What Brussels attacks mean for markets
The attacks in the Belgian capital on Tuesday are unlikely to have a long-term impact on markets, but they could result in new roadblocks to cross-border commerce and lend momentum to Euro sceptics, analysts told CNBC. European stocks were under pressure but had come off their lows following deadly attacks at Brussels main airport and on the city’s metro system. U.S. equities were mixed by late morning.
***SR: Our thoughts go out to the people of Belgium and the victims and families in this horrendous attack.
Options Guru Says VIX Looks Poised To Pop, Sees ‘Volatility Overshoot’
Chris Dieterich – Barron’s
Lots of market-watchers are talking about the recent plunge in the CBOE Volatility Index (VIX).
The VIX, an options-based measure of market expectations for future price swings in the S&P 500, just had its sharpest 25-day decline on record, says MKM Partners’ derivatives strategist, Jim Strugger. The VIX fell from 28 on Feb. 11 to 14 last week. The decline means that demand for short-term options protection fell fast while U.S. stocks roared higher.
****SD: As of this writing the VIX is pretty close to yesterday’s close, resting around 13.80.
Why the VIX fear index is clearly the wrong price
Phew! The panic is over. Global markets are back and the flap that culminated in the second week of February is a dim and distant memory. So what have we learnt from the huge and unprecedented volatility of the first three months of 2016? I fear, not a lot. Don’t get me wrong. I have no issue with the fact that markets have rallied in some cases over 10 per cent from their 11 February lows. In fact, the panic valuations in some areas such as European banking stocks, miners and the oil price itself looked ripe for a bounce, and I doff my cap to the brave guys and gals in the market who dipped their toes when all about were shrieking about armageddon.
****SD: The author’s disclaimer: “For those of you who don’t know, I am a fully paid up member of the ex-Liffe Old Option Fogies Club.”
Yes, The VIX Has Fallen Hard But Don’t Ditch Stocks Just Yet
The CBOE Volatility Index (VIX) ended Monday at its calmest reading since August, a signal that investors are less willing pay up for portfolio protection as worries lift. Some in the the financial commentariat say that the VIX’s collapse, from about 28 on Feb. 11 to 13.8 on Monday, isn’t sustainable and likely augurs a stock drop ahead. This blog noted that some see a “volatility overshoot,” while others see VIX “downside exhaustion.” This scenario would be a setup for exchange-traded products including the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX), VelocityShares Daily 2x VIX Short Term ETN (TVIX) and ProShares Ultra Vix Short-Term Futures ETF (UVXY).
****SD: The Convergex brief referred to in the article was titled “Dreamer, You’re Nothing But a Dreamer” in keeping with Nick Colas’ long running series of song references. (Our office is split on the merits of Supertramp.)
Will Wall Street’s rally last?
The week started with Wall Street struggling to extend its latest rally. The question for investors: is this the pause that refreshes or the crest before a fresh downwave ensues? On a technical level the bullish case is that by the open on Tuesday the S&P 500 remained well above its 200-day moving average of 2,018. Bond yields remain supportive, too. About 50 per cent of S&P 500 constituents offer a bigger yield than the benchmark Treasury.
****SD: On a long enough timeline, no rally will last. I was reading ZeroHedge earlier…
In Crisis-Hit Brazil, ETF Traders Actually See Less Volatility
Investors are betting on calmer days ahead for Brazilian stocks, according to options trading on the biggest exchange-traded fund tracking the country’s equities. A measure of volatility for the iShares MSCI Brazil Capped ETF reached its highest level since the end of 2014 versus one tracking the U.S. stock market. But traders see the turmoil as temporary, betting volatility will drop by 9 percent in the next three months amid speculation a change of government can pave the way for needed reforms.
****SD: I’m suspicious that three months out we will see a clean resolution to the Rousseff/Lula da Silva matter. Or do the algos just not care?
LSE and Deutsche Borse Merger to Conclude Irrespective of Brexit
The merger of equals between the London Stock Exchange and Deutsche Borse is likely to conclude irrespective of the prospects of a Brexit scenario, where the United Kingdom could vote to leave the European Union.
