Equity Options Transparency: What You See May Not Be What You Get
Larry Tabb and Alicia Reilly – TABB Forum
With no dark pools, hidden trades, or internalization schemes, and with each execution hitting the tape posted on a licensed and regulated exchange, we love to talk about how transparent the equity options markets are. This has helped propel option volumes to grow to well over 15 million contracts a day in May 2018 as retail customers and firms continue to enter the space. With 15 exchanges and multiple pricing models (some even on the same exchange), however, the transparency of order flow can be masked by the complexity of how orders are routed and executed.
ETF Veterans Start Funds That Seek to Hedge the Next Correction
Rachel Evans – Bloomberg (SUBSCRIPTION)
Portfolios protect from 10%, 15% and 30% declines in S&P 500; Offering investors downside coverage seen as ‘a timely idea’
Some investors worry that exchange-traded funds will be front and center in the next big stock market correction. So naturally, you can now buy ETFs aimed at protecting you from it.
****SD: “The options basket for the three initial funds will reset around June 30 every year.” Institutional Investor has the story too – Should Insurers Be Scared of These New ETFs?
Fund Files: AQR plots volatility fund; Goldman eyes hedge fund ETF
Quant shop AQR plans to launch the AQR Volatility Risk Premium fund, according to a document filed with the Securities and Exchange Commission (SEC). The fund is to be managed by Jacques Friedman, Ronen Israel and Roni Israelov, filings show.
China Steps In to Support Yuan By Boosting Cost to Short
Tian Chen – Bloomberg
China stepped in to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.
The People’s Bank of China will impose a reserve requirement of 20 percent on some trading of foreign-exchange forward contracts, according to a statement on Friday evening. That will effectively make it more expensive to short the yuan, and is a tactic that the central bank used to stabilize the currency in the aftermath of its shock devaluation in 2015.
Crude Oil: Why Iran Is Going To Cause Lots of Volatility
Andrew Hecht – Nadex
In 1979 the face of the Middle East changed when the Islamic Revolution deposed the Shah of Iran and replaced his rule with a theocracy. Most Americans remember the time in history because of the hostage crisis that captured the attention of the nation and resulted in a change in leadership in the United States. On the day that President Jimmy Carter left office after serving one term, and Ronald Reagan took the oath of office as the leader of the free world, Iran released the hostages. It was evident that the clerics in Teheran did not want to test the new President, and while they continued to call the U.S. “the great Satan” holding hostages would threaten the young regime in 1980.
Exchanges and Clearing
NYSE Owner to Launch Cryptocurrency Exchange, Physical Bitcoin Futures
Intercontinental Exchange, the parent company of the New York Stock Exchange, along with coffee giant Starbucks, Microsoft and BCG are developing an online platform, dubbed “Bakkt,” to buy, sell, store and spend cryptocurrencies. Georgia-based Intercontinental Exchange, or ICE, will launch a futures exchange for digital assets that will include the first regulated, physically-delivered bitcoin futures contracts next November. The mainstream, established futures exchanges, including those run by Cboe Global Markets and CME Group, already offer bitcoin futures, but they are cash settled, meaning the actual cryptocurrency does not change hands.
****SD: Maybe ICE will get options going sooner than Cboe and CME? The ICE press release on Bakkt can be found here and says, “In addition to Intercontinental Exchange and M12, Microsoft’s venture capital arm, investors in Bakkt are expected to include, among others, an affiliate of Fortress Investment Group, Eagle Seven, Galaxy Digital, Horizons Ventures, Alan Howard, Pantera Capital, Protocol Ventures, and Susquehanna International Group, LLP.” CNBC has New Starbucks partnership with Microsoft allows customers to pay for Frappuccinos with bitcoin and the WSJ has NYSE’s Owner to Launch Bitcoin Firm, Futures Contracts
Cboe Global Markets Reports Results for Second Quarter 2018
Cboe Global Markets, Inc. today reported financial results for the second quarter of 2018.
Cboe beats profit estimates on higher transaction fees
Cboe Global Markets Inc (CBOE.O) topped analysts’ estimates for second-quarter profit on Friday, as its options business benefited from an increase in transaction fees.
The exchange operator also showed strong growth in its European equities and foreign exchange businesses, but its VIX options and futures business was hit by weak trading.
