Observations & Insight
Trump warns of stock market crash if he’s ever impeached: ‘I think everybody would be very poor’
Nataly Pak and Jordyn Phelps – ABC News
Two days after President Trump’s former personal attorney pleaded guilty to illegal campaign contributions, the president ripped Michael Cohen for “flipping” to accept a plea deal, while also warning that the stock market would tank if the Democrats win control of Congress and move to impeach him.
****SD: He also blasted “flippers” and said “I will stay uninvolved” after slamming Sessions, Justice Dept. As to the market tanking story above, Bloomberg has a closer look – Will the Market Crash If Trump Is Impeached? Here’s What Analysts Say.
Despite What You Read, The Options Industry Is Doing Great
Russell Rhoads – Tabb Forum
An article in the Wall Street Journal this week once again is putting a negative spotlight on the options industry (“A Messy Battle Brews in the Options Market”). The Options Clearing Corporation (OCC) is the target du jour, along with some commentary about Craig Donohue, CEO of the OCC, who has done a solid job in the role. The article even brings up how he dresses, what kind of car he drives, and that he has vanity plates. What does that have to do with the industry?
****SD: Keep calm and carry on, everyone. Here’s a stat I did not know (from the story) that ties to OCC’s AA+ credit rating – “the AA+ rating is held by only 1% of the more than 9,000 entities covered by S&P. OCC is a very financially strong entity and has become much stronger under Mr. Donohue’s leadership.”
Hedge funds turn to curve options for steepener trades
Robert Mackenzie Smith – Risk.net (SUBSCRIPTION)
Previous bets on US interest rate curve flopped following unexpected flattening
Hedge funds are placing billion-dollar trades in curve interest rate options as they bet on whether the yield curve between the two-year rate and 10-year rate will steepen, according to three major banks.
The basis between both points on the US Treasury curve has tightened aggressively since the start of the year and now stands at 22.4 basis points. That contrasts starkly with data from a year ago, which shows the basis at 86.3bp.
Sebi cracks the whip on investors for trading in illiquid stock options
Shrimi Choudhary – Business Standard News (SUBSCRIPTION)
Markets regulator Securities and Exchange Board of India (Sebi) has issued show cause notice to over 500 investors, seeking explanation over alleged illicit gains made through trading in illiquid stock options.
Wall Street’s sector shakeup will let more tech stocks shine
Noel Randewich – Reuters
Chipmakers, cloud-computing sellers and even credit card payment companies will have a greater chance to stand out in the information technology sector next month following the largest-ever shakeup of Wall Street’s industry classification system.
****SD: Aren’t all financial firms calling themselves tech outfits now, too?
Backing Elon Musk’s Dream, Option Traders Bet on Tesla at $430
Eddie van der Walt and Todd White – Bloomberg
Not everyone is giving up on Elon Musk’s dream of transforming Tesla Inc. into a private company.
Options to buy the automaker’s shares at above his suggested $420 take-private level were among the most heavily traded on Wednesday — and they gained in price, even as the stock dipped modestly. The volume on December calls at a $430 strike jumped by more than 7,000 percent, making it the fifth-most active put or call on the company’s shares and the only contract in the top 10 for which the price increased.
****SD: Reuters had the opposite angle – Investors in Tesla bonds, options show skepticism on buyout. I do love the activity in the two digit January puts (the Jan. 30 puts make the chart of big volume changes at certain strikes). Bearish much?
Exchanges and Clearing
AITE Group report (part II): How margin cost drives the choice of exchange
One of the most important factors in choosing an exchange centers on margining efficiency. While liquidity and ease of execution are also critical to exchange choice, capital efficiency is of key interest in the present environment. Market participants who trade client portfolios across multiple ETDs, for example, note that a portfolio-based margin system, such as Prisma, is the optimal choice given its netting benefits.
US$600,000 monthly office rent at Cheung Kong Center is a breeze for digital currency exchange BitMEX
Pearl Liu – South China Morning Post
Cryptocurrency trading platform BitMEX breaks record in paying HK$225 per square foot in rent for entire floor in Li Ka-shing’s Cheung Kong Center
Regulation & Enforcement
SEC bars owner of investment advisory firm for misusing $2.2 million in client funds
Sarah Min – InvestmentNews
The Securities and Exchange Commission barred the sole owner of a California-based registered investment adviser for misleading investors and making trades in risky stock options.