LSE pushes CurveGlobal launch to Q3
Futures & Options World
The London Stock Exchange Group has delayed the launch of its new rates exchange, CurveGlobal, to the third quarter of this year from the planned go live in late May, in order to ensure customer readiness. The LSE Group is now working toward a Q3 launch, with sources stressing that the delay is due to ensuring that market makers, technology providers and clients are ready for the launch. A spokesperson confirmed the delay on Tuesday, telling FOW: “Following close consultation with partners and customers we have taken the view that moving the launch of CurveGlobal to Q3 will provide a significantly richer experience for market participants.”
SGX and CBOE expand Chinese derivatives access
After a surge of enthusiasm among Chinese investors sent A-shares to new highs last summer, mainland equities crashed. One effect of the bust was that prospects for derivatives on Chinese equities looked slim, as regulators took a tighter stance against products deemed ‘speculative’ or risky.
Turkey’s Borsa Istanbul plans 2017 IPO-CEO
Turkey’s Borsa Istanbul stock exchange plans to sell around 40 percent of its share capital next year via an initial public offering (IPO), its chief executive officer said on Tuesday. “Next year we will have an IPO and become a public company in 2017,” Tuncay Dinc told the World Exchange Congress in London.
Eurex hires derivs specialist, launches dollar futures
Eurex has hired a senior derivatives specialist from Banco Santander and has launched dollar denominated futures on the Euro Stoxx 50 index. Colin Bennett, who was previously a managing director and head of quantitative and derivative strategy at Santander, has joined Eurex Exchange.
Regulation & Enforcement
Israeli Watchdog Gives Brokers 30 Days to Dump Binary Options
The Israeli Securities Authority (ISA) officially announced today that it has decided not to approve trading on binary options for companies wishing to be regulated in Israel. The ISA says that the complexity of binary options and the difficulty in pricing them as well as the lack of multi-party trading that enables the creation of a market price, all led to the decision not to approve binary options for trading arenas (as the law refers to brokers).
CFTC Approves Amendment To Trade Options Exemption
The CFTC recently amended its trade option exemption to exclude certain reporting and recordkeeping requirements if a party to the option is a commercial end user of the underlying commodity. The broadened exemption provides relief to such commercial end users by reducing the compliance burden and costs associated with tracking and reporting certain transactions.
CySEC Annual Report Marks EUR2.65 million in Fines Against CIFs
The Cyprus Securities and Exchange Commission (CySEC) has issued an announcement recapping the achievements of the regulator in 2015. The watchdog has highlighted that the increased efforts including on site checks led to a massive increase in the amount of fines collected which totaled EUR1.7 million ($1.9 million).
R.J. O’Brien adopts Trading Technologies platform
R.J. O’Brien has adopted Trading Technologies flagship derivatives trading platform, as the US tech vendor continues to onboard non-bank clearing firms. R.J. O Brien now joins the likes of Wedbush Securities, Rosenthal Collins Group, MBF Clearing, and Advantage Futures that now use the TT platform.
Trading Technologies to Add Options Trading, Build Out Charting Capabilities
Rick Lane, CEO of Trading Technologies, sat down with Anthony at this year’s Futures Industry Association (FIA) conference in Boca Raton, Fla., to discuss what’s ahead for the trading platform provider for the second half of 2016. In its first 22 years in existence, Trading Technologies had established itself as an electronic derivatives trading platform provider, first with the X_Trader platform, and now, most recently, with the rollout of the software-as-a-servive (SaaS)-based TT platform, which launched a year ago this month.
DTCC Open to Business Model Changes in Face of Blockchain Disruption
The company that last year processed $1.6 quadrillion in securities has a lot to lose if it is cut out of the financial food chain. As a result, the Depository Trade & Clearing Corporation (DTCC) has been working diligently for the past several months to position itself at the center of a wide-range of experiments other companies are conducting with blockchain technology.
A merger of equals? Pull the other one
It is bizarre that anyone still bothers to claim to have agreed a “merger of equals” when the concept has been shown time and again to be either a public-relations-driven fantasy or an all-too-real disaster. Yet here comes another one, hot on the heels of the London Stock Exchange and Deutsche Boerse. The latest to adopt the pose, the business information providers Markit and IHS, are less equal than most. Following the $13bn (GBP9bn) combination, shareholders in Nasdaq-listed, London-based Markit will hold only 43pc of equity. Conveniently enough, IHS shareholders’ 57pc falls just short of the 60pc threshold that would trigger the US Treasury’s clampdown on tax inversion deals.
