Observations & Insight

Tales from the Crypt: What do Augur, Golem and Gnosis have in common?
Spencer Doar – JLN

They’re all cryptocurrencies. Though, if you thought, “They’re all words that could appear in folklore” you’d also be correct.

In light of LedgerX getting approval from the CFTC to clear options on cryptocurrencies Monday, I thought it prudent to give you a snippet of the larger picture. (More stories regarding LedgerX follow.)

Interest and excitement in the space has accelerated rapidly in 2017 due to a number of developments: bitcoin’s eye popping price action/volatility (~$910 at the start of the year to ~$2570 now), the far-ranging potential applications of distributed ledger technology (in finance and elsewhere), the more flexible scripting language represented by Ethereum, the “civil war” around bitcoin’s future, the efficacy of retail coin mining and the rise of initial coin offerings. I’m probably missing a few other important items.

Want some more fun names from the crypto cohort? Ardor, Lisk, Byteball and Ubiq. For more, check out this list. There are coins backed by gold, coins based on memes and coins with different mining protocols. Here are the top 10 cryptocurrencies by market cap:

1) Bitcoin – $42.1 billion
2) Ethereum – $19.0 billion
3) Ripple – $6.7 billion
4) Litecoin – $2.1 billion
5) Dash – $1.4 billion
6) NEM – $1.3 billion
7) Ethereum Classic – $1.3 billion
8) IOTA – $692 million
9) Monero – $580 million
10) Stratis – $471 million

Chances some of the smaller players haven’t crossed your radar. But, each currency listed in this column has a market cap greater than $50 million. There are literally hundreds of these digital assets floating around. While the market caps dwindle rapidly as one scrolls down the list of crypto currencies, the top 50 all have more than $50 million.

Anyway, here are sources for yesterday’s news – pick your poison: Reuters, Bloomberg, WSJ, CoinDesk, CNBC and CoinTelegraph

Here’s CoinDesk’s 2017 coverage of LedgerX’s progress for context.
-January 22: Bitcoin Options Firm LedgerX Crosses Key Launch Hurdle
-May 22: Bitcoin Options Service LedgerX Raises $11.4 Million in Series B Funding
-July 7: CFTC Formally Registers New Cryptocurrency Swap Execution Facility

And then the December 2016 MIAX press release that put LedgerX on my radar: Miami International Holdings and Ledger Holdings Announce Investment in LedgerX Holding Company.

Plus, there’s this established exchange crypto angle that hit the airwaves in May 2016: CME, ICE prepare pricing data that could boost bitcoin.

Picture painted? Good. This story is really just getting started.

Lead Stories

Barclays unwinds remaining oil positions, boosting options volumes
Barclays Plc was liquidating its remaining U.S. crude options positions early on Monday, according to two market sources, causing volumes to spike as the British bank closes down its energy business.

****SD: Bloomberg on the unwind here and ZeroHedge here.

Investor Makes Mammoth VIX Bet That Could Pay Out $265 Million
Gunjan Banerji – WSJ
One investor has bet on a powerful resurgence in market turbulence—a wager that could net a profit of about $265 million if Wall Street’s fear gauge more than doubles in the next three months.
An unknown investor made a massive trade via the options market Friday, as the CBOE Volatility Index, the so-called fear gauge that tracks investor expectations for equity volatility, fell to its lowest since December 1993.

****SD: Some commentary on the trade – Investing.com has The Big VIX Bet- Zero Times Anything Is Still ZERO!

Volatility plunge sends VIX index to 23-year low
Saqib Iqbal Ahmed – Reuters
Strong earnings boosted U.S. stocks on Tuesday, driving the S&P 500 .SPX to a record high while also sending a popular options-based gauge of expected price volatility down to a more than 23-year low.

****SD: CNBC here. If you prefer salmon website templates, FT has US equities volatility gauge eyes record closing low. Check out Pimco EVP and global strategist Gene Frieda’s take on why volatility is coming.

