Miax to Launch SPIKES Futures; Case Study on Spot Trading; How Vol Trading is Changing

Mar 7, 2019

Observations & Insight

Open Outcry Traders History Project Announced by John Lothian
Large Scale Video Project Seeks to Capture the History of Open Outcry Traders and Era

John J. Lothian & Company, Inc., MarketsWiki Education and John Lothian Productions are pleased to announce plans for a large scale video project to collect the history of the open outcry era and traders’ personal stories. Additionally, John Lothian Productions plans to develop video documentaries about specific themes and subjects emerging from the collected personal histories.

The goal is to capture the stories of traders from an era that is increasingly becoming part of history before these accounts are lost forever. Open outcry trading was a form of commerce that was central to price discovery and risk transfer in the equities and derivatives markets for decades and even centuries, and its last participants are rapidly disappearing.

The project is modeled on the Veterans History Project signed into law by President Bill Clinton in the 1990s. In this case, rather than capturing the experiences of veterans of warfare and conflict, we are capturing the personal market experiences of those who participated in open outcry markets around the world. Traders from Chicago to London to Paris to Sydney to Singapore and beyond are welcome to submit videos.

Futures, equities and options traders who were part of the open outcry trading floors are welcome to participate in this project. Videos may be shot with a cellphone or video cameras and submitted, or John Lothian Productions will shoot interviews in its Chicago offices and other venues. We will make time slots available frequently for traders to sign up and sit for the interviews.

John Lothian Productions, the custom video arm of John J. Lothian & Company, Inc., will collect and present these videos on the www.marketswikieducation.com website.

We have developed a list of questions for traders to address during their videos as well as a list of pointers for how to shoot a good video and record quality sound on a cellphone. These lists will be shared with traders signing up for the project.

Those traders interested are asked to fill out this Google Form or email us at OpenOutcry@johnlothian.com for more information.

Lead Stories

Miax to launch SPIKES futures
James Thursfield – Global Investor Group (SUBSCRIPTION)
To build liquidity in options launched on the SPIKES volatility index, MIAX Options plans to introduce a futures product on the index this summer. MIAX aims to partner with a futures exchange to list the product and hopes for trading to begin in June or July, says Shelly Brown, executive vice president of strategic planning and operations.
/jlne.ws/2TxL14h

****SD: Futures are the logical extension – the means of listing them is the intriguing bit. So, let’s tally up MIAX’s 2019 thus far: 1) Launch options on the SPIKES index, a SPY based volatility index that aims to compete with the VIX; 2) Launch the U.S. options industry’s 16th exchange, MIAX Emerald; 3) Break the news that they’re planning to launch an equities exchange; and 4) say they want to partner with a futures exchange for SPIKES futures. Clearly, 2019’s mantra is “go big.”

The Complete Case Study on Spot Trading
Paul Rowady – Alphacution Research Conservatory
In this 32-page, 38-exhibit case study on the proprietary option trading firm, Spot Trading, that closed in late 2017, Alphacution showcases the information and insights that can be harvested from a cache of data that is hiding in plain sight. This report is also intended to educate clients and our broader network about the mechanics and drivers of macro-market structure, as well as to provide a template that will begin to set expectations for the nature of premium content that is being made available as part of Alphacution’s emerging research subscription service.
/jlne.ws/2TxJ1Jg

****SD: This is one heckuva autopsy replete with data harvested from hard to digest filings. Thanks for making things easy on the stomach, Paul! Here’s the Crain’s piece from last March about Spot closing.

How Volatility Trading Is Changing
Stuart Barton – Seeking Alpha
Volatility Exchange Traded Products (ETPs) have undergone a lot of changes in the last year or so. Following the after-hours spike in the VIX Index on February 5, 2018, four VIX products have been liquidated and two deleveraged. Credit Suisse liquidated XIV, Nomura terminated 2049:JP, REX Shares shuttered both their offerings VMAX and VMIN; and ProShares deleveraged both SVXY and UVXY. While you may not have ever heard of some of these products, XIV and SVXY had been two of the most popular and liquid VIX linked ETPs in existence. But liquidation and deleveraging were not the only changes to the volatility trading landscape last year.
/jlne.ws/2ESzZ0f

****SD: Stuart Barton was a derivatives guy at Barclays back when a bunch of these VIX futures-linked products were developed, so he knows his stuff. While the blowup of XIV last February and the recent maturation of VXX received much coverage, much more has been happening in the VIX ETP space. Barton touches on some margining kinks, hurdles to trading certain VIX-linked products in Europe, brokerage restrictions, alterations to leverage in some of the products, and more. One thing he doesn’t mention is the ongoing litigation regarding some of these instruments – there was another updated press release about a class action against SVXY this week.

Why macro hedge funds keep praying for a return of volatility
Laurence Fletcher – The Financial Times Opinion (SUBSCRIPTION)
Hedge funds betting on big moves in global currency, bond and stock markets have not enjoyed the best of times of late. These so-called global macro funds are famous for swashbuckling bets such as George Soros’s $1bn profit wagering against the pound in 1992, or successful punts on US bond yields tumbling during the financial crisis. But the reality over much of the past decade has been far less thrilling. An index of mostly macro funds run by data group HFR, for instance, has lost money in two of the past six years, and in the remaining four its biggest gain has been just 5.2 per cent.
/goo.gl/vfdmCi

Tying the knot: New directions in capital markets
Jeff Reeves and Will Acworth – MarketVoice
Market infrastructure is hot again. A flurry of mergers and acquisitions were announced in 2018 involving platforms that support the trading of bonds, equities, foreign exchange and derivatives.
The deals point toward several trends that are changing how markets operate, notably the strategic value of data and analytics, and indicate where industry leaders see the greatest potential for growth.
/jlne.ws/2Tzscxr

