tastytrade raises $20m; February’s legacy; ETFs using derivatives; CME latency tricks
Observations & Insight
Hot Friday In Chicago
SD – JLN
With all the trade rhetoric floating around and the market’s intraday gyrations, I haven’t felt the onset of stereotypical summer sluggishness. Until today. Something about waking up to “excessive heat” warnings on my weather app, spot VIX opening lower (S&P 500 up, Dow up, Russell up) and it being a slightly slow day for options news just feels like summer. Well, that and the fact that an array of fireworks have been going off in my neighborhood’s alleys since Wednesday…
Speaking of black powder, it’s a short week next week with the Fourth of July holiday but there is still plenty going on. The Mexican election (and Canada Day) is Sunday, FOMC minutes are Thursday and we get a jobs report on Friday. (Will we get a presidential tweet this time around?) Oh, and the U.S. is scheduled to impose tariffs on Friday, too.
Here are a couple of fun stats for you:
From Bloomberg – “The average move in the S&P 500 is 0.7 percent this year, up from 0.3 percent in 2017. It’s a pace that if maintained would be the biggest increase on record.”
From WSJ – “Since 1928, the stock market has risen on 54% of days, 58% of months and 73% of years.”
Have a great weekend.
CME patent identifies speculative systems used by speculators
Matt Hurd – Meanderful
Paul Westmont tweeted a reference to a new CME patent, “Message processing protocol which mitigates optimistic messaging behavior” published on 28th June 2018.
This patent identifies a few potential techniques, aka tricks, for optimistically processing on a network to improve your effective latency.
****SD: I’m no latency wiz, but this is cool.
Traders Are Still Haunted by the VIX Five Months Later
Lu Wang and Elena Popina – Bloomberg (SUBSCRIPTION)
It’s summer. But in the Florida offices of Raymond James & Associates and at brokerages around the U.S., February is still in the air.
Repercussions from that month’s rout won’t go away — not in chats with clients, not in the market itself. Gone are the days when you could buy an exchange-traded fund tracking the S&P 500 and turn off the ringer. Look away for five minutes, and some customer is on the phone demanding to know what the latest swerve did to his portfolio.
****SD: I like this line from the story – “Investors are like boxers who can’t get their legs.”
tastytrade, Inc. Raises $20 Million in New Funding
tastytrade, Inc., the award-winning, innovative financial media company and parent to financial subsidiaries, announced today $20 million in new funding from TCV. The funding will be used to continue to challenge the traditional financial models and products currently offered to retail, self-directed investors.
The funding follows the company’s 2017 expansion of launching tastyworks, a high-speed technology brokerage firm with low fees and capped commissions. In 2018, the team created an investment advisory initiative called Quiet Foundation based on data-driven research, which provides unique risk analysis of any investment portfolio held at any firm. tastytrade continues to level the playing field by formulating new trading vehicles appropriately sized for retail investors.
SEC proposes to facilitate listing of ETFs investing in derivs
Louisa Chender – Global Investor Group (SUBSCRIPTION)
The US Securities and Exchange Commission (SEC) is consulting on whether certain ETFs that invest in derivatives should be need an exemptive order to list on an exchange.
According to the SEC, growth in the ETF market and experience regulating the instrument has warranted a rule change that would allow most ETFs, particularly those investing in derivatives and participating in securities lending, to operate without first obtaining an exemptive order from the regulator.
****SD: Speaking of funds investing in derivatives, see the below WSJ story on leveraged ETFs.
Investors Can’t Get Enough of Wall Street’s Sucker’s Bets
Spencer Jakab – WSJ (SUBSCRIPTION)
People who compare Wall Street to a casino are usually just bitter about a bad experience. When it comes to some wildly popular products, though, the description fits.
Here’s Why CTA Strategies Are Failing Investors
Julie Segal – Institutional Investor
Twice this year commodity trading advisers, which use trend-following strategies, haven’t lived up to their promise to protect investors during market downturns. Their disappointing performance is the result of changes many CTAs have put in place in the last decade, according to critics.
Regulation & Enforcement
Australian regulator says pension funds misrepresenting cash investments
Paulina Duran – Reuters
Australian fund managers overseeing the country’s A$2.6 trillion ($1.91 trillion) retirement savings pool are misrepresenting as cash what are in fact investments in risky credit instruments and derivatives, a regulator said on Friday.
Rattled Investors Seek Protection Against Yuan Swings
Chelsey Dulaney – WSJ (SUBSCRIPTION)
Investors, rattled by this week’s tumble in the Chinese yuan, are paying up for protection against further swings in the currency.
One indicator of demand for protection against yuan declines – the cost of put options for offshore yuan versus the price of call options for the U.S. dollar – has been rising, according to Brad Bechtel, global head of FX at Jefferies Group.
****SD: Also from WSJ – Tariff Threats Pummel Yuan in One of Its Worst Months on Record
Managing Volatility Risk (VIDEO)
Interactive Brokers chief options strategist Steve Sosnick discusses how to manage volatility risk in the current market environment.
History Shows Emerging-Stock Slump Is Nothing To Fret About, Yet
Srinivasan Sivabalan – Bloomberg
In the history of emerging-market stocks, there have been few years that began with such cheerful prospects as 2018 … and even fewer first halves that ended with such disappointment.
Investors are $2.2 trillion poorer than they were six months ago, the benchmark index is close to a bear market, exchange-traded funds are seeing the worst outflows in 4 1/2 years and short traders are moving in for the kill. It does look as though the rally that added $8 trillion to equity values since January 2016 is well and truly over.
But looks can be deceiving.
Wall Street Left Reeling as 2018 Upends Almost Every Bet
Natasha Doff and Todd White – Bloomberg (SUBSCRIPTION)
Favorite emerging-market stocks, bonds crumble under dollar; ‘People woke up to a different world,’ says Aberdeen’s Athey
Chip stocks have been hammered, and a rare divergence could point to even more ‘coming trouble’
Annie Pei – CNBC
Chip stocks have plunged almost 6 percent in the last month, and Todd Gordon of TradingAnalysis.com says there’s even more trouble ahead for the group.
The 7 Reasons Most Machine Learning Funds Fail
We’ve teamed up with Dr Marcos López de Prado*, CEO of True Positive Technologies^ and a leading expert in mathematical finance, for a special webinar based on his popular research identifying why most machine learning funds fail.
City veteran Michael Spencer leads $16.5m series B investment into biometric fintech startup Veridium
Founder of NEX Group and serial entrepreneur Michael Spencer has led a $16.5m series B fundraising round into a biometric fintech startup called Veridium.
****SD: Did anyone think he was going to quietly ride into the sunset after the NEX/CME deal?
Profiting from Disruption Trades
Matt Levine – Bloomberg
Also Equifax, stress tests, Bridgewater, paternal disappointment and sports blockchain.
Trump Economist Lawrence Kudlow Wrongly Says Deficit Falling
President Trump’s chief economic adviser Lawrence Kudlow has made a career out of being extraordinarily wrong about everything without ever reconsidering his absolute devotion to the supply-side economics dogma that has produced all the wrongness.
****SD: From the story – “It would not be terribly impressive if the deficit was falling. It should be falling in an economy at peak capacity. It was falling for several years beforehand. Now it’s alarmingly spiking.”