US Options Volume Drifts Higher in June as Volatility Remains Muted
John D’Antona – Traders News
Listed options volume totaled 374.4 million in June 2017, an increase of 7.8 million contracts from May 2017 and a 1.8 percent increase from June 2016, according to the latest options LiquidityMatrix report from Tabb Group. The relatively modest increase in volume – not only compared to last month but compared to June 2016 and June 2016 – was achieved despite the seemingly never-ending moribund volatility, the firm wrote.

A Market Oddity: Short-VIX ETFs Have Doubled in 2017
Chris Dieterich – WSJ
A popular bet against the stock market’s “fear gauge” just hit a fresh milestone.
Exchange-traded products designed to “short” futures on the CBOE Volatility Index, or VIX, have doubled in price this year.

****SD: No VIX ETN/F tracks the VIX perfectly, but is it really an “oddity” when an instrument does what it’s supposed to?

Major Wall Street analyst: Here’s what needs to happen for the bitcoin boom to keep going
Evelyn Cheng – CNBC
Bitcoin still faces many challenges in becoming a globally accepted currency, Bank of America Merrill Lynch’s commodity and derivatives strategist Francisco Blanch said in a sweeping Monday report comparing digital currencies’ growth to that of gold, silver and even salt in ancient times.

***JB: A derivatives exchange trading cryptocurrencies is a step in that direction. As more people have money tied up in cryptocurrencies the more they will gain acceptance. The banks are sure to follow eventually if there is money to be made. Heck, Bitcoin can even be found in global art markets now.

Northern Trust: Money Managers Wary of Geopolitical Risk, US Slowdown
Poonkulali Thangavelu – Chief Investment Officer
The market may be becoming too complacent, based on measures such as the Chicago Board Options Exchange Volatility Index, according to a second-quarter survey of investment managers by Northern Trust Asset Management. This leads 63% of the 100 survey respondents to be cautious about a possible market selloff.

****SD: I’m hoping the 37 survey respondents who are not cautious about a market selloff directly overlap with the 36 respondents who believe “equities are undervalued or fairly valued.” Even if that’s the case, there’s one individual exhibiting a bit of cognitive dissonance.

The hidden risks of a becalmed market
John Stepek – MoneyWeek
The great economist Hyman Minsky is best known for his view that “stability breeds instability”.
He might be worried if he took a look at our current market.
According to some measures, it’s so stable it’s practically horizontal…

Exchanges and Clearing

Bats Market Close model faces objection from FedEx, T. Rowe Price
Business Insider
Some of the largest companies in the US are speaking out against a proposal by Bats, the stock exchange recently acquired by the Chicago Board Options Exchange, to shake up end-of-day trading.
FedEx, P&G, and Cardinal Health are among the firms listed on the New York Stock Exchange that have sent letters to the Securities and Exchange Commission opposing Bats Market Close. The new offering would allow NYSE- and Nasdaq-listed securities to be matched on Bats at the end of the trading day.

****SD: Does the CBOE think of this argument as baggage from the acquisition? And if this does go through, will it actually lead to more volatility at the close?

Moscow Exchange: Eurasian Development Bank Gains Access To MOEX Derivatives Market
Eurasian Development Bank is the first ever international financial institution to receive admission to MOEX Derivatives Market as a member firm.


Dash Financial Technologies Appoints Sarah Hall Managing Director, Head of Human Resources
Dash Financial Technologies today announced it has named Sarah Hall Managing Director, Head of Human Resources. In this role she is responsible for all aspects of the firm’s human capital investment, employee relations and talent management programs globally. A member of the firm’s executive management team, Ms. Hall is Dash’s third significant hire in as many months, joining Ari House and Robert Boylan as senior appointments.

****SD: In case you missed our video with Dash Financial Technologies CEO Peter Maragos yesterday, check it out here. He talks about what he sees as the two biggest addressable issues in markets: equal access to market data and adjusting rebate structures.

