Lead Stories

Commodity Rout Worsens as Prices Tumble to Lowest Since 2002
Pratish Narayanan – Bloomberg
The rout in commodities deepened with prices touching the lowest since 2002 as the prospect of higher U.S. interest rates sent gold tumbling.
Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chair Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn’t pay interest or give returns like assets including bonds and equities.

***DA: What’s the opposite of stagflation?

Netflix: 2, MoneyBeat: 0 – MoneyBeat
MoneyBeat – WSJ
Netflix Inc. flew in the face of history – and the options market – last week.
Shares of the streaming-video firm jumped 18% last Thursday after the company reported earnings, defying its track record of second-quarter stumbles and surprising options traders who had been expecting a far more muted reaction.

***DA: The betting line on round three lists MoneyBeat as a 5-point underdog.

The Case for a 24-Hour VIX
Steven M. Sears – Barron’s
Above all else, the past few weeks have been defined by volatility in U.S., Asian, and European securities. To some investors, this means markets reacted violently to China’s equity correction and Greece’s debt crisis. To a growing number of professional investors, it invokes implied volatility levels of derivatives on stocks, bonds, and currencies.

***DA: That would upset us old-time chart guys. We need an open, high, low and close or we simply cannot operate.

Following Up on The Case for a 24-Hour VIX
Russell Rhoads – CBOE Options Hub
For the second weekend in a row The Striking Price column in Barron’s had me at the headline. Last week, Bill Luby was the guest columnist, and it was about small cap volatility and the Russell 2000. Steve Sears (the guy that came up with the term ‘fear index’) was back at the helm this week and the words “The Case for a 24-Hour VIX” called out to me to read more.
The article then moved on to the discussion about what would be needed to quote VIX 24 hours a day. This would be both interesting and useful during times of crisis. Over this past weekend things were pretty quiet, but recently there have been a couple of Sunday nights where diehard market participants and traders were watching their screens closely as the global equity markets reacted to the latest news out of Europe related to Greece. This sparked the discussion about quoting VIX outside of regular US trading hours.

Volatility at its lowest this year: now what? – fastFT: Market-moving news and views, 24 hours a day
Financial Times
Financial-market volatility reached its lowest point in two-and-a-half years Friday. Is this a cue to hunker down for the summer break, or one of those calm before the storm moments?
The Vix, or Chicago Board Options Exchange volatility index, as its mother calls it, closed at 11.95 on Friday night, which is its lowest level since December 5, 2012, writes Peter Wells.
These levels are pretty rare.

Bullish Technical Indicators, Dollar & Gold – Weekly Market Outlook
Price Headley – CBOE Options Hub
With a possible end (more or less) to the Greek debt crisis taking shape last week, investors were once again confident enough to get back to their buying ways. When it was all said and done, the market gained about 2.4%, crawling back above some key resistance levels in the process.
And yet, stocks didn’t quite clear their biggest hurdles, and in rare cases where the indices managed to make good technical progress, they ran into other walls. In other words, there are still several ways from here the bears could capitalize on the market’s weak points.

The Week in Russell 2000 Trading – 7/13 – 7/17
Russell Rhoads – CBOE Options Hub
With Greece finally behind us (for now…) the global economic picture is a bit more stable. This resulted in equity markets rebounding last week. Large caps benefited from the resolution of the Euro issues and the Russell 1000 (RUI) gained 2.24% placing the large cap benchmark up 3.59% for the year. Small cap stocks were higher as well, but the Russell 2000 lagged gaining 1.20%. There is still a bit of a spread between small cap and large cap performance for 2015 as the RUT is up 5.18% year to date.


Eurex Technical Glitch Delays Trading in Futures, Options
John Detrixhe – Bloomberg
A technical glitch postponed the start of trading in futures and options contracts on Eurex by more than two hours, the latest in a run of breakdowns by exchanges.
Trading in the derivatives started at 10:10 a.m. Frankfurt time, the Deutsche Boerse AG subsidiary said in a notice on its website. Technical problems caused the delay. DAX Index and bund futures are among the most popular products that trade on the exchange. Europe’s largest derivatives market also suffered a delayed opening in February.

S. Korea opens mini-sized derivatives market
The Korea Herald
South Korea opened a mini-sized futures and options market on Monday to offer investors wider choices for hedging and trading, hoping to revitalize the once-vibrant derivatives market with robust liquidity.
The Korea Exchange currently operates futures and options trading based on the KOSPI 200 index, a flagship index composed of the top 200 stocks by market capitalization.

Intercontinental Exchange – Holland Clearing House Renamed ICE Clear Netherlands
Press Release – ICE
Intercontinental Exchange (NYSE:ICE), the leading global network of exchanges and clearing houses, today announced that Holland Clearing House will be renamed ICE Clear Netherlands, effective July 27, 2015. ICE acquired a majority stake in Holland Clearing House in December 2014, with ABN AMRO Clearing Bank holding a minority stake.
ICE Clear Netherlands is focused on providing a reliable, efficient service combined with a transparent pricing structure and robust risk management systems. The Dutch clearing house provides central counterparty clearing (CCP) services for a range of equity and index derivatives contracts listed on TOM (The Order Machine), a Multilateral Trading Facility (MTF) based in the Netherlands.

***DA: Good thing. The folks at Holland House brand cooking wine were tired of getting calls from ESMA.

Regulation & Enforcement

Regulation a hurdle for blockchain
Cian Burke – Futures & Options World
The deadline for responses to the European Securities and Markets Authority’s (Esma) call for evidence on virtual currencies and distributed ledgers passes this Tuesday, in the first move by the regulator to increase scrutiny of the technology.
Esma, whose paper is the result of six-month study of bitcoin and its underlying technology blockchain, has joined a number of other global regulators said to be carefully monitoring development of a technology many feel could revolutionise the financial markets.

***DA: ESMA’s motto: Stifling financial market innovation since 2011.


Tech-powered non-banks taking over US Treasury trading » Banking Technology
Banking Technology
Technology is equipping non-bank market-makers to move into the US Treasury Market, giving them analytics and speed to manage and hedge risk, while enhancing market liquidity.


The ‘Unusual Circumstance’ That Could Inspire Bulls
Todd Salamone – Schaeffer’s Investment Research
July expiration week saw the S&P 500 Index (SPX – 2,126.64) rally 2.4%, as perceived progress with respect to Greece and its European creditors was made. But there is still work to be done, as negotiations for a third bailout have yet to take place. Moreover, China’s Shanghai Composite continued to trade above its July 8 lows, as some listings re-opened for trading.
The SPX “V-bottomed” and rallied to new highs — a potential scenario that we presented two weeks ago, per the excerpt above. The magnitude of the rally may have been helped along by short covering related to the massive put open interest on the SPDR S&P 500 ETF Trust (SPY – 212.48) that expired on Friday.

Is This ‘Auto-Hedge’ Worth the Risk?
Adam Warner – Schaeffer’s Investment Research
With the benefit of hindsight, you’d know that the first six-plus months of 2015 would morph into the Golden Age of Churn. But let’s say you knew that in advance of this year. I’m not talking about having the equivalent of Biff Tannen’s Almanac for stock prices. Rather, what basic strategy would you employ knowing it was a year of unsustainable moves in both directions?
You would certainly sell straddles and strangles, and you wouldn’t bother to aggressively hedge with the underlying stock(s). You would also likely fade the stock moves themselves and flip like crazy.

***DA: Don’t knock Biff Tannen. He has the Cubs winning the World Series this year.

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