****SD: From the FT: Cboe Global Markets shares fall after mixed earnings, and from Global Investor Group: SPX options boost Cboe’s Q2 revenue
Miami International Holdings Reports July 2018 Trading Activity for MIAX Exchange Group
Miami International Holdings, Inc. today reported the July 2018 trading activity for its two fully electronic options exchanges – MIAX Options and MIAX PEARL (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 32.5 million contracts in July 2018 for a combined average daily volume (ADV) of 1,551,647 contracts, representing a total U.S. equity options market share of 9.78%.
MIAX Options – Implementation Of Stock-Option Complex Order Trading On The Exchange
MIAX Options will implement stock-option complex order trading in all classes listed on the Exchange beginning Monday, August 6, 2018.
Intercontinental Exchange Reports July 2018 Statistics
Intercontinental Exchange, Inc. (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported July 2018 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
Regulation & Enforcement
U.S. derivatives regulator doles out $45 million to whistleblowers
Pete Schroeder – Reuters
A top U.S. financial regulator announced on Thursday it had awarded whistleblowers over $45 million for helping the watchdog identify improper activity.
Brokers to approach HC over STT on physically-settled derivative contracts
NSE decided last month to levy STT at 0.1% on derivative contracts of stocks that are physically settled
Hedge funds fight back against tech in the war for talent; Industry appeals to graduates with Silicon Valley-style perks ó and big bonuses
Lindsay Fortado – FT
As Mario Roussanov, a recruiter for hedge funds, began making his annual visit to clients this year, the change was apparent. Cubicles had been replaced by open-plan layouts, workers were increasingly donning jeans and casual shirts at places that once favoured suits and ties, kitchens were fully stocked with food for employees, and pods, libraries and other quiet spaces to think had popped up.
Fear and volatility are likely to strike the stock market in August
Simon Maierhofer – MarketWatch
The CBOE Volatility Index is not necessarily the most accurate measure of volatility, but it is the most popular. Since volatility usually translates into pullbacks, corrections or meltdowns, the VIX is often considered the “fear index.”
There is reason to believe that the VIX will spike in August; in fact, there are three reasons:
Cross-Asset Volatility Indicates Danger To Come
When many investors consider volatility, they look primarily at the VIX index which tracks the implied volatility of the S&P 500. As many know, volatility reached extremely low levels last year not only for equities, but also for bonds, currencies, and commodities. We want to give an update on cross-asset volatility and outline the reasons why we expect it to rise over coming months.
Yen Seen Heading Into Calmer Waters After BOJ’s Guidance: Chart
Todd White and Richard Jones – Bloomberg (SUBSCRIPTION)
The yen is headed for smoother sailing, at least in the view of options traders. Implied volatility — expectations of price swings derived from options contracts — dropped to the lowest in nearly a month for the currency after the Bank of Japan became the latest central bank to begin issuing forward guidance. One-month implied volatility for the yen is now sitting within about 45 basis points of its lowest since 2014.
Current Bout of Rand Volatility May Blow Over, Options Suggest
Colleen Goko – Bloomberg (SUBSCRIPTION)
It’s been quite a week for South Africa’s rand, but the worst may be over, if options pricing is anything to go by. A deluge of headlines — from the Federal Reserve’s upbeat assessment of the U.S. economy to the African National Congress’ land seizure plans and Zimbabwe’s disputed elections — caused the rand to weaken 2.5 percent since Monday, and sent expectations for volatility in the next week to the highest level in a month.
Tesla short sellers are sitting on a paper loss of nearly $2 billion after stock rally
Ciara Linnane – MarketWatch
Investors who are betting that Tesla Inc. shares are poised for a fall were sitting on a paper loss of nearly $2 billion Thursday, after the stock rallied more than 16% following its latest quarterly earnings.
Tesla short sellers were down $1.7 billion in mark-to-market losses on the 35.1 million Tesla shares that they have shorted, according to S3 Partners LLC, a company that has access to and tracks real-time short interest data.
Volatility and the impact on retirement savings
A new Allianz Life study has found even though Americans seem more comfortable with market volatility, over half surveyed are concerned about the effects the constant swings can have on their retirement security.