Observations & Insight
CME Group: Political clout counts
Gregory Meyer – Financial Times
Terry Duffy is wearing a dark suit, a Movember moustache-beard combination and gold cufflinks shaped in the octagonal logo of his company, CME Group. He sits back in his office beside the Chicago river and glances at framed snapshots on some shelves: his twin sons, the actor Mark Wahlberg, three former US presidents, a grinning Hillary Clinton and himself.
“I’ve been blessed to know a lot of interesting people and become friends with them. I think they like my no-nonsense attitude. I don’t bullshit people,” he says.
****SD: From the article: “It is estimated that CME spends more than $2 million a year on lobbying.” Also, CME “employs three in-house lobbyists and has 15 more under contract.” Kind of surprised that as of this writing there are only four posts in the comment section of the article.
As Biggest Hedge Funds Stumble, One Currency Manager Gains 21%
Andrea Wong – Bloomberg
In a year when the world’s biggest hedge funds are suffering losses and closures, one asset manager is trouncing rivals by betting on currencies — without taking a view on their direction.
Quaesta Capital AG, a hedge fund based in the Zurich area, runs a $420 million foreign-exchange options program that earned 21 percent this year through Nov. 11 by wagering on volatility, according to Thomas Suter, the company’s chief executive officer. It’s the top performer among 15 programs tracked by the Parker Global Currency Manager Index, which lost almost 2 percent in that period.
The Global Central Bank Put Option
Sam Kirtley – Seeking Alpha
Highly accommodative monetary policy and the increased responsiveness of central banks globally to economic shocks and other crises have led to a situation where, if such a shock occurs, then central banks ease monetary policy quickly in response. This action calms markets, resulting in minimized sell-offs and contained volatility while driving equities higher.
This phenomenon can be described as the Central Bank Put Option, as the situation effectively means that investors have a put option given to them by the central banks. We will discuss its origin and how it is currently in play, and then cover different strategies that can be used to take advantage of the put. Following this we will also look to analyze whether the Central Bank Put will be in play next year and how it may be traded going forward.
Forecasting Volatility Of The U.S. Oil Market (Includes PDF)
We examine the information content of the CBOE Crude Oil Volatility Index (OVX) when forecasting realized volatility in the WTI futures market. Additionally, we study whether other market variables, such as volume, open interest, daily returns, bid-ask spread and the slope of the futures curve, contains predictive power beyond what is embedded in the implied volatility. In out-of-sample forecasting we find that econometric models based on realized volatility can be improved by including implied volatility and other variables. Our results show that including implied volatility significantly improves daily and weekly volatility forecasts, while including other market variables significantly improves daily, weekly and monthly volatility forecasts.
Making Sense of a Seemingly Impossible VIX Settlement
Adam Warner – Schaeffer’s Research
So you want to be a CBOE Volatility Index (VIX) rock ‘n’ roll star? Just don’t leave a position open heading into expiration. Your odds are probably better playing daily fantasy sports head-to-head vs. IBM’s Watson.
Just to refresh, VIX futures and options cash settle on the morning of their expiration day. Regular November VIX options expired on the opening rotation Wednesday. The important point is that it’s a calculated VIX (symbol VRO). It’s based on the opening print or quote in all qualified S&P 500 Index (SPX) options series. Since not all series open at the same time, the actual VIX prints you see on the board near an expiration day open may not be identical to the VIX settlement price. But they usually bear some sort of relationship.
Below the surface, Wall Street is still nervous
Anthony Mirhaydari – CBS News
U.S. equities rose again on Wednesday, pushing large-cap stocks up an impressive 4 percent from the futures market low recorded just after the Paris terror attacks. However, those large-caps stand alone, with most other areas of the market decidedly less ebullient.
Why Many Traders Are Moving To Binary Options
With the changing personality of the futures, forex, and stock markets, many traders have been looking for an alternative that will give them the flexibility that today’s markets demand. Binary options are exploding in popularity in the Unites States, with CFTC-regulated exchanges that specialize in these limited-risk products. Many futures contracts were developed before the Internet age when most trading volume came from large institutions. Exchange-traded binary options can appeal to large traders, but are designed for the smaller trader.
Treasuries’ Muted Reaction to Fed Minutes Shows Message Received
Alexandra Scaggs and Jennifer Surane – Bloomberg
Federal Reserve policy makers got their message across to Treasury traders last month, judging by the market reaction to meeting minutes released Wednesday.
S&P Dow Jones Risk & Volatility Index Dashboard (Link to download)
S&P Dow Jones Risk & Volatility Index Dashboard – November
CSC and MIAX Technologies Target Faster, Cheaper Apps Testing for Trading Desks
CSC (NYSE: CSC), a global leader in next-generation IT services and solutions, and Miami International Technologies, LLC (MIAX Technologies), a wholly owned subsidiary of Miami International Holdings, Inc. and affiliate of Miami International Securities Exchange, LLC (MIAX), today announced they are teaming up to help capital markets clients improve the efficiency, reliability and quality of their applications testing and quality assurance.
