JLN Options: Complexity of US Options Markets is Challenging Liquidity Discovery; With Stocks Frozen in Athens, a Greek ETF Plunges in U.S.; Wall St. falls as Grexit fears grow, volatility spikes

Jun 29, 2015

Lead Stories

Complexity of US Options Markets is Challenging Liquidity Discovery, According to New TABB Research
Press Release via MarketWatch
With US options market structure becoming more complex, options traders are facing four major challenges in their search for liquidity: the expanding number of exchanges, a diverse set of market models, an expanding array of options and accelerating trading velocity.
According to new research from TABB Group, advanced order routing is seen as a key competitive differentiator for brokers with the ability to route to multiple exchanges with minimal latency, a necessity now for catering to institutional investors across the options markets.

***DA: Another nail in the coffin of the retail investor class?

With Stocks Frozen in Athens, a Greek ETF Plunges in U.S.
MoneyBeat – WSJ
Greece’s stock market is closed this week ahead of Sunday’s referendum on the latest bailout-package proposal. But investors are finding other ways to express their concern about the country’s plight.
In the U.S., a small exchange-traded fund that tracks Greek stocks, the Global X FTSE Greece 20 ETF, just opened down 16%.

***DA: Why is the market surprised by news that Greece will not be making good on its debt? It was never a case of “if” but rather “when.” And aside from the Greek citizens caught up in the fiscal morass, I have no sympathy for investors who bet on the unlimited ECB backstop and lost.

Wall St. falls as Grexit fears grow, volatility spikes
Sweta Singh – Reuters
U.S. stocks extended their losses in heavy trading on Monday, adding to a global selloff, after a collapse in Greek bailout talks intensified fears that the country could be the first to exit the euro zone.
All three major indexes fell more than 1 percent on the same day for the first time in more than a month as investors dropped riskier assets such as equities and commodities.

What If Greece Defaults
Randall W. Forsyth – Barron’s
The saga of the Greek debt crisis seems almost as long, with nearly as many twists and turns, as that of Odysseus. And like those of us who had to plod our way through Homer’s epic in school so many years ago, the financial markets cannot seem to avoid Greece and its ongoing struggle to remain in the euro zone, while it copes with an outright economic depression.

How Greece Is Just Like a Biotech
Adam Warner – Schaeffer’s Investment Research
Market predictions are generally kind of pointless. Actually making money in the trading biz generally requires excellent timing, and predictions are almost always vague on that front. But with that in mind, I’m going to make a prediction that has 100% chance of success.

***DA: More like a binary option than a stock.

Russell 2000 (RVX) Volatility on the Rise
CBOE Options Hub
After posting new highs last week (1296.00 on 6/23), the Russell 2000 has slipped in four consecutive days closing Friday at 1279.79 (-1.25%). With this morning’s markets reacting sharply lower on the news of Greece closing its banks temporarily, a closer look at the CBOE Russell 2000 Volatility Index is warranted.

***DA: As of publishing time, the RVX was “only” up 18 percent, as opposed to the VIX, which is up 26 percent today.

Playing Catch-Up in U.S. Small Caps as Inflows Hit Six-Year High
Callie Bost and Annelise Alexander – Bloomberg
Investors’ bullish attitude toward small stocks has extended into the options market, where they’ve shed portfolio insurance protecting against a decline. The Chicago Board Options Exchange Russell 2000 Volatility Index, a measure of one-month hedging costs on the small-cap gauge, fell to a two-year low on June 23.
The small stocks VIX jumped 12 percent Monday, while CBOE’s S&P 500 VIX climbed 16 percent amid mounting concern about fallout from a potential Greece exit from the euro area.

A Shortage of Tools for Betting Against China
Mia Lamar – WSJ
China’s roller-coaster stock market is increasingly open to the world’s investors—so long as they don’t want to bet against it.
Sky-high stock valuations make the mainland A-shares market appear ripe for short selling, in which investors sell borrowed shares in hopes of buying them back later at a lower price and pocketing the difference.

