How Can We Extend the Success of the VIX to the Whole Equity Options Market?
Timothy Klassen, Volar Technologies LLC – TabbForum
The introduction of the new VIX in late 2003 led to the eventual explosion of trading volumes in VIX futures and options. Volumes in the rest of the listed equity options market have been stagnant for years. More generally, the options market is not transparent, since there is no standard for quoting options in volatility terms. We argue that standards for dividend modeling, borrows, and volatility fitting are at hand, and can be a huge benefit to the market, similar to the introduction of the new VIX.
****SD: This one slipped through the cracks last week.
OPEC set to prolong oil output cuts by nine months
Alex Lawler, Rania El Gamal and Ahmad Ghaddar – Reuters
OPEC is likely to extend production cuts for another nine months, ministers and delegates said on Tuesday as the oil producer group meets this week to debate how to tackle a global glut of crude. OPEC’s top producer, Saudi Arabia, favors extending the output curbs by nine months rather than the initially planned six months, as it seeks to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel.
Investors Aren’t As In Love With Stocks As You Might Think
Oliver Renick – Bloomberg
Bullish sentiment fading as S&P 500 Index heads back to record; Positioning among institutional investors pulls back
Its bout of anxiety over, the stock market has jumped back to where it was 10 days ago, with headline volatility at bay. But away from benchmark indexes, signs abound that investors are not as head-over-heels for stocks as is generally portrayed.
Why Donald Trump Doesn’t Scare the Market; VIX has stayed low not because the market isn’t worried, but because it doesn’t know exactly what to worry about
Justin Lahart – WSJ
President Donald Trump has stirred plenty of uncertainty, but except for one day last week, he hasn’t shaken stocks. Two economists have a theory for why.
Low Volatility Raises Paranoia Over Leverage in the Quant Fund World
Dani Burger – Bloomberg
The pain of an almost paralyzed stock market has seeped its way into the money machine of equity quants, raising anxiety levels among analysts who say they’ve seen this movie before. It’s below the surface, where collections of look-alike stocks grouped according to investment traits like cheapness or profitability have fallen into even deeper slumber than the market as a whole. Average daily price swings in market-neutral momentum and volatility are the smallest in four years, data compiled by Bloomberg show.
Exchanges and Clearing
Exclusive: ECB plan to take euro clearing from London stalled by infighting – sources
Francesco Canepa and Balazs Koranyi – Reuters
Discord between the euro zone’s three largest countries is stalling the European Central Bank’s efforts to come up with a way to force euro clearing out of London and put it under its watch, three sources told Reuters.
Delta-scaling factors to be modified for important FX, equity and ag products
On the first three Fridays in June, CME Clearing will modify delta-scaling factors for certain important products, as specified below, so that the “full size” product will have a scaling factor of 1 and the “mini” products less than one.
HKEX Announces Launch Date for Revised Stock Option Position Limit Model
New stock option position limits take effect on 1 June; New framework’s three tiers comprise limits of 50,000, 100,000 and 150,000 contracts; Limits will be reviewed annually and adjusted if market development warrants a change; Contract size may be adjusted to reflect corporate action by issuer of underlying stock
Regulation & Enforcement
U.S. CFTC seeks bigger budget than White House proposal
Sarah N. Lynch – Reuters
The Republican-led U.S. derivatives regulatory agency is splitting with the White House over how large its fiscal 2018 budget should be, saying it needs extra funds to help carry out its mission.
****SD: This seems like a tall order.
KCG Said to Eliminate 10% of Staff, Shut Two Offices in Asia
Annie Massa – Bloomberg
Electronic trading firm is exiting Singapore, Mumbai; Will stop trading FX for clients, pare back in European ETFs
Trading firm KCG Holdings Inc., which Virtu Financial Inc. is buying for more than $1.3 billion, is eliminating 10 percent of its staff and shutting offices in Singapore and Mumbai, according to a person familiar with the matter.
NEX hires JP Morgan derivatives exec with post-trade overhaul
Joe Parsons – The Trade
NEX Group has hired JP Morgan’s former US derivatives head following an overhaul of its post-trade businesses, while simultaneously preparing to test a new distributed ledger service.
Joyce’s Arxis Capital Shutting Down, Sources Report
John D’Antona Jr. – Traders Magazine
Has the ax fallen on Arxis? According to several market sources, yes, it has. Electronic market making firm Arxis Capital, founded in 2014 by a team of experienced trading, risk management, quantitative research and technology executives from Bank of America Merrill Lynch’s Global Market Making business, together with seasoned market professionals from several other banks and trading firms.
Horizon Says Buy-side Can Have Algos ‘Their Way’
John D’Antona Jr. – Traders Magazine
Expanding one’s horizon’s is one of life’s pursuits. And when it comes to trading, the buy-side trader wants the biggest horizon scanned in order to fill his order. And traders want to fill their orders their way. Now they can.
R3 Consortium Raises $107 Million from Major Global Banks
Avi Mizrahi – Finance Magnates
R3 has just announced the completion of the first two of three tranches in its Series A fundraising round, securing $107 million in the world’s largest distributed ledger technology (DLT) investment to date.
****SD: I included this story because it has a larger list of investors to demonstrate the success of R3’s pitch.
What low market volatility does not signal
Richard Turnill, BlackRock – Nasdaq
Wall Street’s fear gauge spiked last week amid Washington turmoil. Yet the VIX remains comfortably below its long-term average of around 20, after a stretch of near-record lows. Low volatility isn’t a signal to sell or of imminent sustained higher volatility, in our view.
SPY Put Options Price In Another Shocker
Bernie Schaeffer – Schaeffer’s Research
Options volume exploded last Wednesday as stocks sold off in response to the ever-spiraling series of crises from Capitol Hill, with the Options Clearing Corporation (OCC) recording the highest single-day volume since Nov. 10 — and the most active day for put options, in particular, since June 24. Not surprisingly, the broad-based SPDR S&P 500 ETF Trust (SPY) attracted quite a bit of attention; Trade-Alert data shows SPY generating more than 80% of the day’s ETF option volume.
Strike Selection in Covered Calls
Sage Anderson – tastytrade
One of the most prevalent options trading strategies is the covered call. A covered call means that a trader is short calls, but owns enough stock against them to “cover” any assignment requiring the trader to sell stock to the owner of the calls. The risk profile of a covered call is therefore quite different than that of a naked call seller, who theoretically is exposed to unlimited risk. Selling naked calls is effectively like getting naked short stock, which means there’s significant upside exposure.
An MF Global/Corzine Story You Have Not Heard
Mark Melin – ValueWalk
As former MF Global CEO and Chairman Jon Corzine prepares for the next chapter of life, building a hedge fund in high-profile fashion by speaking at the SALT Conference last Friday and to The New York Times in a major article in published in the Sunday edition, some of the most interesting and meaningful issues and stories remain little discussed.
Night trading showcases Japan’s nimble retail traders
Leo Lewis – FT
The night-time, sang Ray Charles, is the right time: advice that was as sound for courting couples in 1959 as it is for insomniac Nikkei 225 futures traders in 2017. Last Friday, to a ripple of specialist excitement, data for the first three weeks of May showed a critical line was about to be crossed. Since the start of the month, the volumes of the Nikkei 225 Mini futures contract traded in the daytime and night sessions have almost equalised: a sharp spike in late-night activity last week means the ratio for the full month should tip in favour of the night session for the first time.