Banks’ sizzling derivatives trading; Options markets creeping fear

Jul 17, 2018

Banks’ sizzling derivatives trading; Options markets creeping fear

Jul 17, 2018

Spencer Doar

Spencer Doar

Associate Editor

Observations & Insight

June 2018 Global Derivatives Volumes via FIA
(Click for larger image)


Shortwave Trading – Part IV – Sleuthing Examples, Research Tools, Techniques, and Deputy Antenna Sleuth Homework
Bob Van Valzah – Sniper In Mahwah
After my first few public posts about shortwave trading, I gradually realized that I’d inadvertently created a worldwide network of deputy antenna sleuths. This is the final post in the Shortwave Trading series since the terms of my forthcoming employment agreement will prohibit me from future public talk on the technology of trading. I want to leave behind details on some of the research tools and techniques I’ve used. This is how the sausage is made.

****SD: An NDA puts an end to the work of my favorite accidental investigative reporter…


FIA family pays tribute to Bernadette Connolly, a well-respected, loyal colleague and friend
With great sadness, FIA today announced the passing of Bernadette “Bernie” Connolly, a longtime and highly respected staff member in the London office. Although living with a terminal illness for a number of years, Bernie continued to be the steady cornerstone of FIA’s events in Europe.

Lead Stories

Derivatives trading continues to sizzle as banks report stellar second quarter earnings
Alex Morell – Business Insider Prime (SUBSCRIPTION)
Wall Street banks have followed up their stellar 2018 debut in stock trading with another robust performance in equities in the second quarter.
JPMorgan Chase, Citigroup, and Bank of America Merrill Lynch all saw strong second-quarter earnings in the past week, with each reporting a second consecutive standout performance from their equities divisions.
Derivatives trading, which has particularly benefited from the rebound in volatility, has played a key role in the first half of the year.

****SD: Now we’ll have to see what happens with the Volcker revamp.

Options Markets Show a Creeping Fear That 2018’s Winners Will Fall Flat
Luke Kawa – Bloomberg (SUBSCRIPTION)
Investors hedging against downside in high-flying tech shares; High expectations for individual stocks, concern about indexes
Traders are starting to worry that U.S. technology and domestically focused stocks are getting tired of winning.
As quarterly earnings reports begin to trickle out, there’s heightened demand for options that provide protection against a downturn in the Nasdaq 100-tracking Invesco QQQ Trust Series 1 exchange-traded fund, better known by its symbol QQQ, as well as the iShares Russell 2000 ETF, ticker IWM.

****SD: IDB has this Bloomberg story published off the wire.

Fund managers say trade spat is the biggest risk stocks have faced in years
Ryan Vlastelica – MarketWatch
The S&P 500 is back at multimonth highs while the Nasdaq has returned to records, an uptrend that has spurred a resurgence in optimistic short-term sentiment, but hasn’t wiped out all caution.
In an environment marked by geopolitical tensions; a Federal Reserve that is becoming less accommodative, contributing to a flattening yield curve; and an earnings season that may not be strong enough to fuel further gains, expectations have fallen sharply. And the economy’s prospects may be bleaker due to what fund managers see as the biggest risk the stock market has faced in years: a global trade upheaval.

****SD: Meanwhile on the Jerome Powell front (via the FT) – Central bank chairman gives bullish testimony but is uncertain of impact of trade war

Warnings of Market Complacency Are Growing Louder
BLiz McCormick and Lu Wang – Bloomberg (SUBSCRIPTION)
BlackRock’s Fink sees tariffs possibly fueling stocks losses; Yet shares have gained 3 straight months, bond swings subdued

****SD: Also from Bloomberg – Investors With $542 Billion Fret Biggest Risk Since Euro Crisis

Crude-Oil Caution: Volatility Ahead
Crystal Kim – Barron’s (SUBSCRIPTION)
Brent crude is trading at its lowest point since early April, but could touch $80 a barrel later this year. The path there will not be smooth, says a Goldman Sachs analyst.

****SD: From the piece – “Courvalin attributes the weakness in Brent time spreads… to stranded North Sea barrels as a result of a rise in U.S. exports and a slowdown in Chinese imports – not because inventory is starting to bloat again.” See Exchanges for the oil-related news from ICE.

The VIX Index Is Nearly Twice More Volatile Now Than Bitcoin
Naeem Aslam – Forbes

****SD: This is a bitcoin story – all you need to know is in the title.

Exchanges and Clearing

Export Boom May Give Houston New Status as Oil-Futures Hub
Stephanie Yang – WSJ (SUBSCRIPTION)
Houston is set to get its own oil futures, a sign of the city’s growing importance as the U.S. sends more crude abroad.
Intercontinental Exchange Inc. is planning a new crude futures contract with physical delivery in Houston, the company said Tuesday. The contract will provide traders with direct access to Houston prices. The exchange is aiming to launch this quarter, subject to regulatory review.

****SD: I included this as it seems logical that options on the futures would follow. Press release from ICE here.

R.J. O’Brien Limited Joins LCH’s EquityClear as Clearing Member
…EquityClear enables members and their clients to clear cash equities and equity derivatives on exchanges and trading venues located throughout Europe. Compliant with the UK client asset segregation rules, EquityClear has an over-the-counter (OTC) equities contracts for difference (CFD) offering that strengthens transaction flow by bringing these traditionally bilateral OTC products onto a central clearing house.


Bill Gross Scales Back Bund-Treasury Bet That Led to Quarterly Loss
John Gittelsohn – Bloomberg (SUBSCRIPTION)
Bill Gross says he scaled back his wager that yields on U.S. Treasuries and German Bunds would converge after the position led to losses in the second quarter.

****SD: Recall that his “bad” bund-treasury bet was the one responsible for his fixed income derivatives based fund’s more than three percent one day drop in the second quarter.

Netflix Is Rebounding and Taking Tech With It
Kamaron Leach and Elena Popina – Bloomberg  (SUBSCRIPTION)
…Options traders were in no rush to hedge against potential losses in Netflix shares going into the earnings release Monday afternoon. The cost of protecting against a 10 percent drop in the stock fell to the lowest level since February, data compiled by Bloomberg show.

****SD: I bet SIG is having fun – they’re the DPM for Netflix at Cboe.


University of Oxford launches first algo trading course
Hayley McDowell – The Trade
The first algorithmic trading programme has been established by the University of Oxford’s business school aimed at teaching traders about systematic trading strategies.


Lloyd C. Blankfein to Retire as Chairman and Chief Executive Officer of Goldman Sachs; David M. Solomon Named as Successor
Goldman Sachs
The Goldman Sachs Group, Inc. (NYSE: GS) has announced today that Lloyd C. Blankfein will retire as Chairman and Chief Executive Officer and that the Board of Directors has appointed David M. Solomon to succeed him in both roles.

****SD: It’s official – DJ D-Sol will man the helm. Looks like he’s taking the advice of his own summer single – “Don’t Stop.” Vanity Fair commentary – Can David Solomon, Woke D.J. and Blankfein’s Heir, Remake Goldman for the Age of Trump?

Citadel Securities is growing its DMM business
Frank Chaparro – Business Insider  (SUBSCRIPTION)
…When Citadel acquired the DMM business from KCG it made a bet that hiring more staff and more proactively reaching out to potential clients would help it grow, Joe Mecane, head of execution services at Citadel Securities, said in an interview with Business Insider.

****SD: Another non-options Citadel story.

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