Derivatives trader carousel continues; Vol begs volume in June
Observations & Insight
The Spread – Playing Ketchup – 7/19
As there was no installment of “The Spread” last week, we added a brief lightning round to the end of this week’s options news recap. This week’s episode also features celebrity appearances by Mr. Bill and the Kool-Aid Man.
Spencer Doar – JLN
According to Tabb’s Options Liquidity Matrix, the year-to-date volumes of all five U.S. options franchises (Nasdaq, NYSE, Cboe, MIAX and BOX) are beating 2017 volumes.
HKEX’s USD/CNH Options hit a record high with 1127 contracts traded, beating the previous record of 909 on July 3, 2018.
There was a great story from CNBC this morning – Disney could snap its best winning streak in five years, but some say the rally could continue. Oh, really? What about going sideways? To truly cover its bases, CNBC could have have added “…but some say the rally could continue, while others say it could stay around current levels.”
The first Black Sea wheat options traded at CME.
Shark Week is coming up – hard to believe this is the Discovery Channel’s 30th iteration.
Have a good weekend everybody!
Trump Escalates Criticism of Fed, Renews Threat on China Imports
Nick Timiraos and Harriet Torry – WSJ (SUBSCRIPTION)
President Donald Trump escalated his criticism of the Federal Reserve Friday, saying in a tweet that its efforts to raise short-term interest rates hurt the U.S. economic expansion, and he accused China and the European Union of manipulating their currencies to hurt the U.S. on trade.
Increased Volatility Fuels US Options Volume Gain in June
Options Liquidity Matrix – TABB Forum
US options volumes gained in June 2018, reversing a slight dip in May, and volumes remain on pace to hit record levels for the year. June 2018 volumes rose to 401.4 million contracts, from May’s 366 million contracts and a 21.9% increase over June 2017.
****SD: I’ve become a bit too enamored with saying “a rising tide lifts all boats,” but I find so many opportune moments to say it…
Goldman Sachs poached an equity derivatives trader from Barclays
Business Insider Prime (SUBSCRIPTION)
Goldman Sachs has hired an up-and-coming equity derivatives trader from Barclays, according to FINRA records and people familiar with the matter.
Competition for equities talent has been fierce in 2018 amid a rebound in volatility that has revived banks’ stock-trading businesses, a trend that has been epitomized by the equity derivatives sector.
But Goldman’s equities performance lagged behind peers in the second quarter, and the business represents one of the biggest challenges facing incoming CEO David Solomon.
****SD: The hiring/poaching trend continues! David Wernert, 32, will be vice president in single-stock volatility trading.
Rising star on Barclays trading desk quit to join Jane Street
Alex Morrell – Business Insider Prime (SUBSCRIPTION)
A star trader at Barclays has left the firm to join proprietary trading shop Jane Street.
Doug Schadewald, 28, managed a S&P 500 and VIX derivatives portfolio at Barclays.
He’s leaving to join an options trading team at Jane Street and help develop its index trading desk.
He’s the latest in a slew of equity derivatives traders to get poached in 2018 as volatility has stormed back.
****SD: This has been a bad week for Barclays’ derivatives team it seems.
VIX + Quants
Jeff Malec – RCM Alternatives Blog
Picture a VIX trader in your head. What do you see? The perception out there is that VIX traders are typically cowboys—swinging for the fences a la Mr. 50 cent or turning a small stake into millions like the financial space’s most famous Target Manager. The perception is that the trader is as volatile as the market. But we found that to be about as far from the truth as you can get when it comes to professional VIX traders. We sat down with a trio of professional VIX traders during RCM Alternative’s “VIX and Volatility Seminar” at the CBOE in June, and there’s only one thing to call them…. They don’t see fear or greed or volatility, they see 1s and 0s. They are quants—in every sense of the word – who model algorithms crunch data in and around the VIX market and spit out trade signals, including some which said to be long the VIX in early February of this year. Here are excerpts from their talks:
Yuan’s Fallout for Markets Means No Summer Lull for Traders
Anooja Debnath – Bloomberg (SUBSCRIPTION)
Currency’s tumble drags down peers, sends commodities reeling; Dollar-yuan ‘line in the sand may have shifted higher’ – Mizuho
Dry cargo volatility sees sharp rise in FFA options; Gap between residual and low-sulphur fuel could trigger more volatility in dry and wet paper markets, says FIS
Geoff Garfield – TradeWinds (SUBSCRIPTION)
Dry cargo forward freight agreement (FFA) trades, including options, are up 2% so far this year with low-sulphur bunker regulation expected to increase volatility in the paper markets, says Freight Investor Services (FIS). Wet FFAs are ahead 3%. FIS figures show that in the year to date, dry FFAs covering capesize, panamax and supramax markets have totalled more than 735,000 lots compared with nearly 721,000 in the corresponding period of 2017.
