Exceed targets Cboe in trade secrets case; New options broker Matrix eyes China; Risk Alchemy

Oct 20, 2017

Lead Stories

Exceed Investments targets Cboe Options Exchange in trade secrets case
Maria Nikolova – FinanceFeeds
Exceed accuses Cboe Options Exchange of Fraudulent Inducement, Promissory Estoppel, Breach of Contract, Misappropriation of Trade Secrets, and violations of the Federal Defend Trade Secrets Act.

Derivatives broker Matrix eyes China’s options market
Jack Ball – Global Investor Group
Matrix in talks with ‘three or four’ Chinese exchanges for options listing – CEO
New derivatives broker Matrix is targeting China’s nascent options market, one month after US electronic broker ITG took a minority share in the project.
Speaking to FOW, chief executive officer of Matrix Holdings and options industry veteran Tony Saliba, said the project was seeing “a big demand ahead of us on the Chinese mainland as they gear up to launch more options contracts”.

****SD: Here is the press release from when the partnership was formed between ITG and Option Technology Solutions. Non-Chinese firms busting into Chinese options (and futures) markets is an ongoing endeavor that will accelerate that region’s development. What’s cool about the tech is with the flip of a switch it can go from Mandarin to English or vice versa. (Another tidbit from the article – I was not aware that in Chinese markets up is red and down is green.)

Volatility and the Alchemy of Risk
Artemis Capital Management
The Ouroboros, a Greek word meaning ‘tail devourer’, is the ancient symbol of a snake consuming its own body in perfect symmetry.

****SD: This is a 14 page screed on the feedback loop leading to low volatility. Artemis, a long vol hedge fund, is coming from the perspective that besides the people obviously short vol – via VIX futures, options, related ETPs, certain options writing strategies and the like – there is some $1.1 trillion that is implicitly short vol. Those strategies are “similar to a short option position because they produce efficient gains most of the time but are subject to non-linear losses based on variance, gamma, rates or correlation change.” A couple of the other stories in the newsletter today carry the same theme.

VIX Volatility hits six-week high, but might not mean what you think
Rebecca Ungarino – CNBC
VIX spikes just aren’t what they used to be.
The CBOE Volatility index, or VIX, hit a high of just under 12 early Thursday, its highest level in six weeks. While that may seem like an impressive move, it actually underscores what has been a historically mild year for volatility.

****SD: Uhh, it doesn’t seem like an impressive move.

Swaptions expiries complicate portfolio optimisation runs
Nazneen Sherif – Risk.net
Confusion over swaptions expiries caused problems for dealers trying to optimise their non-cleared derivatives portfolios last week. Dealers say it highlights the need for better co-ordination when managing the process, especially as more firms turn to portfolio optimisation to reduce their margin costs.

The Real Cause of the Crash of ’87
Skip Raschke – The Street
The Crash of 1987, now 30 years old, continues to be misunderstood by the financial media. I know. I was there, in the pit, making options markets in Waste Management (WM) , Martin Marietta (MLM) , MCA (Universal) and what is today Barrick (ABX) .
The financial media still think the cause of the crash was a then-novelty known as portfolio insurance.

****SD: There was a volatility measurement in ’87 – the VXO – that broke 150 during the crash. Thank you to Matt Moran of Cboe for that tidbit.

Forex Volatility Has Grown
The day before was full of important economic reports and news. Trades on the main currency pairs were very active. The biggest drop was shown by the New Zealand dollar. The NZD/USD quotes fell by more than 150 points. In New Zealand, the composition of the government coalition has been formed. The Labor Party has teamed up with the anti-immigration party. The amalgamation of these two parties has given them the opportunity to shoot past the conservative National Party, which was previously the winner of the elections in New Zealand, held on September 23. The country ruler will be the Labor leader Jacinda Ardern.

Exchanges and Clearing

CBOE Is Changing The Way Financial Services Looks At Options Data
Spencer White – Benzinga
Catherine Clay faces the challenge of keeping a company that’s nearly a half century old innovative and relevant in the ever-changing world of financial services. That’s no small task, and at the 2017 Benzinga Fintech Summit in San Francisco, Clay, CBOE Global Markets Inc (NASDAQ: CBOE)’s head of global data solutions, compared the task facing the company to a midlife crisis.

