiation of Trade Skirmishes Lead to Trade Wars?
Bluford Putnam - CME Group
The biggest current threat to global growth is a trade war. There are other risks, too. The U.S. Federal reserve is unwinding quantitative easing and raising rates, but is making the policy shifts very gradually, with careful market guidance. Governments are focused on whether they need to cut taxes, not raise them; so, no growth risks from fiscal policy. Consumer confidence is relatively high around the world, from mature industrial countries to young emerging-market nations. Equity market valuation might appear high to some, but stock market corrections do not cause recessions unless there is a financial panic - and systematic risks from financial institutions are much lower than when the last crisis occurred in 2008.
bit.ly/2GdIRwQ
Someone Somewhere Is Pushing A Big `Buy' Button: Taking Stock
Arie Shapira - Bloomberg
Stock futures are seeing follow-through from yesterday's rally, when the benchmark indices soared around three percent. The VIX is pulling back to ~20 after hitting 26 on Friday, while Facebook shares are up another ~1% after yesterday's impressive recovery (more on this below).
The consensus is that the bounce over the past 24 hours is being fueled by a more sanguine view of the China trade-war outcome, with President Trump firing off this tweet last night: "Trade talks going on with numerous countries that, for many years, have not treated the United States fairly. In the end, all will be happy!"
bit.ly/2GhdVvF
Senior CMBS spreads soften on credit volatility
David Bell - GlobalCapital (SUBSCRIPTION)
Volatile equity markets and macroeconomic concerns spilled into CMBS spreads on Friday, with senior bonds priced way off the tight levels seen last month.
bit.ly/2Gf9XU1
| | | | | | Exchanges and Clearing | | | Cboe urges U.S. regulators to move forward with bitcoin ETFs
John McCrank - Reuters
U.S. securities regulators should not stand in the way of exchange-traded funds that hold cryptocurrencies like bitcoin from coming to the market as they are essentially the same as other ETFs that hold commodities, said exchange operator Cboe Global Markets.
/reut.rs/2GgTv62
****SD: I have the feeling options on bitcoin ETFs would gain traction quicker than options on bitcoin futures.
Eurex Group - Fixed Income Highlights
Eurex
It has been a relatively robust period for European fixed income markets and the wider markets in general. Eurex has seen a pickup in volatility across the board and volumes in our benchmark products remain strong, together with good performance in our Italian BTP futures and options. There have been further dislocations in correlation across rates, commodities, FX and equities, which have helped to underpin momentum in volumes.
bit.ly/2GjH0X2
****SD: Charts!
Cboe Global Markets Announces Launch Date For Cboe Market Close
Cboe
Cboe Global Markets, Inc., one of the world's largest exchange holding companies, today announced that it plans to launch Cboe Market Close (CMC) on the company's BZX Exchange on Monday, August 20, 2018, contingent upon the Securities and Exchange Commission (SEC) reaffirming the staff's initial approval.
/goo.gl/iadhfn
****SD: Equities story, but since it's Cboe, we include it. That being said, the effect of another auction at the close will likely have some effect on EOD volatility.
Euronext completes the acquisition of the Irish Stock Exchange
Euronext
Today, Euronext announces the completion of the acquisition of 100% of the shares and voting rights of The Irish Stock Exchange plc, after receiving regulatory approvals.
bit.ly/2GhURgC
**SR: Irish Stock Exchange is our MarketsWiki Page of the Day today.
INX hits record daily turnover in derivatives at Rs 3,287 cr
Hindu Business Line
BSE arm India International Exchange (India INX) has hit a record daily trading turnover of Rs 3,287 crore (USD 506.68 million) on its derivatives segment with transactions in gold futures contributing to 57 per cent of the total value.
bit.ly/2IUMDwK
****SD: Ton of the action in gold futures, but Sensex index options play a part, too.
Bitcoin derivatives exchange Deribit completes major system update
Cryptoninjas
Last week, bitcoin futures and options exchange Deribit completed a system update with a variety of technology upgrades along with some new exchange terms. The scheduled down time was for only 20 minutes at 11:00 UTC on March 20th.
bit.ly/2Gh2Omm
****SD: There is a .001 BTC fee for liquidating an options position, meaning that you have to factor fee volatility into your trading(?). For example, closing an options position today would cost ~$8, but closing one at the start of the month would have cost ~$11.
| | | | | | Regulation & Enforcement | | | ESMA Updates Its Q&A On MiFID II Commodity Derivatives Topics
Mondovisione
The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers (Q&As) on the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) regarding commodity derivatives topics.
bit.ly/2GdulVL
****SD: Also out of ESMA - prohibition on binary options and restrictions on CFD trading.
Federal Court Ruling Recognizes CFTC Jurisdiction over Cryptocurrencies as Commodities
JDSupra
The U.S. Commodity Futures Trading Commission (CFTC) scored a victory in its effort to assert jurisdiction over portions of the cryptocurrency and initial coin offering (ICO) markets last week, as a federal district judge preliminarily enjoined defendants charged with operating a fraudulent virtual currency scheme in violation of the Commodity Exchange Act (CEA).
bit.ly/2GgtqUC
FSB seeks industry response on legal barriers to OTC derivatives
Jenna Lomax - Securities Lending Times
The Financial Stability Board (FSB) is seeking responses from financial institutions and other reporting entities on issues they may face with legal barriers to the reporting of full transaction information about over-the-counter (OTC) derivatives. The FSB explained that the requested responses will provide input to the board's ongoing work to evaluate the extent to which its member jurisdictions have met their commitments to remove such legal barriers.
bit.ly/2GeIuC8
Hong Kong regulators to enhance the OTC derivatives regulatory regime
Valentina Kirilova - LeapRate
The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have issued a joint consultation on further enhancements to the over-the-counter (OTC) derivatives regulatory regime in Hong Kong, including a proposal to mandate the use of the Legal Entity Identifier (LEI) for the reporting obligation.
bit.ly/2GhQoKS
| | | | | | Technology | | | Best Front Office Execution System 2018: The Nominees
Joel Clark - Financial News
Financial News is delighted to announce the shortlist for its Trading and Technology Awards Europe 2018.
