Extreme Positioning in Options Markets Can Offer Trade Signals, Says Morgan Stanley
V Ramakrishnan – Bloomberg
Data suggests Mexico peso to gain, U.S. two-year swaps to fall; Some assets move in opposite direction of positioning: MS
Investors seeking winning strategies across asset classes might want to take a look at how traders are positioned in options markets to get an idea of what’s coming. A Morgan Stanley study of about 20 assets from currencies to Treasuries found traders could earn “significantly above average” returns by looking for what the paper’s authors called extreme positioning. That’s when the gap between longs and shorts as a percentage of open interest was more than two standard deviations from what’s typical.
****SD: And options analytics data and tools are becoming increasingly accessible to the retail investor (and in general, too). Of course, if you’re just hearing about this now, you’re way too late to the party and not in the fashionable sense.
Complacent No More: Hedging Costs Jump in Europe’s Stock Market
Justina Lee – Bloomberg
Cost of protecting against a drop in the Euro Stoxx 50 doubles’ VStoxx, CAC 40 volatility climb for 10 straight days
With less than two weeks to go before the first round of French presidential elections, investors are racing to protect gains that have pushed the region’s shares to their highest prices in more than a year.
****SD: Speaking of no more complacency, the VIX hit a 2017 high today.
Hong Kong plans bigger derivatives role
Luke Jeffs – Futures & Options World
HKEx chief Charles Li sees his exchange expanding into other asset classes
The chief executive of Hong Kong Exchanges and Clearing has said he wants to establish his firm as “the global financial centre in derivatives for the Asian timezone” and to grow Hong Kong’s asset class, particularly in fixed income. Charles Li, chief executive of Hong Kong Exchanges and Clearing, said his firm has built its reputation in cash equities trading and listing but he wants to expand his group’s reach.
Hedge funds build big bullish position in U.S. natural gas: Kemp
John Kemp – Reuters
Hedge funds are more bullish about U.S. natural gas prices than at any time for almost three years, according to position records published by regulators and exchanges. By April 4, hedge funds and other money managers had amassed a net long position in the two main futures and options contracts linked to U.S. gas prices equivalent to 3,280 billion cubic feet.
****SD: From crude to gas.
Newspapers Can Predict the Economy Better than Confidence Indexes
Jeanna Smialek – Bloomberg
The phrase “news you can use” is taking on a whole new meaning. Textual analysis of articles and editorials about the economy can be scrutinized to track current economic conditions pretty well: so well, in fact, that they often beat standard consumer sentiment surveys as forecasting tools. That’s the finding in a new Federal Reserve Bank of San Francisco study, which leads today’s economic research wrap. We also take a look at common inequality misconceptions, the link between unemployment and depression, and GDP measurement in a digital age.
****SD: Fake news, real insight.
Fed’s Yellen aims to let ‘healthy’ U.S. economy coast along
Jonathan Spicer and Ann Saphir – Reuters
The Federal Reserve’s plans to raise U.S. interest rates gradually are aimed at sustaining full employment and near-2-percent inflation without letting the economy overheat, Fed Chair Janet Yellen said on Monday.
****SD: For some reason “coasting along” doesn’t sound like a good thing to me.
WASDE Monthly report out today
World Agricultural Supply and Demand Estimates
****SD: A link to the PDF.
Exchanges and Clearing
ICE Data Services Launches Innovative Reference Data Solution for Exchange Traded Derivatives
Intercontinental Exchange, a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced the launch of ICE Data Services’ new reference data solution for ICE’s futures exchanges. ICE operates five futures exchanges across the U.S., U.K., Europe, Canada and Singapore providing regulated futures markets in energy, agriculture, interest rates, equity derivatives and FX. The new content is part of ICE Data Services’ existing reference data service, which provides high-quality information on more than 10 million financial instruments across all major asset classes, including futures, options, equities and fixed income.