Horizon enhances trading platform
Horizon Software, the technology provider for electronic trading and investment management, has announced a new version of its trading platform which extends functionality for electronic trading and market making of all listed structured products, such as warrants, CBBCs (barrier products) and ETFs (Exchange Traded Funds).
TradeStation Receives Highest Rating of 4 1/2 Stars for “Best for Frequent Traders” for Second Consecutive Year in Barron’s Magazine’s Annual Ranking of Online Brokerage Firms
TradeStation, the award-winning broker-dealer and futures commission merchant, received the highest rating of 4 ½ stars for “Best for Frequent Traders” for the second consecutive year in Barron’s magazine’s annual review of online brokerage firms, now in its twenty-first year. TradeStation is a Monex Group company (Monex Group, Inc. is listed on the first section of the Tokyo Stock Exchange, code: 8698).
In The Week Ahead: How High Can The Rally Go? 2 Clues To Look For
The stock market closed modestly higher last week for its fifth consecutive weekly gain, once again led by the defensive Dow Jones Industrial Average, up 2.3%. Although any positive weekly close is good, it’s important to note that the tech-heavy Nasdaq nand small-cap Russell 2000 showed the smallest gains and are the only major U.S. indices still in negative territory for 2016.
VXX Will Cause A Bad Night Sleep Eventually
VXX is difficult to understand for beginning investors. Yet if you as investor have specific knowledge about an upcoming event which will impact the markets, VXX might be just the investment for you. Nevertheless, one should never keep this investment for a longer period of time in its portfolio.
WisdomTree Launches Index-Tracking Put-Writing ETF
Put-writing strategies have been around for many years, and are often used to help investors generate income in flat and rising markets. In summary, put options are contracts that give their owner (or buyer) the right to sell an underlying asset at an agreed-upon strike price, on (or sometimes “on or before”) a stipulated expiration date. On the other side of the contract is the put writer (or seller), who creates the put contract and then sells it on the open market. The price paid by the put buyer is called the “premium,” and if the put contract reaches its expiration date without being exercised, the put writer gets to keep 100% of this premium.
Long-Dated Call Option: A Seamless Replacement for Long Stock
The Ticker Tape
Suppose an investor wants to buy 100 shares of a stock. Let’s say it’s a high-priced stock trading at $109, for example. It would cost an investor just over $10,900 (100 shares x $109) plus transaction costs to acquire those 100 shares. But what if I told you that a simple, risk-defined option strategy potentially allows investors to participate in virtually the same way as buying the stock, but for a fraction of the cost and with a fraction of the downside risk?
Chinese Stock Rally Can Continue; Here’s the Trade
Steven M. Sears – Barron’s
It’s time to front-run China’s stock markets in anticipation of a sharp rally. A government decision to once more permit investors to use margin accounts to trade stocks should keep the Shanghai Stock Exchange Composite Index trending higher. The index just closed above 3,000, capping a seven-day winning streak, led by brokerage stocks.
Investors See Turbulence Ahead After Shakeup at Valeant
Options traders in U.S.-listed shares of Valeant Pharmaceuticals International Inc (VRX) are bracing for more volatility, as changes to the drugmaker’s management and board did little to ease uncertainty about the stock’s direction.
Macroeconomics & emerging markets
When considering how to “supercharge” the alternative funds industry, one region that continues to offer growth potential is Emerging Markets. There are myriad opportunities to harvest yield, but equally there are plenty of risks to navigate. As such, fund managers will need to take a measured, country-by-country, sector-by-sector approach in 2016 to realise gains.
****SD: There’s strategy way down at the bottom.
New Model Makes It Easier to Price Options with Increased Realism
The Options Insider
Option pricing is affected by volatility, a phenomenon for which many researchers have developed models to understand. However, because these models are exogenous (they rely on dynamics specified by the researcher), they do not always fully explain the root cause of asset price volatility. A new model has been developed that, its authors say, pinpoints a possible cause: the volatility of the underlying asset is caused by a fraction of irrational traders in the market.
A briefing from Boca
TT was once again down in Florida to gain key insights from some of the industry’s leading minds at the 41st Annual FIA Conference in Boca Raton. We had the opportunity to meet with the media, partners and customers to talk about how we’ve changed in the past year. Here’s a recap of the eventful week.