Observations & Insight
The Spread – Vol Strikes Back: Top Stories of 2018
Did it feel like 2018 was a whirlwind? Did it just whiz by? If so, here’s a brief recap of the year’s big options stories.
Watch the video here »
***SD: In case you missed it.
OCC Clears Record-Setting 5.24 Billion Total Contracts in 2018; December volume up 26.2 percent year-over-year; most active December in OCC’s history; ETF options volume up 25.7 percent in 2018, securities lending CCP activity up 17.2 percent
OCC, the world’s largest equity derivatives clearing organization, announced today that it set new annual cleared contract volume records for the U.S. exchange-listed options and futures industry. In 2018, OCC cleared 5.24 billion total contracts and 5.14 billion options contracts. These numbers surpass the previous records, set in 2011, of 4.60 billion total contracts and 4.56 billion options contracts. Compared to 2017, OCC had a 21.1 percent increase in total contracts cleared and a 22.6 percent increase in options contracts cleared.
****SD: We knew it was a record, but above is the official final tally. Bloomberg has a recap – U.S. Options Volume Surged to Record in 2018
Stock Traders Win, Bond Desks Lose in Volatile Year; Equity-trading desks at biggest U.S. banks have biggest revenue year since financial crisis
Telis Demos – WSJ (SUBSCRIPTION)
Fear and uncertainty over rising interest rates, trade spats and global politics sent stocks swinging and created a boon for trading in those markets. Equity-trading desks at the five biggest U.S. banks are set to record their biggest revenue year since the 2008 financial crisis, according to company reports and analyst forecasts.
****SD: Speaking of bond markets and volatility, see the WSJ’s Bond Market Faces Greater Volatility in New Year
Back to Normal Felt Anything But Average for Stock Bulls in 2018
Elena Popina and Vildana Hajric – Bloomberg (SUBSCRIPTION)
Average daily VIX in 2018 was 16.6, roughly the median year; The year-over-year change in volatility is among biggest ever
As bad as it repeatedly has seemed, in the end 2018 really was a ho-hum year for stock turbulence. So why did it feel so harrowing? Simple. Because of how abnormally calm things were in the past.
Bad Liquidity or Bad Markets? Traders Weigh in on Stock Tumult
Justina Lee – Bloomberg (SUBSCRIPTION)
A Goldman Sachs study from Dec. 18 saw thinning order books; Market infrastructure gets tested in an extremely rough week
Seeing prices run away is part of doing business in smaller stocks. Seeing it happen when he was trying to fill an order in blue chips recently was something unusual for Beltran de la Lastra.
****SD: *shakes stick* Bad markets!
Review of 2018: Breakups, heartache and meltdowns
Stock market volatility was the recurring story of 2018. Each episode was attributed to something new, and each claimed a new victim: some central counterparties did not collect enough margin to cover February’s moves, attracting the attention of regulators; alternative premia investors were underwater even before a horrible October; and sliding Asian markets in the fourth quarter resulted in a EUR260 million hit at Natixis, tied to Korean structured products.
VIX Topped a Week Ago at 36, Bensignor Group CEO Says
Regulation & Enforcement
India Takes Aim at ‘Extremist’ Speculators With Derivative Rule
Ameya Karve and Ashutosh Joshi – Bloomberg (SUBSCRIPTION)
Regulator sets timeline for physical settlement of derivatives; Short-term volatility until market adjusts: Essel Finance
India will make physical settlement of all equity derivatives contracts mandatory this year in a bid to reduce volatility and reinvigorate the process of borrowing and lending of stocks.
****SD: Extreme speculating is also what you call reaching the summit of Everest and theorizing about existence.
Zamansky LLC Investigates Legal Claims For Investors With Losses From Yield Enhancement Strategies
Business Wire via AP
We are investigating legal claims on behalf of investors who have suffered losses from investing in any “Yield Enhancement Strategy,” or “YES” strategy. A YES strategy is a form of investing where call or put options are sold to enhance returns in relatively stable or flat markets. The YES strategy is often sold as a “safe” or “stable” return strategy for investors. However, YES strategies rely on various options or derivatives to generate the yield, which can involve substantial risk of volatility or loss if the market moves against the position.
****SD: Does anybody market a NOPE product? What would that be?
Insider Trading Remains a Fixture for Securities Enforcement William
Peter J. Henning – New York Times
Trading on confidential information remains hard to resist despite a decade of criminal enforcement and prison terms for those who get caught and prosecuted. And as long as that is the case, insider trading will remain a focus for the Department of Justice and the Securities and Exchange Commission. Four cases in December show that reality.
Five Doom Loops to Navigate in 2019; Be prepared for the appearance of negative feedback cycles in markets as global monetary stimulus is withdrawn.
Satyajit Das – Bloomberg (SUBSCRIPTION)
As the great unwind of global monetary stimulus gains momentum, markets are at increased risk of experiencing doom loops. Investors need to be prepared for these downward spirals, where shocks set off a self-perpetuating sequence of disruptions.
This Was a Great Year to Be a Math Geek; And 2019 is shaping up to be pretty good, too.
Scott Duke Kominers – Bloomberg (SUBSCRIPTION)
For math geeks like me, 2018 was a banner year: not only was it a year in which the field’s top prize was awarded, it was the only year in this century featuring days lining up with both the Golden ratio, an elegant proportion found throughout art and nature, and the mathematical constant e, which is at the core of calculus.
What were the best and worst performing US stocks of 2018? The biggest movers include Goldman Sachs, Merck and AMD
Nicole Bullock, Robin Wigglesworth and Robert Armstrong – Financial Times (SUBSCRIPTION)
Investors have brought down the curtain on a volatile and ultimately negative year for US equities, and it is time to hand out gleaming trophies to the star performers ó and wooden spoons to the laggards. In a dangerous year ó when Facebook could drop more than $120bn of market value in a single day, the largest one-day dollar loss of any listed company in US history ó there were also big gains to be had, too.
Showtime is set to air a dramatic comedy on the ’87 financial crash. It looks a lot like the current Wall Street melodrama.
Steven Zeitchik – Washington Post (SUBSCRIPTION)
When David Caspe and Jordan Cahan began developing a fictional show about the Wall Street crash of 1987, the world was just emerging from the 2008 financial crisis, and the pair sought to illuminate that present by shining a light on the past.
****SD: A lot more people are going to know about stuff like the “O’Hare Spread” after the show comes out (no relation to our web series “The Spread”).