Observations & Insight
The Spread – Week of 12/4 – 12/8
A JLN debut! The Spread is a brief weekly recap of some of the notable activity in the options world. (It won’t always be this crypto heavy – we swear.)
The following are stories referenced in this week’s episode of The Spread:
- WSJ – What Could Stir Up the VIX? Higher Inflation
- Bloomberg – Pound’s Acid Test on Brexit Is Yet to Come for Options Traders
- Highly Evolved Vol Blog – The Crowded Short Vol Trade
- JLN – Cboe Throws Launch Date Punch at Crosstown Rival CME
- Bloomberg – Congress Passes Two-Week Spending Bill to Avoid Dec. 9 Shutdown
Bitcoin Options Would Tame This Beast
Andy Mukherjee – Bloomberg
The seminal financial event of this year, the current decade, and possibly our generation is here: Futures trading in bitcoin has begun.
****SD: From the story – “Bitcoin options, in their current form, only reward expectations of abnormality: a price gain of 50 percent or more, or an erosion of at least 25 percent, in one month. As the analysts noted, ‘options are so rich, you need a big move up or down in bitcoin to justify their price.’ A straddle on the British pound, by contrast, would make money if the exchange rate moved by just 2 percent either side.”
However, bitcoin is abnormal and has hit those extremes. Bitcoin had 25-plus percent declines and 50-plus percent gains in the last month – with plenty of “small” moves in between. Consider the price justified. Heck, at any given moment the spot price on the top 10 exchanges by volume can vary by a significant amount. As of this writing I see a 5 percent price differential in the top 10.
High Hopes for Low Volatility
Steven Sears – Barron’s (Soft Paywall)
This year is poised to end as the least volatile in the history of the Standard & Poor’s 500 index. But that’s not necessarily a good thing, and investors should be wary of reading too much into volatility figures.
The options market, which has historically excelled at helping investors anticipate and better navigate the future, has been mathematically neutered.
****SD: Sears – “Selling volatility … will remain one of the greatest trades in the world until it stops.” Most things are until they aren’t – except for some of that quantum stuff. (Shout-out to Google’s doodle today honoring Max Born.)
Traders Lament Death of FX Volatility as Torpor Tanks Returns
Alexandra Arnold – Bloomberg
Lack of price swings fuels worst FX manager slump since 2011; Wrong-way dollar wagers also to blame as greenback slides
While most traders would hardly describe 2017 as “dull” — what with the nuclear brinkmanship, disintegration of global trade alliances and numerous presidential tweet storms — one thing has remained conspicuously absent: volatility.
****SD: Re: headline – torpor tanks would be the slowest vehicles on the battlefield.
Weekend Review of VIX Futures and Options – 12/4/2017
VIX and the curve has been in a sort of zig zag pattern over the past few weeks with there being a couple of head fakes to the upside followed by a drop back down to the 2017 norm. The 2017 norm has been all time lows and at last check it will take an average VIX close over 32.00 between now and the end of the year for 2017 to not go down as the lowest average VIX close on record.
Exchanges and Clearing
Exchange chief accuses derivatives lobby of ‘cheap shot’ over bitcoin futures
Samuel Agini – Financial News
The chairman and chief executive of Cboe Global Markets has accused an influential derivatives lobby of aiming a “cheap shot” ahead of the launch of bitcoin futures, which began trading on the exchange on Sunday.
Edward Tilly told Financial News that comments last week from the Futures Industry Association’s CEO Walt Lukken, who suggested that bitcoin futures had come to market too quickly, were “irresponsible”.
****SD: This will make for some interesting FIA conference dynamics.
Bitcoin Futures Debut With 26% Rally, Trigger Cboe Trading Halts
Rob Urban, Camila Russo and Yuji Nakamura – Bloomberg
Cboe trading resumes after two circuit-breakers tripped; Derivatives may ease wagers on cryptocurrency’s rise or fall
Futures on the world’s most popular cryptocurrency surged as much as 26 percent in their debut session on Cboe Global Markets Inc.’s exchange, triggering two temporary trading halts designed to calm the market. Initial volume exceeded dealers’ expectations, while traffic on Cboe’s website was so heavy that it caused delays and temporary outages. The website’s problems had no impact on trading systems, Cboe said. Bitcoin’s spot price rose.
****SD: From Cboe’s blog – Hedging bitcoin with XBT Bitcoin Futures
Cboe Bitcoin Futures (XBT) Post Strong Start in Global Trading Hours, Continue First Full Day of Trading Today
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced the successful launch of Cboe bitcoin futures. XBT futures posted a strong start in the Global Trading Hours, which began as planned at 5:00 p.m. CT on Sunday, December 10, 2017.
****SD: 20 trading firms participated.
Intercontinental Exchange Appoints Boudewijn Duinstra as Head of First Line Clearing Risk for ICE Clear Europe
Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that Boudewijn Duinstra has joined ICE Clear Europe as Head of First Line Clearing Risk.
BSE Revises Transaction Charges In Currency Derivatives Segment From Jan 1 In F&O Contracts
BSE has decided to revise transaction charges in currency derivatives segment from 1st January 2018 in futures and options contracts
R.J. O’Brien Becomes Latest Distributor Of Fidessa Workstation
Fidessa group plc (LSE: FDSA) today announced that R.J. O’Brien has signed a global agreement to distribute Fidessa’s award-winning futures and options workstation in order to meet demand from its institutional clients, initially in the UK and Europe. R.J. O’Brien is one of the largest independent futures brokerages and one of the world’s premier clearers specialising in exchange-traded futures and options.
Vela ready for Bitcoin futures trading on Cboe and CME
Vela, the premier market access technology provider, today announced the support of Bitcoin futures. Firms that wish to take advantage of the new Bitcoin futures contracts from Cboe Futures Exchange (CFE) and CME Group Inc. (CME) will be able to receive market data and trading access without delay from launch. Data and trading access to the Nasdaq Bitcoin Futures contracts will also be available on launch in 2018.
G. H. Financials Limited Implements Born Technology’s CrossCheck Solution for MiFID II Real-Time Surveillance
Today Born Technology announced that G.H. Financials Limited, the global clearer of exchange traded derivatives, is implementing CrossCheck to manage their real-time surveillance needs mandated by the MiFID II regulation in Europe. The gold standard for compliance with MiFID II real-time monitoring obligations, CrossCheck consolidates multiple data feeds of real-time trading activity to provide surveillance and alert notification capabilities.
Regulation & Enforcement
SEC to delay mutual fund disclosures in cybersecurity push
Pete Schroeder – Reuters
The U.S. Securities and Exchange Commission said on Friday it would delay new submissions of portfolio data by mutual funds, as the regulator beefs up its cybersecurity.
Don’t try to short the bitcoin bubble, warns Nassim Nicholas Taleb
Harry Wilson – The Times (Free Registration)
A world expert in financial options has warned that those hoping to use futures contracts to bet against the spiralling price of bitcoin were doomed to lose money.
Nassim Nicholas Taleb, an authority on derivative markets, said that there was “no way to short the bitcoin ‘bubble’ ” properly.
Bitcoin Futures Launch Could Revive ETF Push, CBOE Says
A new era kicks off today with the listing of the first bitcoin futures contract on the Chicago Board Options Exchange (CBOE).