Observations & Insight

21 questions about 50 cent
Joe Rennison and Christian Pfrang – Financial Times
A corner of Wall Street has been gripped by the unknown identity of a trader that has been buying up Vix call options priced at 50 cents each, swelling to account for nearly 10 per cent of the listed market. The FT has now reported that bankers with knowledge of the trades say the so-called “50 Cent” – a reference to the American rapper known for his breakthrough album Get Rich or Die Tryin’ – is the well-heeled, London fund called Ruffer, which even boasts an Earl as one of its founders.

****SD: It seems that the market finally solved the mystery of the “50 Cent” VIX call buyer, which is perfect timing because I thought today would end up being 100 percent French election content. Enjoy the unexpected levity that comes from a bunch of rap references in derivatives news. FT broke the story and that article is our lead. So now you can ask, “What do Vitamin Water, a renovated castle, VIX derivatives, Ruffer and the borough of Queens have in common?” and the answer will be “50 Cent.”

Lead Stories

’50 Cent’ trading mystery focuses on $20bn London fund; Wall Street bankers say Ruffer is investor buying insurance against market meltdown
Joe Rennison, Christian Pfrang and Miles Johnson – Financial Times
For several months, the identity of a mystery buyer of millions of dollars of insurance against financial meltdown has consumed Wall Street traders. The investor, who has been regularly sweeping into an obscure corner of the derivatives market and purchasing contracts priced at half a dollar, has been dubbed “50 Cent” after the US rapper known for his album Get Rich or Die Tryin’. Several bankers and traders familiar with the trades believe that the buyer lies far from the streets of lower Manhattan.

****SD: If all of the analysis is accurate, Ruffer’s trades account for 8.5 percent of the VIX call open interest. Other stories – 50 Cent Fund Manager Unmasked, But He Uses More Than VIX Options To Hedge and Ruffer named as mystery ’50 Cent’ buyer of ‘fear’ options

Traders Vote Macron as Le Pen Vows to Wipe the Smiles Off Their Faces
Isobel Finkel – Bloomberg
Most investors say they’re betting on, hoping for Macron win; Reaction could be severe if right-winger Le Pen surprises
With Marine Le Pen’s “smirking banker” insults failing to rattle her adversary in the final debate of the French presidential election, markets are looking decidedly cheerful.

****SD: I can’t help but chuckle at the line “reaction could be severe if right-winger Le Pen surprises.”

Trading volatility? Good luck catching that sharp knife
Robin Wigglesworth – Financial Times
The father of the Vix index, Professor Robert Whaley, was becoming worried in early 2010 that the stock market was due for some turmoil, so he bought a newfangled exchange-traded note that tracked his famous invention. But it blew up in his face.

****SD: What a lede. I wonder if Whaley made the trade over a Guinness in his basement? I will say the last time I caught a knife that I knocked off the counter, I was left bloody but also very proud of my reflexes…

Euro Options Offer Cheap Last-Minute Hedge for Le Pen Win: Chart
Paul Dobson – Bloomberg
For investors having a last-minute wobble about whether they’re hedged for France’s presidential election, overnight volatility on the euro versus the dollar shows options are relatively cheap. Deutsche Bank AG estimates the pair would tumble by 3 to 6 percent at the open if far-right candidate Marine Le Pen were to win, given her open discussions about abandoning the euro and the fact that few people are positioned for this outcome, meaning the effect would be magnified.

****SD: Also from Bloomberg – Euro Bulls Look for French Voters to Seal the Deal: Macro Week

Virtu CEO Aims to Be the Good Guy of High-Speed Trading
Alexander Osipovich – WSJ
High-frequency trading firms are often cast as villains. Virtu Financial Inc. Chief Executive Douglas Cifu is determined to be seen as one of the good guys. That’s increasingly important to the silver-haired, 51-year-old Long Island native as his firm moves to take over rival KCG Holdings Inc. If the deal is completed, Virtu’s trading volumes in U.S. equities would more than double, and it would handle around 20% of all shares…

Exchanges and Clearing

Bats Announces New Complex Order Options Functionality
Exchange will offer complex order functionality in late 2017; Augments CBOE Holdings leading position in the U.S. options market
Bats, a CBOE Holdings, Inc. company, and a leading operator of equities and options exchanges in the United States, announced today that it is planning to launch new complex order functionality on its EDGX options exchange.

