Observations & Insight
Mark Haraburda, Kevin Darby, Brian Mehta
Mike Unetich: The Path to Electronic Trading
Mike Unetich always liked trading and investing classes in college and in fact started trading options from his dorm room. He saw newspaper ads for option floor clerks and through some friends who worked at Spear, Leeds & Kellogg in New York was referred to DRW in Chicago, where he was hired.
He started in the Eurodollar pit, then at the age of 24 transferred to the 10-Year Note options pit at the Chicago Board of Trade. He would also trade on the CBOE for DRW before breaking off for himself and trading Eurodollars.
Barclays Sees VIX Plunging to Pre-Covid Level in Clear Biden Win
Yakob Peterseil – Bloomberg
Wall Street’s fear gauge is poised to tumble to pre-pandemic levels in the aftermath of a clear-cut election victory for Joe Biden even if U.S. stocks decline in its wake, according to Barclays Plc.
In projections more aggressive than the futures market is pricing in, the Cboe Volatility Index will likely drop to “at least” 20 if a win for the Democratic contender is confirmed shortly after the Nov. 3 vote, the bank told clients this week.
The Stock Market Senses Trouble Ahead. Bonds Do Not. Which One Is Right?
Alexandra Scaggs – Barron’s
Two financial-market risk metrics are telling conflicting stories about uncertainty in the U.S. corporate sector, according to BofA Securities.
The first is the Cboe Options Exchange’s Volatility Index, or the VIX, which reflects expectations of future S&P 500 swings based on options pricing.
Saba Capital’s Boaz Weinstein Predicts Credit Chaos Around U.S. Election
Erik Schatzker – Bloomberg
Never in his 22-year career has Boaz Weinstein seen such a disconnect between the complacency of credit investors and the anxiety of equity investors, and he predicts it could unravel in an “incredible move” around the Nov. 3 U.S. election. While the stock market is pricing in turmoil with the CBOE Volatility Index close to 30, corporate bond spreads have almost recovered to pre-pandemic levels. To Weinstein, the founder of Saba Capital Management and one of the biggest winners in the pandemic selloff in March, something has to give. He’s anticipating a new bout of credit chaos and hoping to add to the 80% return through September in his flagship hedge fund.
Exchanges and Clearing
Eurex Improve: For guaranteed execution at the best price; Markus-Alexander Flesch, Market Development at Eurex, tells The TRADE about the launch of Eurex Improve earlier this year and explains how the tool delivers benefits to all participants of a transaction.
What is Eurex Improve and when did it launch?
Markus-Alexander Flesch: Eurex Improve is a client flow facilitation service that we launched for all equity options and equity index options in February this year. It provides our members with a tool that guarantees their buy-side clients full execution of their orders below minimum block trade sizes at the best price available in the Eurex order book.
Is Eurex’s Lending CCP Succeeding in Expanding the Size of the Market?
Josh Galper – Eurex
Eurex’s Lending CCP is the first global example of a CCP that offers buy-side membership for securities lending services. When the idea was discussed in the early 2010s, borrowers were immediately interested but the buy-side and agent lenders took longer to sign on. By 2020, however, Eurex was successful in seeing buy-side firms come directly to the CCP and agent lenders participating on behalf of underlying clients. Both market participants and Eurex report that there are important points of momentum that prove the value of the model.