Traders take a fancy to weekly options, switch to shorter bets
Economic Times
The newly-launched Nifty weekly options are fast gaining popularity among traders, who are shifting a portion of their bets from contracts that expire every month to these shorter-term options.
/jlne.ws/2EFPBUG

Exchanges and Clearing

Miami International Holdings Reports February 2019 Trading Results for MIAX Exchange Group; SPIKES Volatility Trading and MIAX Emerald Launch
MIAX
Miami International Holdings, Inc. today reported the February 2019 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 31.5 million contracts in February 2019 for a combined average daily volume (ADV) of 1,660,432 contracts, representing a total U.S. equity options market share of 9.97
/jlne.ws/2Tt3HlN

****SD: MIAX actually improved its February volumes YoY, bucking the overall options industry trend.

Terry Duffy Talks Financial Transaction Tax on CNBC
CME Group (VIDEO)
CME Group Chairman and CEO Terry Duffy discusses how a financial transaction tax would reduce market liquidity and harm everyday consumers on CNBC.
/goo.gl/cCvgZr

****SD: Duffy – “This is really a tax on liquidity and high frequency trading… This is the worst thing I’ve heard in a long, long time.” Representative Jeb Hensarling followed up with this nugget: “This is a uniquely bad idea … This is a tax that is, supposedly, aimed at Wall Street that is going to hit Main Street.” In case you missed it, Jim Kharouf wrote a timely piece on the matter – Brace yourself. It may be time for a financial transaction tax.

Proposal to allow for $1 strike prices above $200 on additional options on Units of certain exchange-traded fund products.
Cboe Filing
…the Exchange believes that offering a wider base of QQQ and IWM options affords traders and investors important hedging and trading opportunities, particularly in the midst of current price trends. The Exchange believes that not having the proposed $1 strike price intervals above $200 in QQQ and IWM significantly constricts investors ‘ hedging and trading possibilities.
/jlne.ws/2TAicEg

FX trading volumes shrink in February as volatility slides: Refinitiv
Reuters
Trading volumes of currencies shrank 7.6 percent in February from a year earlier, Refinitiv data showed, as a slump in foreign exchange price volatility discouraged traders from buying and selling.
/jlne.ws/2EVYsTp

Regulation & Enforcement

EU watchdog holds fire on derivatives action under no-deal Brexit
Huw Jones – Reuters
The European Union’s markets watchdog has ruled out the need for measures to avoid potential disruption in certain cross-border derivatives contracts if Britain leaves the bloc this month without a deal.
With Brexit just three weeks away and Britain yet to secure a transition agreement with Brussels, the European Securities and Markets Authority’s (ESMA) stance piles pressure on trading platforms to shift business from London to EU hubs.
/jlne.ws/2ETP02Y

****SD: From Bloomberg – EU, U.K. See Little Hope of Brexit Breakthrough With Days to Go

Technology

QuantHouse wins ‘Best Low Latency Data Feed – Managed’ at the 2019 TradingTech Insight Europe Awards
QuantHouse
QuantHouse, the leading independent global provider of end-to-end systematic trading solutions including innovative market data services, algo trading platform and infrastructure solutions, today announced it has been awarded ‘Best Low Latency Data Feed – Managed’ at the 2019 TradingTech Insight Europe Awards.
/jlne.ws/2TG48cA

Strategy

Goldman Sachs outlines an outperforming stock options trading strategy
Joe Ciolli – Business Insider Prime (SUBSCRIPTION)
…The approach involves the sale of so-called covered calls — a process known as overwriting. In doing so, the investor holds a long position in a stock while simultaneously selling call options on the same stock to generate income.
/jlne.ws/2TvlgBF

****SD: According to Goldman, “the sale of 10% out-of-the-money calls on S&P 500 stocks has resulted in annual outperformance of 140 basis points over the past 16 years.”

Managing Risk and Opportunity Ahead of a China Trade Deal
Steven M. Sears – Barron’s
Last week, a Gallup survey showed that President Donald Trump’s handling of the economy received an approval rating of 56%, the highest of his presidency. His overall job approval rating, however, was 43%, which creates an interesting construct for China trade negotiations.
People are happy that rates are low, the stock market is relatively high, and it is fairly easy to find work. But elsewhere, the president struggles, and that arguably makes resolving the China trade issues more than just an economic negotiation.
/jlne.ws/2EV2viT

JPMorgan Says Options Way Too Optimistic on General Electric
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
Strategists say put-spread collars can capture mispricing; March 14 outlook event is likely to have major impact on stock
It’s the perfect time for a bearish derivatives trade on General Electric Co., according to JPMorgan Chase & Co.
/jlne.ws/2TDKQ7m

****SD: The stock sank under $7 in mid-December. Yesterday, GE’s top five most active options contracts were all puts.

Miscellaneous

The bull market is almost 10 – here are some facts and figures
Brian Cheung – Yahoo Finance
Barring a catastrophic event before the weekend, the S&P 500’s current bull market will turn 10 years old on Saturday, March 9.
Since 2009, the S&P 500 (^GSPC) has returned an annualized 17.68% total return and gained $17.5 trillion on a stock basis, according to data from Howard Silverblatt at S&P Dow Jones Indices.
/jlne.ws/2NLW0BO

Trump said to have concluded his path to a second term runs through the stock market
Mark DeCambre – MarketWatch
President Donald Trump is expected to peg his case for a second term in the White House to the success of the stock market and economy, according to a number of recent reports.
On Wednesday, CNBC, citing sources described as familiar with the thinking, reported that the 45th president is attempting to accelerate the completion of a trade deal with China, in an effort to secure a fresh catalyst for markets.
/jlne.ws/2NNQmik

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