Key Takeaways From ICE’s Q1 Earnings
Trefis via Nasdaq
IntercontinentalExchange ( ICE ) reported a timid start to the year, with revenue of $1.16 billion, about in line with the prior year quarter. In line with our expectations, a massive decline in trading volumes across equity options and cash equities was a primary deterrent to growth. However, that is primarily because of a tough year-on-year comparison due to the volatility seen in the global economy at the beginning of 2016 resulting from uncertainty around oil prices , a slowdown in China and slow GDP growth in the U.S. at the time. Interest rate derivative volumes saw a massive surge supported by a couple of rate hikes in the past 4 months.

OCC and EquiLend Clearing Services Partner on CCP Securities Lending
OCC (Options Clearing Corporation), the world’s largest equity derivatives clearing organization, and EquiLend Clearing Services (ECS), the global securities finance trading platform and technology provider, have joined forces to bring greater access to central counterparty clearing in the securities finance marketplace.

SGX reports market statistics for April 2017
Total Derivatives volume was 13.55 million, down 14% month-on-month and down 9% year-on-year.

Symbol Migration Schedule for Nasdaq ISE transition to INET
Nasdaq Options Trader Alert
Effective Monday, June 5, 2017, Nasdaq ISE (ISE) will begin migrating symbols to the INET platform. Participants will be required to begin using INET Specialized Quote Feed (SQF) and/or Ouch to Trade Options (OTTO) connections for the migrated symbols on the dates provided in the Detailed ISE Symbol Migration Schedule, while continuing to utilize existing ISE DTI connections for symbols that have not yet migrated.

Regulation & Enforcement

New U.S. trading database to cost industry $50.7 million this year
John McCrank – Reuters
A new stock and options trading database ordered by the U.S. Securities and Exchange Commission after the May 2010 flash crash will cost brokers and exchanges $50.7 million for the fiscal year ending Nov. 21, regulatory filings show.


A Biotech Warning Sign?
Steve Sears – Barron’s
The options market is flashing a warning sign for biotechnology investors. The last time this happened in late January, the options market proved to be a leading indicator. This suggests that investors are starting to worry about about key biotechnology indexes iShares Nasdaq Biotechnology (IBB) and SPDR S&P Biotech (XBI), which have outperformed the Standard & Poor’s 500 Index by about 8% so far this year.

Volatility near record lows a bad omen for stock returns
Saqib Iqbal Ahmed – Reuters
U.S. stock market volatility is close to record lows and, going by history, that does not bode well for stock market returns over the next twelve months.

It’s Almost Election Day in France…Again
ETF Trends
The finale of the French presidential election is scheduled for Sunday with centrist Emmanuel Macron and far-right candidate Marie Le Pen facing off. Predictably, that has traders keeping tabs on the iShares MSCI France ETF (NYSEArca: EWQ), the largest France exchange traded fund trading in the U.S.

****SD: 2.18 put-to-call ratio in EWQ. No surprises there.


Watch China and commodities to track markets’ fear factor
Michael Mackenzie – Financial Times
Investors constantly wrestle with the fear factor. The fear of losing money often prompts bad decision-making, such as selling shares after they’ve slumped. Another primary fear is missing out on a rally, an emotion that tends to drive more money into an asset class when prices are at or near a top.

The Cost-Cutting Conundrum: Not All Costs Are Created Equal
Zohar Hod, truePTS – TABB Forum
Cost cutting has become a major pillar in recent years of capital markets firms’ attempts to adjust performance to the new business environment. But not all costs are the same, and not all cost-cutting measures are the right ones to make if you want your business to thrive for years to come. Here’s what you need to consider when deciding how and where to reduce costs.

OPEC Runs Out of Options as Bid to Boost Oil Price Fizzles
Grant Smith – Bloomberg
OPEC’s plan to boost oil prices by cutting production has fizzled, yet it has little choice but to stick with it.

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