Observations & Insight
****Look at APAC go! You can download a spreadsheet file with more in-depth breakdowns of the volumes and open interest here.
****SD: The record for most overall cleared contracts at OCC has already been set (by about 200 million contracts) with still a few weeks to go in 2018. The above is a chart of just OCC equity options volumes over time. Below is a chart of the growth of OCC-cleared non-equity options volumes.
Violent Stock Reversals Coming Faster Than Any Time Since 2011
Lu Wang – BloombergQuint
Equity investors are getting used to whiplash.
They got a dose today, when the S&P 500 wiped out a 1.4 percent rally. And the day before, when a 1.9 percent loss was erased. So far, there have been six days this quarter when stocks completely reversed an intraday move of at least 1 percent, the most since 2011, when Standard & Poor’s downgraded the U.S. sovereign rating, sending stocks to the brink of a bear market.
Volcker 2.0 to turn up volume of trading, chop compliance costs
Nathan Dean – Bloomberg Intelligence
Investment banks stand to increase trading market-making volumes and shave compliance costs under the proposed rewrite of the Volcker Rule. It’s not a total win — prop trading is still banned. Yet banks will be able to set internal risk limits with regard to underwriting and gain opportunities to invest in covered funds. The rule should be finalized in mid-2019.
On January 29 The VXX Will Cease To Exist: What This Means For The Market
Over the past decade, few ETFs have been as hated (or really, really hated and occasionally loved) as the VXX Volatility ETN. After the spectacular implosion of the inverse VIX ETN/ETF universe in February’s 5-sigma VIXtermination event … the VXX emerged as the largest VIX exchange-traded product (ETP).
****SD: This is one of those increasingly rare instances where ZeroHedge really does have some nice excerpted content that I cannot find anywhere else – they excerpt a note from Goldman strategist Rocky Fishman that covers a ton of VXX termination Q&As.
Pound Traders Are Betting on May to Survive
Charlotte Ryan and Shoko Oda – BloombergQuint
Volatility surges ahead of no-confidence vote late Wednesday; Traders are covering short positions, TD’s Rumpeltin says
The pound headed for the biggest gain in a month on increased confidence U.K. Prime Minister Theresa May will survive a leadership challenge, amid reports that she had the backing of a majority of Conservative Party Parliament members.
How one investor’s Amazon misfire led to a 99% loss in his trading account; Reddit Sob stories are piling up on WallStreetBets
Shawn Langlois – MarketWatch
If you’re feeling bruised and battered by this whipsaw stock market, you might consider heading over to Reddit’s “WallStreetBets” board. You’ll find of plenty of company in your misery. One options-flipping YOLO’er by the name of MightBePresident, for instance, shared his story of a wildly volatile, and ultimately devastating, year of trading.
****SD: If true, this is nothing compared to the story making the rounds today of a guy losing $850k, leaving less than $10k in his IBKR account. But these stories are frequently not a true reflection of the case. Screenshots of account balances can be gamed a bit depending on the broker. The takeaway generally is that r/wallstreetbets offers a daily chance to see a more minnow-y version of the OptionSellers blowup – people making really bad decisions with no concept of risk management who then, whaddya know, lose a boatload of their gambling stash.
Hedge funds notch up fourth consecutive month of negative returns in November
The global hedge fund industry returned -0.31 per cent in November, bringing year-to-date returns to -2.81 per cent and marking the fourth consecutive month of negative industry returns, according to the just released eVestment November 2018 hedge fund performance data.
South African rand’s volatility grows as economic risks gather
Mfuneko Toyana – Reuters
Volatility at levels last seen during finance minister reshuffle; Ratings downgrades, elections seen as main risks
Implied volatility on South Africa’s rand rose by its most since the last finance minister reshuffling in October, amid worries over the country’s sovereign credit ratings, power supply interruptions and next year’s elections.
Washington STEO highlights: EIA cuts Brent, WTI 2019 forecasts nearly $11/b amid supply glut
Brian Scheid and Meghan Gordon – S&P Global Platts
The US Energy Information Administration on Tuesday reduced its forecasts for WTI and Brent spot prices in 2019 by nearly $11/b, largely due to record global output, particularly in the US, and lower-than-expected demand.
****SD: “The implied volatility of Brent and WTI, calculated from options prices, more than doubled during the month, reflecting the market’s heightened uncertainty regarding future oil supply and demand,” EIA said.
Exchanges and Clearing
Cboe names derivatives business leaders with new hires from Goldman and DRW Trading
Hayley McDowell – The Trade
Arianne Criqui joins Cboe from Goldman Sachs, and Rob Hocking joins from DRW Trading, while Matt McFarland is promoted to head of futures at Cboe Futures Exchange.
Cboe C2 Exchange proposes to introduce new risk parameter
Maria Nikolova – FinanceFeeds
A trading permit holder may specify a maximum number of times that the risk parameters are reached over a specified interval or absolute period.
Fixed Income Highlights – December 2018 edition
November was a strong month overall for Eurex, with futures and options volumes up across the board. Despite the European Central Bank meeting being close to expectations, Draghi failed to talk up the possibility of quantitative easing extending beyond December. Although growth was ever so slightly downgraded, the overall picture has held up relatively well. Despite headwinds from Brexit negotiations from a political standpoint, the markets saw an uptick in volatility. This helped to underpin our volumes.
Regulation & Enforcement
Derivatives traders to get one-year market access in no-deal Brexit
Jim Brunsden – Financial Times (SUBSCRIPTION)
Brussels is set to grant a 12-month window for European derivatives traders to continue using crucial UK market infrastructure in the event of a no-deal Brexit, as it seeks to avoid financial turmoil should Britain crash out of the EU.
S&P chart could be forming another bearish pattern
Patti Domm – CNBC
The chart of the S&P 500, which flashed a scary death cross last week, now appears to be forming a new pattern that could be just as ominous.
Market Volatility: A Return To The Old Normal
Sarah Hansen – Forbes
Raise your hand if you think 2018—with its whipsawing days of 500 plus point Dow moves—was evidence that markets are more volatile than ever before. During the last 12 months, the S&P closed above 2,900 for the first time ever but starting in October downdrafts seemed like a daily occurrence. Indeed, 50% of the ten biggest single day gains and declines for the Dow Jones Industrial Average happened in 2018. Everything from Brexit to the trade war tweets to oil prices seemed to spark oversized moves in the stock market.
Markets Conclude the U.S. Is Riskier Than China
Matthew Winkler – Bloomberg Opinion
Now the Treasury has to pay a premium over Chinese bonds to attract investors. They see four major red flags in U.S. debt.
Markets Should Embrace Volatility While It Lasts
Robert Burgess – Bloomberg Opinion via Yahoo
It sounds simple. Buy stocks when there’s news that the U.S. and China are making headway in resolving the escalating trade war. Sell them when the divide seems to be growing. But the problem for markets these days is that it appears as if every positive development seems to be followed closely by a negative one, sometimes within hours, and investors are having a hard time keeping up with the rapid-fire developments.
****SD: Yesterday’s lead story was Bloomberg’s Wall Street Is Making Peace With the New Era of Stock Volatility, and my comment was, “‘Making peace’? Shouldn’t Wall Street be embracing the new era?”
Finance Charlatan of the Year Voting
Vote for your choice for your favorite rogue in finance at the following link. Last year’s winner was Jacob Wohl, 2016’s was Donald Trump and in 2015 it was Martin Shkreli.