Hedge or Be Damned Is the Election Mantra: Trading Brexit; China’s Unfazed Yuan Traders Bet Tariffs Won’t Be Hiked

Dec 12, 2019

Lead Stories

Hedge or Be Damned Is the Election Mantra: Trading Brexit
Todd White – Bloomberg
Options traders are battening down the hatches for U.K. election day as the pound’s spirited rally suggests victory for Prime Minister Boris Johnson is potentially all but priced in. Sterling is holding near its eight-month high against the dollar in the spot market, reflecting bets that a Conservative Party government would secure a majority in today’s vote to push through a deal to leave the European Union. But signals from the derivatives market show investors are hedging for any upset — a calculated move given Britain’s notorious history with opinion polls and the tortuous road to Brexit.
/bloom.bg/38yF1wT

China’s Unfazed Yuan Traders Bet Tariffs Won’t Be Hiked
Bloomberg News
China yuan traders are undaunted by Sunday’s looming start of fresh U.S. tariffs even as investors elsewhere are piling into protection. As President Donald Trump’s Dec. 15 deadline for more duties on Chinese imports draws closer, one-week risk reversals — a measure of demand for bearish yuan bets relative to bullish calls in the options market — have been at their lowest since July. And while volatility gauges for the currency have jumped in the past week, they remain well below levels reached in August, when the yuan weakened through 7 per dollar for the first time since 2008 amid trade worries.
/bloom.bg/2Ec6rur

Barclays sells equity options trading division to GTS
Hayley McDowell – The Trade
Electronic market maker GTS has confirmed it will acquire the equity options market making business of UK investment bank Barclays, which will see around 40 Barclays staff move to GTS. In a statement, GTS said it has entered into a definitive agreement to purchase the equities automated options trading unit’s assets from Barclays for an undisclosed sum. The transaction is expected to close in the first quarter next year.
bit.ly/35fUobq

‘Black Swan’ Index Flashes Yellow: Wall Street Is Not Scared
Reuters via NYT
The options-based Black Swan index may be signaling surging demand from investors for protection against a stock market crash, but Wall Street analysts see little reason to panic. The Cboe Skew Index is near a 14-month high. It tracks the implied volatility of deep out-of-the-money options – that is, contracts that need a large move in the market before they come into play – on the S&P 500.
/nyti.ms/2EcgCPO

Active Investors Could Score on Taxes With SEC Ruling on ETFs
John Coumarianos – Barron’s
Investors who want to put their money in actively managed funds now have a more tax-efficient option. The Securities and Exchange Commission approved applications for several asset-management companies to operate active exchange-traded funds without disclosing their holdings each day. The decision on Tuesday came in response to a joint application by the New York Stock Exchange and Natixis, as well as requests from Fidelity, T. Rowe Price Group (ticker: TROW), and Blue Tractor, a provider of portfolio-management technology.
bit.ly/2EcYJA8

Barclays Sells Equity Options Market Making Business to GTS
Aziz Abdel-Qader – Finance Magnates
Global Trading Systems (GTS), the largest designated market maker on the New York Stock Exchange, has closed the deal to acquire Barclays’ equities automated options trading unit’s assets. Financial terms of the deal were not disclosed. The UK lender’s New York-based unit buys and sells options to offer liquidity in the US derivatives markets. Upon completion of the acquisition, nearly 40 Barclays personnel will become full-time employees at GTS, the company said Wednesday.
bit.ly/2PgViyT

Exchanges and Clearing

CME Globex Notices: December 9, 2019
Global Market Solutions and Services (GMSS)
bit.ly/2RN1QGY

Regulation & Enforcement

The Securities and Exchange Commission wants bad guys to know: ‘We’re watching’
Bob Pisani – CNBC
Detecting illegal trading is part of the job for the Securities and Exchange Commission and this year it has brought 862 enforcement actions. This year, for example, the SEC brought actions against 18 Chinese traders for manipulating the prices of over 3,000 stocks. It’s not just trading fraud the SEC is monitoring — there were many actions against companies reporting false or inaccurate financial information.
/cnb.cx/2sjW8Ss

Technology

Ride ‘Em, Cowboy: Bitmain’s Marketing Gambit Ups Its Texas-Sized Position on Bitcoin
Lawrence Lewitinn – Coindesk
Bitmain CEO Jihan Wu unveiled his company’s new marketing strategy on Monday in China, but part of it sounded like pure Texan – or more precisely, a “Texas hedge.” Trying to hold on to his company’s threatened market dominance in bitcoin miners, Wu announced a series of incentives for buyers of at least 1,000 of Bitmain’s machines, worth $1.5 million. One of those incentives is 62 “put” options with a strike price of $5,000 expiring on March 27. Owners of puts get the right, but not the obligation, to sell an asset at a specified price (the “strike price”) on a specified date (“expiration”). A put option is essentially an insurance policy for the buyer.
bit.ly/36tw99J

Moves

Forty Barclays options traders move to GTS after sale
Fareed Sahloul – Financial News
Around 40 Barclays employees are moving to GTS after the electronic market maker agreed to buy the UK lender’s options trading business. New York-based GTS said the Barclays business makes markets in options on more than 735,000 stocks being traded across 13 exchanges globally. Ari Rubenstein, co-founder and chief executive of GTS, said in a statement: “The options trading acquisition is another step in GTS’s mission to build out its global capital markets business and to put superior trading technology to use for all who may benefit.”

Strategy

Options: The Nasdaq-100 Covered Call
Scott Nations – Nasdaq
We’ve seen that a PutWrite strategy using options on the Nasdaq-100 index (ticker NDX) can generate returns which are similar to the Nasdaq-100 index but which display substantially less risk as measured by volatility of returns. But some investors have been asking if there is another strategy which is appropriate for those who already own the Nasdaq-100 index yet takes advantage of the benefits of selling options.
bit.ly/36ve2R2

Conn’s Was the Perfect Pre-Fed Trading Strategy
Bryan Bottarelli – InvestmentU
Whenever you have a trading day when a critical Fed decision comes out later in the afternoon, you typically see a muted trading session leading up to that release. After all, traders typically aren’t willing to commit a large amount of new capital in front of an announcement that could send the major market averages zooming in either direction. When it comes to Fed reactions, the market’s direction is usually a coin-flip scenario that hinges upon the interpretation of one seemingly irrelevant word in the statement, such as “but” or “however.” I know, it seems pretty ridiculous…
bit.ly/2YHegSc

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