Regulation & Enforcement

Florida Court extends restraining order against “Millionaire Money Machine” binary options fraudsters
Maria Nikolova – FinanceFeeds
The architects of a number of binary options scams, including the “Millionaire Money Machine” fraud, are ordered to appear in court for a hearing rescheduled for August 10, 2017.

****SD: I didn’t know Floyd Mayweather had a shady binary operation.


Vela wins Systems in the City Awards
Vela Trading Technologies LLC (Vela), an award-winning global leader in high performance trading, market data, and analytics technology, is pleased to announce that Damian Maguire, Senior Sales Engineer, won the Systems in the City award for Exceptional Customer Support and Vela received the award for Best High Performance Trading Solution.

****SD: As opposed to its other two recent acquisitions, this one is mantle worthy.


How to Play Red-Hot Emerging Markets Now
Steven M. Sears – Barron’s
A popular emerging markets proxy appears to be in the early stages of a significant upside breakout.
The iShares MSCI Emerging Markets exchange-traded fund (ticker: EEM) is up about 25% this year, a gain that has pushed the fund above $40, a level that has often stood as resistance. Since 2011, rallies above $40 have been good times to take profits.

Fragile Vs. Antifragile: You Have To Understand What You’re Dealing With First
Seeking Alpha
First we need to establish the foundation of things. Are they fragile, robust, or antifragile – we must know before we understand how to evaluate their risk/reward profiles.
Selling options puts you at risk to volatility, making them fragile. Meanwhile buying options allows you to benefit from volatility, becoming antifragile.

A Six-Figure Options Hedge on Semiconductor Stocks
Josh Selway – Schaeffer’s Investment Research
Semiconductor stocks have been some of the hottest names on Wall Street for some time now, but with earnings season in full swing, it looks like one options trader is turning defensive. For example, put volume on the VanEck Vectors Semiconductors ETF (SMH) finished at two times the expected rate yesterday, thanks to heavy action at the November 69 put. Trade-Alert data suggests a trader bought to open 34,250 contracts here for 69 cents each, meaning he or she spent almost $2.4 million on the wager (premium paid * number of contracts purchased * 100 shares per contract).

****SD: Given how crazy the sector has been of late, no surprises here. Reuters via Times of India here.

The market’s hottest stocks are being used in a clever new way
Joe Ciolli – Business Insider
Heading into Netflix’s earnings report last week, traders were braced for the worst. With the stock up a massive 30% since January, a measure of bearish bets sat close to its highest level of the year.
The company went on to destroy subscriber forecasts, sending its shares up as much as 14% the next day, costing short sellers more than $400 million, according to data from IHS Markit.

****SD: Not options, but the included for the whole concept of hedging the market via shorting the big tech names.

CBOE Morning Call – 7/25/2017
Russell Rhoads – CBOE Blog
Today is the first day of a two-day FOMC meeting. As a gentle reminder, there are S&P 500 (SPX) options expiring on the close tomorrow which are perfect for expressing an opinion about the potential market reaction (or lack thereof) to the FOMC announcement tomorrow afternoon. Also, the earnings calendar is so heavy for the next three days it should be on a weight loss reality show.


Dead Bodies Start Piling Up as Mexico’s Stolen-Fuel Market Booms
Buying stolen gasoline in the central Mexican state of Puebla is easy. Pull off the main highway into a busy parking lot, and the black marketeers are waiting in pickup trucks loaded with jerrycans. They’ll siphon the fuel into your tank—boasting as they do that unlike a lot of the country’s regular gas stations, they don’t cheat customers.

****SD: I have read a lot about fuel theft/illegal refining/smuggling what with the issues stemming from Nigeria, Libya, ISIS and don’t even get me started on South America… It’s all just indicative of the weird idiosyncratic risks adding to the intrigue of oil.

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