Observations & Insight

TradeStation Introduces Simplified Commission Pricing for Equities and Options Trades: $5 per Trade for Equities, $5 per Trade plus $0.50 per Contract for Options
TradeStation, a Monex Group company and award-winning* online broker-dealer and futures commission merchant, announced today new per-trade pricing for stocks, ETFs and options for all new customers and all existing customers who notify TradeStation they would like to switch to the new pricing.


They’re slashing prices!
Spencer Doar – JLN

Folks are finally getting the memo that broker fees need to go down if the industry is to truly access the next generation of customers.

Last week, Fidelity started a price war when it announced it would cut commissions to $4.95 per trade and Schwab quickly matched. Then TD Ameritrade and E-Trade followed suit, both cutting their fees from $9.99 to $6.95.

It’s part of the same phenomenon that includes the backlash over the 2 and 20 structure, the move to ETFs and robo advisors, success of Robinhood, general mistrust in finance exacerbated by ’08, etc. Down to $5/$6 is the first step. (I’m guessing that TradeKing will have to cut their existing $4.95 fee now to separate them from the pack too.) It’s a sudden and welcome development — shake it up guys!

And to the industry at large: could more of you make your platforms more visually appealing?

Consider that tastyworks is a new entrant out there also — growing fast — and sports a $1 fee for options, $2 fee for futures and $5 for stock with no cost to close.

Who will fire the next shot?


Lead Stories

Investors Stop Hedging As Market Pushes Higher
Rupert Hargreaves – ValueWalk
The Trump rally that has been driving the market ever since the beginning of November has proved a lot of forecasters wrong and has in many ways changed the dynamics of the market. Investors have plowed billions into stocks over the past few months while the generally positive sentiment within markets has helped pull central banks back into the shadows. Central bank decisions no longer have such an impact on equities. Of course, as the market has rallied to new highs there have been renewed calls that equities are in a bubble.Indeed, as we note further below investors have ceased to hedge.

****SD: “…data shows that as the S&P 500 has charged to record highs the cost of liquid long-dated hedges in equity and credit has collectively reached its lowest level in six years.” Meanwhile, Bloomberg says hedge funds are bracing for a selloff

Bund Option Traders Not Sweating Over Le Pen Risks
Tanvir Sandhu – Bloomberg
June contracts pare heightened fears seen in February; VStoxx futures election spread mirrors pre-Brexit levels
Investors in the options market for bunds and European stocks are becoming less wary of a potential Marine Le Pen victory in the French presidential election.

Politics ‘tightening grip’ on financial market behavior: BIS
Marc Jones – Reuters
Investors are focusing more on politics and have become more selective in what they buy, the Bank for International Settlements said on Monday in its latest signal that markets may be breaking free from a dependence on central bank support.

Why is market volatility so low when uncertainty is so high?
William Watts – MarketWatch
Volatility—and expectations for future volatility—in the stock market and across other assets remains subdued even as investors wrestle with a high degree of uncertainty about everything from the Federal Reserve to the Trump administration’s fiscal plans to a series of elections that could further undo Europe’s postwar political order.

ChartTrader on “What’s up with the VIX?” $VIX $VXX $UVXY $SPX $SPY
Why is there still no hedging coming in on this pullback!? Am I missing something?! This is an important question because it means one of two things.

****SD: It’s an image of text so, as you can see, it’s more than 140 characters, fyi.

VIX-Crusher Algo Sparks Buying Scramble – Dow Green
Zero Hedge
Seriously – every day!! VIX crushed at the open to ignite equity market momentum higher…

JGB investors calm down after central bank reveals purchasing schedule
Keidai Sanda – Nikkei Asian Review
TOKYO — Fluctuation anxiety is diminishing in the market for Japanese government bonds as interest rates stabilize.

Nearly 74% Think Trump Will Have a Positive Impact on Markets
John D’Antona Jr. – Traders News
The so-called “Trump-bump” is a widespread belief. A recent survey by Convergex titled, “Take Your Trump-erature,” found that almost 74% of respondents think President Trump will have a positive impact on the financial markets while only 40% approve of the job Trump is doing thus far.

Traders Shun Hedges Before India Vote on Confidence in Modi Win
Santanu Chakraborty – Bloomberg
Cost of bearish bets lowest since October vs bullish wagers; Any losses after results a buying opportunity: India Infoline
Investors are so confident that Prime Minister Narendra Modi’s party will win a key state election that they are feeling little need to hedge against another outcome.

Exchanges and Clearing

SGX reports market statistics for February 2017
Total Derivatives volume was 12.47 million, up 7% month-on-month and down 10% year-on-year.

Why Fed Funds Futures Are More Popular Than Ever
Agha Mirza – OpenMarkets, CME Group
Fed Chair Janet Yellen remarked March 3 that a Fed Funds rate increase is “likely appropriate” at the FOMC’s March meeting. This sent market expectations of a rate rise soaring to over 80 percent, from 30 percent earlier in the week, according to CME Group’s Fed Watch tool.