****SD: CBOE might have been “nearly a half century old,” but Cboe Global Markets is only 3 days old.

DTCC Milestone: $11 Trillion in Derivatives Gets Closer to the Blockchain
Michael del Castillo – CoinDesk
The company that today settles the lion’s share of U.S. securities is moving its flagship blockchain project out of the testing phase.
Revealed in an exclusive interview with CoinDesk, the DTCC reports that it has completed an early version of a blockchain that could one day support the trade of $11 trillion-worth of credit derivatives. The milestone signifies a major development for the clearing house, one that also marks a continuation of the largest effort yet to adapt an existing financial infrastructure to a blockchain.

HKEX Announces Plans For More Long-dated Contract Months In Its Derivatives Market
Press Release
Hong Kong Exchanges and Clearing (HKEX) announced today (Friday) that it plans to introduce long-dated contract months for its Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI) Futures and increase the long-dated contract months for its HSI and HSCEI Options, with maturities up to 5.5 years, on Monday, 4 December 2017, subject to regulatory approval.


A 2-3% Correction Could Wipe Out Most VIX Short Sellers
John Mauldin – Seeking Alpha
Did you know that there have been 39 times since 1990 when the VIX has closed below 10, and that 30 of those times have happened this year? And 15 of those have been in the last 30 days!

Block Trade Analysis – VIX Ratio Risk Reversal
Russell Rhoads – CBOE
Today when I was searching for trades to discuss on Volatility 411 I came across a pretty interesting one that was structured a little different than the normal risk reversal.

Theta Decay: Weekend Effect
Sage Anderson – tastytrade blog
Of the infamous trading “Greeks,” theta might be the most relevant to the tastytrade community.
Theta, as it relates to options trading, represents the amount of premium lost per day as an option moves toward expiration.

Trump tax reform hopes boost dollar, stocks, bond yields
Jemima Kelly – Reuters
European stocks, the dollar and bond yields climbed on Friday as investors speculated that the “Trumpflation trade” could be back in play, after the U.S. Senate approved a budget blueprint that paves the way for tax cuts.

The End is Near for S&P 500 Index Option Selling
Michael Foster – Seeking Alpha
Covered calls are a great tool income investors can use to increase their cash flow in the short term even if their portfolios are not focused on dividend stocks. Many high quality closed-end funds, for instance, invoke a “best of both worlds” approach where they purchase a variety of growth stocks and sell options on those stocks to earn income that investors can receive as cash distributions. Many of these funds own growth stocks like Google (GOOG, GOOGL), Facebook (FB), and Netflix (NFLX) while yielding 6% or more.


5 Careful Ways to Win with Options
Did you know that in spite of all the volatility in the markets as of late (or maybe partly because of it), the growth in options trading has continued to rise?
More and more people are now including options in their investments as a smart way to get ahead of the market.
And it’s easy to see why.


Why most investors buy and sell at the worst times
David Nelson – Yahoo Finance
On the 30th anniversary of the 1987 stock market crash it is hard not to reflect on a day that saw the Dow fall a staggering 22.6% in a single session. Many of us weren’t even trading the market in ’87. As for myself, I was still on stage rocking with the Turtles or on an airliner traveling to the next show. Most of us in the music profession yawned. A few fat cats on Wall Street lost some money. What’s the big deal?

Meet the bears predicting stock market doom
Matt Egan – CNN
As Wall Street recalls the 30th anniversary of Black Monday, the bulls have taken full control of the stock market.
The bull market born from the ashes of the Great Recession has kicked into high gear lately. The Dow has spiked nearly 6,000 points since the election of President Trump, who warned about a “big, fat, ugly bubble” as a candidate but now cheers each milestone.

Oil Trades Above $51 as Heightened Risk Appetite Props Up Prices
Oil rebounded above $51 a barrel in New York as a risk-on appetite is seen coming back into financial markets.

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