****SD: He lost 98 percent of the fund trading SPY options.
SEC to Rehear Dozens of Cases That Went Before In-House Judges
Gabriel T. Rubin – WSJ
The Securities and Exchange Commission said it plans to rehear dozens of cases that were pending before its in-house administrative-law judges, following a June Supreme Court ruling that faulted the appointment process for those judges.
SEC Rejects Nine Proposed Bitcoin Exchange-Traded Funds
Paul Vigna and Asjylyn Loder – WSJ
The Securities and Exchange Commission rejected applications for nine separate bitcoin-based exchange-traded funds on Wednesday, once again thwarting an attempt to build an ETF product based upon the volatile cryptocurrency.
The commission issued three orders late on Wednesday, one for each of the applications from the firms ProShares, Direxion and GraniteShares.
****SD: Reuters here.
International Financial Transactions Through Operational Independence
Roy Hilliard – Global Finance and Banking Review
Recent headlines have put cybersecurity front and center for consumers and companies alike.
****SD: The story specifically references trading infrastructure and then gets to this bit of operation risk to consider: “…data centers and businesses are connected through overlapping routes, many susceptible to damage from flooding, cuts and other disruptions A recent study by researchers at the University of Wisconsin – Madison and the University of Oregon found that thousands of miles of buried fiber optic cable are at risk of drowning under the rising seas.”
Options trading firm Sensibull gets 2.5 crore seed from Zerodha
Pratik Bhakta – Economic Times India
Bengaluru-based online stock broking startup Zerodha has invested ?2.5 crore as seed fund in Sensibull, a startup working in the options trading business. The early-stage company, which is being incubated under Zerodha’s Rainmatter programme, plans to invest the funds in hiring engineering talent to strengthen its tech play.
The stage is set for a ‘violent’ drop in stocks, says Saxo Bank
Barbara Kollmeyer – MarketWatch
…Our call of the day, from Saxo Bank’s Peter Garnry, advises opting for the latter strategy as he warns of a “dangerous trade” that’s been making a comeback, and which he says could blindside the market.
He says investors have been buying stocks and pushing the S&P 500 to new highs while paying “record premium” for hedging against downside risk in the index
Caveat Emptor (Buyer Beware)
Denis Rezendes – ETF Trends
As a Tactical ETF Strategist, we consider ourselves fairly qualified to navigate the exchange traded product (ETP) universe. That being said, there’s one place even we won’t go. To pull a quote directly from our presentation: no margin, leverage, or shorting. We believe that this subset of the ETF universe is far more trouble than it’s worth for investors, experienced and unexperienced alike.
****SD: This reminds me of the XIV story Bloomberg reported in February of the Uber driver who told Paul Britton: “‘There’s this unbelievable company, these guys just crushed it — not sure whether it’s in biotech or a technology business, but they’re up 80 percent this year. It’s this company called XIV,'” Britton, 44, remembered the driver saying. Britton said he responded, “I’m like, ‘I’m sorry to have to tell you this, mate. That’s not a company.'” So yeah, due diligence is important.
Venezuela Currency Chaos So Bad, There’s an App to Lop Off Zeros
Daniel Cancel – Bloomberg
Confused by Venezuela’s re-denomination of the bolivar this week, which lopped off five zeros from the currency to cope with a bout of hyperinflation?
There’s an app for that.
Awaiting Tidings From The Tetons, With China Trade Talks Also In Focus
JJ Kinahan – The Ticker Tape
As Fed officials and other dignitaries gather in Jackson Hole for an annual symposium, attention also turns toward U.S. trade talks with China. Headlines from either of these events could possibly sway the market one way or the other Thursday, and there was a mixed tone as the day began.
Even as trade delegates from China and the U.S. met in Washington, both countries slapped new tariffs on $16 billion of each other’s goods Thursday.
****SD: A look at current headline risk.