****SD: There’s a hard paywall, but you can view five articles for free with registration. This story is a bit off the beaten path for the newsletter, but the cost of transportation on sea and land is one of those under the radar stories to watch this year. For some transit stories see Bloomberg’s Tariffs Are Poised to Wreck Christmas for Shipping Companies and Transport Topics’ World’s Biggest Shipping Market Booms as Trade War Shrugged Off
The ’50 Cent’ Buyer Seeks Protection From a Volatility Surge
Luke Kawa – Bloomberg
…Trading patterns associated with the volatility buyer dubbed “50 Cent” emerged at 9:49 a.m. New York time Friday, as 20,000 VIX call options with a strike price of 30 that expire in September were bought for $0.51 apiece.
****SD: Luke Kawa brought a Curtis Jackson pun to the story – good on ‘im.
U.S. banks get Q2 trading boost but more volatility needed
Jamie McGeever – Reuters
Banks have not had much to cheer when it comes to market trading in recent years, but the batch of U.S. second quarter earnings just out is providing some good news.
Exchanges and Clearing
Bitcoin futures volumes on the rise at Cboe, CME
Conner Guidry – The Trade
CME Group saw a spike in Bitcoin futures trading activity last Thursday as daily volumes continue to rise on the Chicago exchange and its rival Cboe.
***SD: Still waiting on the options… In other crypto news via Business Insider – “TrueDigital has teamed up with some of the largest crypto firms to launched two crypto price indices for bitcoin and ether, the company announced Thursday.”
Regulation & Enforcement
Brokers clash with NSE over STT on physical settlement in F&O
Palak Shah – The Hindu Business Line
Brokers on India’s equity derivatives markets are locked in combat with the National Stock Exchange (NSE) over levy of securities transaction tax (STT) following the introduction of physical settlement of trades.
FCA fines fall 60% as Brexit dominates watchdog’s workload
Mark Cobley – Financial News (SUBSCRIPTION)
Financial penalties imposed by the UK’s markets regulator fell by more than 60% last year — a period the authority said was increasingly dominated by its work on Brexit.
****SD: Soooo, do your shady business now while they’re not looking?
Betting on Serenity Is Winner for Europe Stocks in Dog Days
Ksenia Galouchko and Srinivasan Sivabalan – Bloomberg (SUBSCRIPTION)
Index using buy-write philosophy outperforms underlying stocks; Volatility on Euro Stoxx 50 has dropped in June, July
VIX Options Signal Points to Possible Volatility Spike
Karee Venema – Schaeffer’s Research
Speculators are targeting out-of-the-money August calls
Goldman Sachs Outlines Key Factors Driving Oil Market Volatility Through 2018
Nick Cunningham – The Fuse
The oil market is no stranger to volatility, with sudden outages or restoration of disrupted supply frequently causing violent fluctuations in prices. The current scope of risks are global in nature and both above and below ground. Reasons for optimism, such as Libyan output trickling back online, are insufficient to offset the risks from other producers such as Venezuela and Iran, and even the United States is contributing to market uncertainty through President Trump’s interactions with OPEC and volumes coming online from the Strategic Petroleum Reserve (SPR). The net result is heightened volatility risk through the end of the year.
Hard Brexit: EU, Ireland, and the UK prepare for the worst-case scenario
Edmund Heaphy – Quartz
Just about everyone seems to be doubling down on preparations for the Brexit horror scenario: Britain crashing out of the European Union with no deal.
U.S. Grain Prices Crunched by Trade Fears
Benjamin Parkin – WSJ (SUBSCRIPTION)
Gluts of corn, wheat and other crops are finally easing after years of oversupply, but prices have yet to meaningfully rebound.
The enormous stocks of agricultural commodities that piled up around the world in recent years are due to start falling, the U.S. Department of Agriculture says. A combination of robust demand for grain to feed to livestock and droughts from Kansas to the Black Sea region have helped chip away at record oversupply.