More Tools for Managing Global Exposure – Added Expirations for Options on MSCI Indexes
Matt Moran – CBOE Options Hub
Today CBOE added three new expirations for options on both the MSCI Emerging Markets Index (MXEF) and on the MSCI EAFE Index (MXEA).
The NEO Exchange: Challenging the ‘TSX Monopoly’
Charlotte McLeod – Investing News
The NEO Exchange is a new Canadian stock exchange that’s looking to leverage technology and market structure innovation with a trading platform driven primarily by fairness. Its overall goal is to put investors, companies and dealers first, and in doing so, challenge the current “TSX monopoly.”
****SD: I wonder how many “The Matrix” jokes happen in their offices.
****JB: At the actual Top Gun flight school they fine anyone $5 who drops a quote from the movie Top Gun. They probably do the same thing here (or should).
Traders eye boost to Dubai exchanges
Luke Jeffs – Futures & Options World
Some of the top trading firms in Dubai have outlined key opportunities for firms to boost exchange-traded derivatives in the region, citing a lack of transparency in the current over-the-counter market as a real problem.
Speaking at the FOW Trading Middle East conference in Dubai on Thursday, a panel comprising leading exchanges, regulators and traders said Dubai has a strong listed derivatives market but there is the potential to go further.
Regulation & Enforcement
Three Firms Remain in Running to Build U.S. Consolidated Audit Trail
John D’Antona Jr. – Traders News
And then there were three….
The U.S. equity markets self-regulatory organizations have created a short list of three finalist firms who will build the much anticipated stock market consolidated audit trail. The shortened the list, down from six firms in July and the original ten now, are vying for the construction and maintenance of the system designed to provide and track equity market information.
The three remaining bidders are listed below in alphabetical order: FINRA, SunGard and Thesys
GlobalRisk and Interactive Data collaborate to supply data assets to the CFTC
Interactive Data, a leading provider of low-latency technology and market data feed services and GlobalRisk, a developer of risk management software, have collaborated to deliver trading risk analysis and financial data to the U.S. Commodity Futures Trading Commission (CFTC).
Market reflects on Remit operations
Alice Attwood – Futures & Options World
The derivatives industry has called for the Agency for the Cooperation of Energy Regulators’ (Acer) to up the ante in its support for the market, amid fears that it may lack the resources required to knowledgably apply its Remit requirements to derivatives, after a relatively smooth implementation.
Fear Spreads as China’s Finance Firms Face Arrests
The high-drama highway arrest of a prominent hedge fund manager. Seizures of computers and phones at Chinese mutual funds. The investigations of the president of Citic Securities Co. and at least six other employees. Now, add the probe of China’s former gatekeeper of the IPO process himself.
French Watchdog Adds Eleven Binary Options Brands to Blacklist
Avi Mizrahi – Finance Magnates
France’s financial market regulator, the Autorité des Marchés Financiers (AMF), has today issued a warning to the public against eleven more binary options brands. The watchdog routinely updates its periodic blacklist of websites that offer binary options trading, “for which no authorized investment services provider could be clearly identified.”
****SD: Not a day passes that a country doesn’t blacklist an array of binary options brands. Really, do your research. Sometimes the names themselves are red flags. Success Bank? Hmmm.
Counter-at-hack: How business can fight back
Cyber-security will start working in 2016. Though people’s growing dependence on the internet continues to give attackers the upper hand, for those with the time, money and willpower required, the ingredients of effective defence are falling into place. It is becoming easier to identify attackers and the means they use, easier to foil and deter them, and easier to repair the damage they do.
***JB: Not options related but an interesting peek at the future of cyber-security.
Hanweck Associates Secures $10 million financing
The Options Insider
Hanweck Associates is a leading provider of high performance, low latency data and risk analytics to exchanges, banks, broker-dealers, market-makers, portfolio managers and central counterparties. Hanweck also delivers risk measurement solutions across a range of asset classes including fixed income products and derivatives. With its hardware- accelerated VolerarM analytic engine, Hanweck pioneered the use of graphics processing units (GPUs) in the financial industry.
****SD: ISE is a minority investor in Hanweck.
How to Trade Retail Stocks Before Black Friday
Steven M. Sears – Barron’s
With Black Friday post-Thanksgiving sales fast approaching, and Christmas just beyond that, trading opportunities are emerging in the retail sector.
Strategists are increasingly telling clients to buy relatively inexpensive puts and calls to wager that holiday sales will drive sharp stock moves in many retail stocks.
While many investors loathe retail stocks – not without justification — and generally fear holiday sales will be weak amid fears of slowing global economic growth, the sector’s options dynamics are attractive.
Options Update: How to Play Wynn Resorts (Video)
BGC Partners’ senior equity derivatives strategist Jared Woodard discusses his options strategy for Wynn Resorts with Julie Hyman on “Bloomberg Markets.”
Calls look for gold to shine again
Traders are looking for the SPDR Gold Trust to rebound by early next year.