***DA: Want to double your yuan? Fold it in half and put it in your pocket.

Chart Risks – Weekly Market Outlook
Price Headley – CBOE Options Hub
Last week’s strong start for the market faded rather quickly once it became clear Greece wasn’t simply going to be offered a bailout package just because it wanted one. In fact, by the time all was said and done, stocks actually lost ground last week, not to mention ended the week in near-bearish mode. News out of Greece will likely cause some continued market swings, in both directions, until it is more officially resolved.

With 61 Seconds in a Minute, Markets Brace for Trouble
On June 30, time will stand still.
Just for a second — a leap second.
Since 1967, when clocks went atomic, human timekeeping has been independent of the earth’s rotation. The problem is, the planet is slowing down and clocks are not. So every few years, to get everything back in sync, scientists add a second. They’ve done it 25 times since 1972. The last time was 2012, but that was on a weekend. June 30 will be the first leap second during trading hours since markets went electronic.


Why the CME Group delayed the closing of pits
The CME Group said it will delay the closure of many of its open-outcry futures trading pits, pending a review of its plans by the Commodity Futures Trading Commission, its regulator.
The delay, for now only a few days to July 6 from July 2 as previously announced, could be extended to 90 days, based on the CFTC’s decision on the merits of traders’ concerns. The CME has already admitted to the regulator that futures traders are concerned about the possibility some customers could be “materially harmed” by losing access to complex transactions not available on the exchange’s Globex electronic trading software.

***DA: Protecting the volume “one-percenters.”

Shanghai Gold Exchange in talks to list products on CME
The Shanghai Gold Exchange (SGE) is in talks to list its bullion products on CME Group’s trading platform and launch yuan-denominated bullion contracts in Dubai, an exchange official said.
China, the top producer and a leading consumer of gold, is seeking to boost its global presence in the bullion market and increase the use of its currency, while also opening up its own markets to foreign players.

Regulation & Enforcement

New York Regulator Said to Probe ISDAfix Derivatives Benchmark
Greg Farrell – Bloomberg
New York’s main financial-services regulator has opened its own investigation into the global derivatives benchmark known as ISDAfix, broadening the watchdog’s hunt for manipulation beyond markets such as foreign exchange, according to a person briefed on the matter.
The New York Department of Financial Services sent major banks requests for information, but hasn’t yet issued subpoenas or narrowed its focus to any particular firm, said the person, asking not to be identified because inquiries are confidential.


Orc Group AB: Shanghai ShenYi Investment Co. deploys Orc to enhance options trading capability in China
Press Release via BusinessWire
Orc, the global market leader in electronic trading technology for listed derivatives, today announced that Shanghai ShenYi Investment Co. (ShenYi) has implemented Orc’s Trading Bricks solution to improve trade efficiency for ETF options trading on Shanghai Stock Exchange (SSE).
ShenYi is also participating in the mock trading competition organized by China Financial Futures Exchange (CFFEX) as the market prepares for the launch of CSI300 index options. Orc Trading Bricks is fast and built for change, it provides rich functionality which was quickly integrated with ShenYi’s trading environment for enhancing the firm’s overall trading performance and maximizing opportunities for growth.

MOEX derivatives hit by further data issue
Futures & Options World – Let’s Talk Derivatives
The Moscow Exchange (MOEX) has said its derivatives market was Monday hit by a market data issue, causing trading to be interrupted, the third technical issue at the exchange this month.


Tail-risk hedging is back Down Under
Douglas Appell – Pensions & Investments
Tail-risk hedging, a hot topic in the immediate aftermath of the global financial crisis, is showing signs of coming back in fashion Down Under, industry veterans say. But if tail risk’s previous incarnation was symbolized by an elusive black swan, this time around the risks that investors are grappling with are all too obvious: equity market valuations puffed up by the same flood of central bank liquidity driving bond yields to record lows, effectively robbing fixed income of its defensive qualities.


Volatility: Why It Matters and What You Should Do About It
Summer is upon us and many investors will be turning their attention away from the markets for a few weeks to enjoy some time off. It seems as good a time as any to allow oneself to be distracted from financial affairs because despite the fact that there is plenty to worry about (and there always is), U.S. equity markets have been remarkably calm lately.

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