Our awards are independent and fee-free. Financial News's editorial team compiles a shortlist of five nominees in each category following extensive research, taking soundings from industry contacts, and reviewing data and industry information.
bit.ly/2GeeLZT
FlexTrade Integrates Kensho Actionable Intelligence into FlexTRADER EMS
Traders News
FlexTrade today announced the integration of Kensho Technologies pre-trade analytics solution into the FlexTRADER EMS, which provides a detailed, real-time event feed to assist a trader's decision-making process when executing a trade.
bit.ly/2GfN437
****SD: Recall that Kensho was recently acquired by S&P Global in the largest AI deal to date ($550 million).
| | | | | | Strategy | | | Sliding Silver Sends Scary Signal; Gold is priced 82 times higher than silver, the highest such discrepancy in two years and seen as a negative economic indicator
Amrith Ramkumar - WSJ
Investors have soured on silver to start 2018, after prices rose over the last two yearsÂa possible warning signal to the broader market.
Silver futures have fallen 3.1% this year, trailing a 3.3% gain in gold. That's after bullion rose 14% last year, double silver's 7% advance.
/on.wsj.com/2GgNA0O
2 SPX Moving Averages to Monitor as Shorts Gain the Upper Hand
Todd Salamone - Schaeffer's Investment Research
At the beginning of last week, two days prior to March Federal Open Market Committee (FOMC) meeting in which the Fed raised rates by a quarter-basis point and projected a steeper rise in interest rates in 2019, the S&P 500 Index (SPX - 2,588.26) was trading just above a potential support level at 2,740 but right at the 2,750 half-century mark and still more than 100 points below the January peak.
bit.ly/2Gdrw7e
Are bonds as defensive as they used to be?
Clive Smith - Livewire
Many investors focus on the materially lower volatility in returns exhibited by fixed income securities when considering the potential diversification benefits when combining them with equities. Unfortunately, the equally important diversification benefits associated with the negative correlation of returns between the two asset classes can often be overlooked.
bit.ly/2GhsIX9
With Volatility Back in Town, It Could Be Short Iron Condor Time
T. J. Neil, Sr. - TD Ameritrade
Just three months ago, volatility levels were near record lows. The absence of moderate to elevated option premiums made it hard to justify selling vertical spreads or iron condors. The allure of short volatility products resulted in the strategy becoming a crowded one. When low volatility levels began to reverse course, the move higher became exacerbated by the number of short volatility positions in the marketplace.
bit.ly/2GhbKIo
Why use options? A quick review of their benefits ... and risks
Gary Delany, OIC - TradingFloor.com
We often take for granted the reasons we use various tools in our portfolios. In this short article we revisit some of the reasons why options may be appropriate tools for an investor to consider using, which can be summarised as: Portfolio and market risk mitigation, Income generation, Stock substitution, Harness leverage, Participate in the market with limited risk, Customise strategies with target outcomes.
bit.ly/2GgQGls
What is Volatility Protection and How Can it Help You with Your Trading Strategy?
Bob Mason - FXEmpire
While a diversified investment portfolio may provide some degree of protection against volatility, there are other tools and products available to investors and traders looking to avoid the rollercoaster ride that many have and will experience time and again throughout an investment cycle.
bit.ly/2GhcxJe
| | | | | | Miscellaneous | | | Bitcoin's a Pretty Good Guide to Animal Spirits in Stocks
Eddie Van Der Walt - Bloomberg
Bitcoin may not cut it as a currency in Mark Carney's eyes, but it has at least one other use: it's a pretty good measure of animal spirits.
There's a remarkable similarity in chart movements of the digital token and the forward price to earnings ratio of stocks in the S&P 500 Index. The valuation measure peaked on the very same day as the cryptocurrency back in December, and hit a low days after Bitcoin bottomed out.
/bloom.bg/2GdI52N
China crude futures enjoy champagne start, hard works lies ahead
Clyde Russell - Reuters
China's new crude oil futures contract enjoyed a successful first day of trading in Shanghai, most likely exceeding the wildest hopes of its backers, but much of the hard work of building a viable benchmark still has to be done.
/reut.rs/2Gdx5Cx
****SD: Other China news - Yuan hits 7-week top after PBOC sets midpoint at highest since 2015 devaluation
Wall Street rethinks blockchain projects as euphoria meets reality
Anna Irrera, John McCrank - Reuters
Wall Street has been much more excited about the system underpinning bitcoin than the cryptocurrency itself, but the global financial industry has not yet been able to do much with the technology known as blockchain.
/reut.rs/2IXCteT
Cboe Vest Launches 1st ETF
ETF.com
Today, Cboe Vest is rolling out its first ETF, what it terms a "second generation" approach to options-based strategies. The Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG) seeks to generate annualized income that is 3% more than the S&P 500 Index's annualized dividend yield, while also proportionally matching the index's price return.
bit.ly/2GhrcEv
****SD: "It's The Aristocrats!"
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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Managing Editor
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Editor
| | | Spencer Doar
Editor
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