SET, Warsaw, Montreal latest to see March growth
Merle Crichton – Futures & Options World
Dalian Commodity Exchange’s new soybean meal options sees strong first month
The Warsaw Exchange, Montreal Exchange and the Stock Exchange of Thailand are the latest exchanges to report strong growth in volumes for March. The Stock Exchange of Thailand (SET) reported a 23% increase in derivatives trading to an average daily volume of 321,566 contracts for March. SET said that the first three months of the year saw an average of 303,721 contracts per day, a 6.5% increase from the average volume in the equivalent period in 2016. The exchange said this rise was mostly on the back of increased trading in single stock futures.
****SD: Good for SET.
Nasdaq Signs Landmark Technology Deal with Hong Kong’s HKEX
Nasdaq, Inc. (Nasdaq:NDAQ) and Hong Kong Exchanges and Clearing Limited (HKEX) have signed a deal in which Nasdaq will provide the Hong Kong’s main derivatives market with trading technology that will power its expansion, improve post-trade services and enhance real-time risk management technologies. HKEX has been a Nasdaq Market Technology client since 1994.
****SD: I’m jealous of HKEx execs who get all the ceremonial gong action. As a percussionist I’ve never not had a blast banging a gong.
Fixed Income Highlights
The first quarter 2017 delivered European fixed income markets a strong start to the year. As a result, across its core and periphery derivatives markets, Eurex experienced strong demand and a robust uptick in client activity to underpin a firm foundation of volume and liquidity. More broadly, European markets have benefited from a supportive macroeconomic environment, where geopolitical and event risks have driven a pick-up in investor demand since late 2016.
Equity Index Highlights
March represents a key month for our Members as we saw several significant volume highlights in this roll period; notably the EURO STOXX Banks Futures and Options both recorded strong double and triple digit growth respectively compared to the same period last year. The EURO STOXX Banks Index is the high-beta instrument representing the broad European equity landscape. With the four largest French banks comprising approximately one quarter of the current weightings in the FESB, the continued speculation around a potential Marine Le Pen presidential election victory continues to significantly impact this index. Market participants continue to utilise our VSTOXX Derivatives as the favoured products with which they can implement event strategy trading for the upcoming European political calendar.
Daniel Maguire appointed LCH Group Chief Operating Officer; Responsibilities include the development and execution of integrated global product strategy; Daniel will continue as Global Head of Rates and FX Derivatives
LCH, a leading global clearing house, is pleased to announce that Daniel Maguire has been appointed as LCH Group Chief Operating Officer (COO), effective immediately. He assumes this role in addition to his current responsibilities as Global Head of Rates & FX Derivatives.
Regulation & Enforcement
Trump says he’s still thinking about scrapping Dodd-Frank law
Greg Robb – MarketWatch
President Donald Trump said Tuesday he’s still considering either a major rewrite or a complete elimination of the Dodd-Frank banking law.
Start-up targets Bloomberg Terminal users with free service
A start-up is targeting Bloomberg Terminal users with a rival product which is free to use. Level Trading Field – launched in April 2016 – was founded by a group of former traders who say costs for using Bloomberg and Thomson Reuters services are unreasonably high.
****SD: Level Trading Field CEO Lanre Sarumi spoke at our Chicago MarketsWiki Education event last year. Some good stories and advice in that one.
Google’s Dueling Neural Networks Spar to Get Smarter, No Humans Required
Cade Metz – WIRED
The day Richard Feynman died, the blackboard in his classroom read: “What I cannot create, I do not understand.” When Ian Goodfellow explains the research he’s doing at Google Brain, the central artificial intelligence lab at the internet’s most powerful company, he points to this aphorism from the iconic physicist, Caltech professor, and best-selling author. But Goodfellow isn’t referring to himself—or any other human being inside Google. He’s talking about the machines: “What an AI cannot create, it does not understand.”
Investors Prepare for North Korean Attacks
Steven M. Sears – Barron’s
Investors are beginning to assemble bearish positions on South Korean stocks, in apparent anticipation of North Korea attacking its neighbor and causing the market there to plummet. Investors have bought bearish put options on the $3.2 billion exchange-traded fund (ticker: EWY), betting that it will decline by more than 10% by mid-summer. When the ETF was around $60, investors Friday bought about 17,000 July $55 puts. The activity was quickly pegged as a hedge against a possible missile attack by an increasingly bellicose North Korea.