UK court upholds ICE Trayport sale order
Philip Stafford – FT
A UK appeals court has upheld a ruling by competition authorities that Intercontinental Exchange must sell Trayport, an energy software trading platform it bought for $650m more than a year ago.

****SD: ICE comment on ruling here.


Bloomberg Tradebook launches best execution platform
Hayley McDowell – The Trade
Bloomberg Tradebook has established a platform for its equities and options trading, specifically designed to meet best execution requirements.

Next-Generation Market Access
Drew Shields – Trading Technologies
In my last post, I described the FIX solution provided by TT as “FIX-as-a-service” (FaaS). Indeed, one of the differentiators of TT is that it is a suite of professional trading services delivered using the software-as-a-service (SaaS) model: services that are available from anywhere, on demand, without the need for any pre-allocation of infrastructure or deployment of software.


Hedge Emerging Markets Before the Fed Meets
Steven M. Sears – Barron’s
By outward appearances, emerging markets remain a place of extraordinary returns. A key proxy, the iShares MSCI Emerging Markets exchange-traded fund, is up about 8.5% so far this year, compared to 5.8% for the SPDR S&P 500 ETF. Investor positioning remains reasonably optimistic. Yet next week’s Federal Reserve Open Market Committee meeting, which is expected to conclude with a rate hike, has some investors worried.

Take A Leap Into Leaps
John Thomas – Seeking Alpha
Over the past half century, I have been asked every question under the sun about the financial markets. Since the advent of the Brave New World on November 8th, and the parabolic move in share prices, I have been asked one question in particular. What do you think about LEAPS?

A Clear-Eyed Look at Mid-Cap Put Activity
Bernie Schaeffer – Schaeffer’s Research
The SPDR S&P MidCap 400 ETF (MDY) has joined enthusiastically in the stock market’s breakout to new record highs in 2017, as MDY topped out at $320.48 on March 1. And from a longer-term perspective, the mid-cap tracker has been climbing higher for over a year, with this uptrend neatly punctuated by MDY’s rising 20-day, 50-day, and 200-day moving averages.

Tales from the Cross VIX Highway
Meredith Kelley Zidek – CBOE Options Hub
While traders of nothing but the Essenpee would find themselves sitting on a gain of 1.5% to nearly 2% from February 14th through today (or through Friday, March 3rd’s closing price, thus the difference between quotes), traders like me who favor TVIX or UVXY would be sitting right where they started, whether short or long. See chart below for a short history of UVXY over the last nearly-three-weeks.

Market Volatility and FOMC Rate Hikes
Russell Rhoads – CBOE Options Hub
It appears we are approaching another well telegraphed rate hike at the conclusion of the FOMC meeting scheduled next Tuesday and Wednesday. I got a question via email that got me digging into market volatility around the last two hikes. Both were widely expected, but did occur in December (2015 and 2016).

Understanding how leveraging and rebalancing work
Tariq Dennison – Asia Asset Management
Leveraged and inverse (L&I) products generally refer to exchange-traded funds (ETFs) that are designed to move double, triple, or opposite the daily move of a selected benchmark on any given day, rather than tracking it 1:1. Similar daily exposure has long been available through index futures and options, but L&I products differ by rebalancing daily to maintain a constant daily multiple over time. Daily rebalancing causes L&I products to “decay” in a way many investors misunderstand, and makes them unsuitable for many long-term investors, even aggressive ones.


Prisoners Explain Why A Pack Of Mackerel Is The Gold Standard Of Currencies In America’s Prisons
Zero Hedge
In 2004, the U.S. banned cigarettes in all federal prisons and it was pretty much the best thing that could have happened to the packaged mackerel industry (yes, you read that correctly…the packaged fish).

****SD: Word on the street is the mackerel to ramen exchange rate is favorable.

A Short History: How Bitcoin Reached Parity With Gold
Jeff Desjardins – Visual Capitalist
Would you rather have one bitcoin, or a single ounce of gold? The answer used to be obvious. Even at the climax of the legendary 2013 rally, bitcoin was never able to reach unit-for-unit parity with gold.

****SD: Great infographic with a condensed history. As I’ve noted before, neither bitcoin nor gold would be helpful in a post-apocalyptic scenario, if Hollywood is to be believed. In a dystopian future, sure, I’d take my bitcoin and gold. But zombies, radiation or asteroids and the like? Think the answer is Campbell’s soup, lead, a towel and duct tape. (I’m confident it certainly isn’t mackerel.)

Wall Street’s Nerds: The World’s Most Powerful Trading Executives
Jeffrey Kutler – Institutional Investor
Modern financial markets could not function without automation. Traders, counterparties, and transaction-processing infrastructures depend on automation to cope with the avalanches of data that are both generated by the markets and essential to their reliability and integrity. Despite occasional glitches — which have become progressively less frequent and less severe since the disastrous flash crash of May 2010 — it all happens so smoothly that it is easy to take the technology for granted.

****SD: Oh, yeah? If they’re so nerdy then how many know where Captain Picard was born? (I am not accepting ‘France’ as an answer.) Kirk’s birthplace is easier to remember.

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