Cryptocurrency Prices Crumble; Traders Pay Through the Nose to Bet the S&P 500 Will Snap Higher; Dow Industrials Cross 26000 for First Time as Earnings Season Ramps Up

Jan 16, 2018

Lead Stories

Cryptocurrency Prices Crumble; Bitcoin, Ethereum Post Large Losses
Cryptocurrency Market under Heavy Selling Pressure
“Only when the tide goes out do you discover who has been swimming naked,” stock market guru Warren Buffett once observed and it looks like the cryptocurrency tide has definitely receded in the last 24 hours with the market showing double digit percentage losses right across the board. The sell-off started in Asia and accelerated when European traders entered the fray, as talk continued to circulate that South Korea was preparing a cryptocurrency ban. Bitcoin and Ethereum prices fell sharply last week after South Korean authorities raided a range of cryptocurrency exchanges.

****JB: It was never a question of “if” but only “when”.

Traders Pay Through the Nose to Bet the S&P 500 Will Snap Higher
If you want to bet that the S&P 500 will march even higher, be prepared to fork out a sizable sum. A record number of investors are happily paying up.
As U.S. stocks trade at all-time highs, the price tag on bearish options has dropped to a trough relative to bullish contracts. The spread between the price of one-month, 25-delta puts and calls for the S&P 500 is roughly two standard deviations below its five-year mean, data compiled by Bloomberg show. It’s an indication of the greed — or lack of fear — in the market suppressing the Cboe’s volatility gauge.

Dow Industrials Cross 26000 for First Time as Earnings Season Ramps Up
The Dow Jones Industrial Average crossed 26000 for the first time Tuesday, just seven trading sessions after closing above its last 1000-point milestone.

Hedge fund bulls have left oil market looking very stretched
John Kemp – Reuters
Hedge funds and other money managers have boosted their bullish position in oil to a new record, but with crude taking over from fuels as the main target of fresh buying.
Hedge funds boosted their net long position in the six most important futures and options contracts linked to crude and fuels by 67 million barrels to a record 1,399 million barrels in the week to Jan. 9.

Please Remove the Punchbowl Before Markets Get Any Crazier
Jared Dillian – Bloomberg
Everyone knows that when the shoeshine boy gives you stock tips, it is time to grab the canned goods and head for the hills. It happened to me in 2000 at the height of the dot-com bubble. A San Francisco cab driver gave me advice on trading options. I’m sure most people have had similar experiences in the current bull market. One of my subscribers says he was upbraided by a burlesque dancer (don’t ask) for not owning Bitcoin.

Volatility Indexes and ETPs Weekend Review for January 13 2018
Russell Rhoads – Cboe
We got an interesting move in the VXST – VIX – VIX3M – VXMT curve last week. The short end moved higher despite a nice bullish move out of stocks. The volatility market has been a bit jumpy like we are bracing for an unforeseen spike. We’ll see if the nervousness is justified.

****JB: Also see, VIX Weekend Review for January 13, 2018 and Russell 2000 Options and Volatility Weekend Review for January 13, 2018

Exchanges and Clearing

CME Group Sees Diminishing FX Volumes in December 2017?
Finance Magnates
CME Group (NASDAQ: CME), the holding company for CBOT, NYMEX, and COMEX exchanges, has just released its Options Monthly Review for the month ending December 31, 2017, which showed a mixed performance across the group’s six product lines, according to a CME statement.
On an aggregated basis, CME’s ADV total option was lower by -5 percent year-over-year, coming in at 2,990,014 per day.

Trader VIP Clubs, ‘Ping Pools’ Take Dark Trades to New Level
Annie Massa – Bloomberg
First came dark pools, private trading venues that challenged old-school stock exchanges.
Now something else lingers in the shadows of Wall Street: ping pools.
They also operate outside traditional stock exchanges, but these venues, which are gaining users in changing markets, are more opaque for the public. Running them allows some of the fastest, savviest electronic traders to dodge exchange fees and reap plum opportunities.

Moscow Exchange Ready for “Fast and Easy” Crypto Derivatives Trading
Lubomir Tassev –
With authorities in Moscow still trying to find their bearings on Bitcoin, the largest Russian exchange has announced its readiness to organize trading of crypto-based financial instruments. It would be faster and easier, MOEX stated, when asked by local media if it was ready to start trading cryptocurrencies. Russia’s Central Bank, however, has rejected calls from the Finance Ministry to allow buying and selling crypto derivatives on traditional markets.

Regulation & Enforcement

China tightens rules on counterparty risk for derivatives
China’s banking regulator issued new rules on Tuesday to control counterparty risk for derivative tools as commercial banks increase their offshore derivative trading activities.
The new rules, which will take effect from Jan. 1, 2019, set higher standards for banks to gauge risk sensitivity when calculating capital for derivative tools.

Six Canada Banks Accused of Manipulating Derivatives Benchmark
Doug Alexander and Kartikay Mehrotra – Bloomberg
A Colorado-based pension fund accused Canada’s six biggest banks and three foreign lenders of conspiring to manipulate a Canadian interest rate benchmark to boost “illegitimate profits” on derivatives trades for several years until 2014.


Top Deutsche trader resurfaces with lead derivatives role at VTB
Financial News
A former senior equity derivatives trader at Deutsche Bank in London has re-emerged at Russian bank VTB Capital to lead its derivatives trading division, as investment banks step up hiring in the sector.


Surprise Surge in Pound Sterling Needs to be Hedged Against say Soc Gen, Eyeing Potential for Second E.U. Referendum
James Skinner – PoundSterling Live
The British Pound could surge on an unexpected shift in Bank of England tone and an increased liklihood of a second referendum on EU membership being announced.

Deutsche Bank Star Investor’s Bad Year Hasn’t Put Off Clients
Oliver Suess – Bloomberg
Deutsche Bank AG’s Klaus Kaldemorgen just suffered the worst year since he started his namesake fund almost seven years ago. That didn’t stop investors from adding a near-record amount to the strategy.


Researchers find that one person likely drove Bitcoin from $150 to $1,000
John Biggs – TechCrunch
Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled “Price Manipulation in the Bitcoin Ecosystem” and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.

Can you time the stock market? Why investors rarely buy low, sell high
Anthony Mirhaydari – CBS News
The beginning of 2018 has been historic, continuing the never-before-seen dynamic that’s been in play since President Trump’s surprise victory in November 2016. For the first time, the S&P 500 had a perfect year in 2017 on a total return basis, climbing in each and every month.

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