****SD: Beware the “crazy, fat kid.”
Trader bets on more pain ahead for the banks
Heidi Chung – CNBC
Banks have gone from hot to not. Financials, which was the best-performing sector after the election, is the worst-performing sector over the last month. Traders are expecting even more volatility for the space as bank earnings begin to roll out later this week. Nearly half of the XLF, the financials ETF, will be reporting earnings before April options expiration on Friday, April 21 — with Citigroup, JPMorgan, PNC and Wells Fargo kicking off the reports before the bell on Thursday.
What’s Trading Today – SPX Broken Wing Butterfly
Russell Rhoads – CBOE Options Hub
The payoff diagram below shows the outcome if this trade is held through Thursday’s close. Between 2345.60 and 2374.40 this trade makes a profit. The payoff diagram below also highlights that the risk of loss is bigger on the downside than the upside.
About That Tesla Volatility Spike
Bernie Schaeffer – www.schaeffersresearch.com
Perhaps because so many memorable stock market sell-offs have been accompanied by major spikes in the CBOE Volatility Index (VIX), there’s something of a popular misconception that volatility surges and bearish price action are inextricably linked. And while a correlation between the two certainly exists, Tesla Inc (NASDAQ:TSLA) offered a reminder last week that volatility eruptions can also be tied to bullish price moves.
Evaluating Potential Opportunities in Gold
When the so-called “Trump Rally” finally met some resistance in March, one of the clear winners was the gold sector. What’s even more interesting about the strength in gold is that it came on the heels of the Federal Reserve raising interest rates for the second time in three months (after only one raise in roughly a decade). Gold tends to be negatively correlated to interest rate movement, because rising rates catalyze strength in the US Dollar – and gold typically moves in the opposite direction of the US Dollar.
Volatility Trading Digest – Volatility Kings Q1 2017
The Options Insider
Since the first quarter ended the time has come to update Volatility Kings our list of companies having a regular tendency to experience increasing option implied volatility as their quarterly reporting dates approach reflecting greater uncertainty or the width of the possible stock price distribution on their report dates. Last week signs of increased hedging activity appeared in the VIX futures and options although the implied volatility of the S&P 500 Index remains near the lower end of its recent range.
Income with Portfolio Overwriting
Wednesday, April 12, 3:30 p.m. – 4:30 p.m. CT
Join OIC for a discussion on how Portfolio Overwriting can potentially generate income by using covered call writing in long-term, buy-and-hold portfolios. Hear from Alan Ellman of Blue Collar Investor as he explains his approach to income generation.
A Dude-Linked Brokerage Just Made Turkish Stocks the World’s Best Performers
Tugce Ozsoy and Constantine Courcoulas – Bloomberg
Turkish stocks boosted by traffic through a single brokerage; Foreign funds have been rotating out of Turkish equities
Turkish equities started the week of a crucial referendum on a world-beating tear. A single brokerage was responsible for the biggest portion of trades.
****SD: “Local traders started referring to the mystery investor, whose identity was never revealed, as ‘the Dude.'” Glad to know that “The Big Lebowski” crosses cultural borders.
5 Questions with Peter Thomas of Zaner Precious Metals
Peter Thomas is a senior vice president at Zaner Precious Metals, a division of Zaner Group. As a licensed floor broker, he was a filling broker in the silver pit back in the days when silver ran to $55 an ounce. He currently manages a global cash desk which handles refiners, recyclers, mining operations, and coin and bullion companies.
Monumental Gridlock Meets Blind Euphoria
Patrick Watson – Mauldin Economics
Wishful thinking, as we all know, is the death knoll for many investors. Getting carried away by emotion has rarely, if ever, been a recipe for accumulating vast riches. It seems that a lot of people have missed that distinction between wishful thinking and reality lately—and I fear it’s going to hurt them badly.