Reduction of the Minimum Price Increments of the Monthly and Weekly Options on the Russian Ruble/U.S. Dollar (RUB/USD) Futures and Options on the South African Rand/U.S. Dollar (ZAR/USD) Futures
Effective Sunday, November 22, 2020 for trade date Monday, November 23, 2020, and pending all relevant Commodity Futures Trading Commission (“CFTC”) regulatory review periods, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the Price Increment rule of the Monthly and Weekly Options on Russian Ruble/U.S. Dollar (RUB/USD) Futures and Options on the South African Rand/U.S. Dollar (ZAR/USD) Futures (the “Contracts”) to reduce the minimum price increment of the Contracts (collectively, the “Rule Amendments”) as noted in the table below
CME Globex Notices: October 19, 2020
Higher Trading Volumes, Index Revenues Boost Nasdaq
Shanny Basar – Traders Magazine
A record quarterly trading volume in U.S. options and higher licensing revenues from its index business contributed to increased revenues in Nasdaq’s third-quarter results. Total third quarter net revenues were $715m (EUR602m), a rise of $83m, or 13%, from the prior year period. Adena Friedman, president and chief executive of Nasdaq, said on the results call: “Our third quarter results highlight the strength of Nasdaq’s diversified product offerings and business model, capitalizing on opportunities presented by 2020’s capital markets backdrop, including elevated trading volumes, rising index valuations and robust IPO issuance, while also continuing to execute against the secular opportunities arising from our clients’ evolving longer-term needs.”
Regulation & Enforcement
Why Ditching Libor Is Vexing the Financial World
William Shaw and Silla Brush – Bloomberg
Declaring an end to Libor is one thing, making it happen another altogether. The deadline to drop the discredited London interbank offered rate is approaching at the end of 2021, leaving the financial world scrambling to adjust contracts on hundreds of trillions of dollars’ worth of products, from mortgages and credit cards to derivatives. The risk of a chaotic transition has been likened to Y2K and the fear of computer systems misfiring at the end of the last millennium, only with the added challenge of a global pandemic thrown in. Whether the outcome will be as benign as Y2K turned out for the financial industry is about to unfold.
Applied Derivatives becomes first broker to distribute Trading Technologies platform in South Africa
Annabel Smith – The Trade
Chicago-based technology provider Trading Technologies (TT) has signed an agreement with Applied Derivatives which becomes the first broker to distribute its TT platform in South Africa. Applied Derivatives is providing international TT clients with access to the Johannesburg Stock Exchange (JSE) for the trading of all equity and currency derivatives, including futures and options.
These Stocks Could Benefit From an Economic Reopening. How to Play Them With Options.
Steven M. Sears – Barron’s
The gods must have an evil sense of humor.
Covid-19 has forced tens of millions of people to spend more time than ever before at home—often glued to TVs or computer screens—and everyone is under a nearly constant assault of nasty political ads.
A Biden Blue Wave Would Lift These Sectors
Daren Fonda – Barron’s
Rising stock prices in the months leading up to a presidential election almost always predict that the incumbent will be re-elected. But not this time. Although the race has tightened lately, polls are pointing to a victory by Joe Biden, while the S&P 500 index has gained 4.5% since Aug. 3—signals that history won’t repeat itself this time.
If Biden does win—and if Democrats sweep Congress, as polls also indicate—it could be a good sign for cyclical parts of the market, said Jeffrey Schulze, investment strategist with ClearBridge Investments. Democrats aim to spend at least $2 trillion to $3 trillion on an economic stimulus package, and have proposed additional spending on green energy and infrastructure.
Stock-market volatility can surge by 20% in the 2 weeks prior to Election Day—but don’t act rash
Mark DeCambre – MarketWatch
In the long-run politics may not matter for the stock market, but that may not stop investors from making bets on presidential election races.
Wells Fargo Investment Institute’s Chao Ma, global portfolio and investment strategist, highlights a chart that shows the degree to which expectations for volatility can swing higher in the lead-up to Election Day on Nov.3 when voters will determine whether incumbent President Donald Trump or and Democratic challenger former Vice-President Joe Biden will occupy the White House.
Options 101: Now Available on OCC Learning
OCC, the world’s largest equity derivatives clearing organization, is committed to providing thought leadership and education to market participants and the public about the prudent use of all OCC-cleared products. One of the ways that OCC supports its mission is through the programs and services of The Options Industry Council (OIC). For nearly 30 years, OIC has strived to continuously evolve its educational offerings to help investors learn about the benefits and risks of trading options.
(Podcast) OPR 336: Hunting for Volatility with MSFT Ratio Spreads
Options Playbook – Options Insider Network