Observations & Insight

Practice Does Not Always Make Perfect

John Lothian‘s shoulder surgery earlier this week marks the third time in three years that he has gone under the knife. After a double knee replacement in 2013 and back surgery in 2014, he viewed this one as relatively minor, calling it “virtually outpatient.” He had even planned to come downtown today.

Normally, when the media reports a person’s return home from the hospital, they add the phrase “…and resting comfortably.” We spoke with John this morning and it is safe to say he is neither resting nor comfortable. Though he is at home, the recovery is going to take a little longer than expected, and he will be out until after the Memorial Day holiday. As a reminder, we will not be publishing the John Lothian Newsletter on Monday, May 25, in honor of those who have died to keep us safe and free.

On another note, the ORC Chicago Event: Consolidation In Derivatives and Its Impact on Technology was a sellout last evening with 150 attendees signed up. Moderated by Jim Kharouf, the common threads from the panel were the need for standardization in technology, making technology more integrated across back-office departments, and finding more efficiencies with fintech. Interestingly, most panelists felt the FCM consolidation or evaporation is at or near the bottom, while the ISV space may still have room for M&As. The question now for FCMs and the drive for more standardization is: How do you differentiate yourself?

Lead Stories

European Bond Rout Is Over Is Message Coming From Options Market
By Anchalee Worrachate and Tanvir Sandhu – Bloomberg Business
The great European bond selloff of 2015 that erased $300 billion from the market has run its course, at least according to options prices on German bond futures.

Oil volatility fades as risks become more balanced: Kemp
By John Kemp – Reuters
Oil prices have become much less volatile in recent weeks as the record short position previously established by hedge funds has been squared up and prices return to a level at which many U.S. shale wells are profitable.

Dividend Bets Trailing Europe Stocks Highlight Draghi Skepticism
By Inyoung Hwang and Sofia Horta E Costa – Bloomberg Business
Has the stock rally spurred by Mario Draghi’s quantitative easing gone too far? Based on financial contracts betting on future dividend rates, the answer is yes.
While the Euro Stoxx 50 Index has climbed 17 percent since the start of the year, expectations for dividend growth have risen about one-third as fast, according to futures. Contracts allowing traders to speculate on dividend levels in the benchmark gauge trade on the Eurex exchange.

NBG July 2nd Options Begin Trading
Investors in National Bank Of Greece S A (Symbol: NBG) saw new options become available today, for the July 2nd expiration. At Stock Options Channel , our YieldBoost formula has looked up and down the NBG options chain for the new July 2nd contracts and identified one put and one call contract of particular interest.

This is how hedge funds see market moves before the rest of us
By Lynne Marek – Crain’s
To win in financial markets, it helps to have a nugget of information that others don’t have. Joseph Gits has an $8,000-a-month service that he says is chock-full of these nuggets: an algorithm that analyzes Twitter and StockTwits tweets to pick up real-time changes in sentiment on stocks and options.
Investors in his company, Social Market Analytics, are convinced it delivers. As for customers, they’re hedge funds and other super-secretive trading firms, CEO Gits says, and true to form they aren’t talking. But Gits counts more than two dozen as clients.


CBOE To Develop Hedge Fund Benchmarks With Eurekahedge – Indexes To Measure Performance Of Hedge Funds That Use Volatility-Based Investment Strategies
Press Release
Chicago Board Options Exchange (CBOE) today announced it has entered into an agreement with Eurekahedge, a hedge-fund research and data collection company, to collaborate on the development of a series of new benchmark indexes that will measure the performance of hedge funds that use volatility-based investment strategies.

LME working on linking with commodity exchanges in China, but process not simple
By Enoch Yiu – South China Morning Post
The London Metal Exchange (LME) is in detailed talks with mainland authorities to create direct trading links with domestic commodity exchanges that would emulate the Shanghai-Hong Kong Stock Connect.

Regulation & Enforcement

The E-Mail That Helped Catch Barclays: ‘ISDAfix Is Manipulated’
By Matthew Leising – Bloomberg Business
“Sometimes ISDAfix is manipulated.”
Those words, taken from an e-mail written by a Barclays Plc options trader, came back to haunt the bank Wednesday as it settled U.S. government allegations that it attempted over five years to rig one of the world’s most important rate benchmarks.

EU to extend deadline on derivatives rules
By Joe Rennison and Philip Stafford – FT.com
The European Commission is expected to extend a key deadline for harmonising its derivatives rules with US regulators, vital for ensuring European banks continue to access US markets.

Remarks Of CFTC Commissioner Mark P. Wetjen Before Global Derivatives Trading & Risk Management Conference, Amsterdam, The Netherlands — Applying The Insights Of Joseph De La Vega’s Confusion De Confusiones To Today’s Derivatives Markets — A Case For More Transparency
Press Release
Good morning and thank you for having me here to speak at the Global Derivatives Trading & Risk Management Conference. I am honored to be with you in Amsterdam.


SimCorp Dimension hooks up to Thomson Reuters DataScope
SimCorp, a leading provider of investment management solutions and services for the global financial services industry, and Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, today announced the installation of a dedicated adapter enabling portfolio managers to access DataScope Select pricing and reference data through the SimCorp Dimension software platform.


Someone made a quick buck trading cable mergers
By Lawrence Lewitinn – CNBC
Cablevision soared 18 percent on Wednesday on speculation that it could be a takeover target. And one trader found a way to make a large amount of money on the name in a matter of hours.

Are 2 New Volatility Funds the Right Fits for Your Portfolio?
By Todd Shriber – TheStreet
Whenever market volatility spikes, investors are likely to start hearing about the VIX, also known as the “fear index.” The VIX is a widely followed measure of options volatility on the S&P 500, and over the years approximately 15 exchange-traded funds designed as plays on the VIX have come to market.
Two of the newest VIX ETFs debuted Tuesday, offering prospective investors potentially more efficient avenues for profiting from changes in volatility. Let’s have a look at these new products to if they are suitable for average investors.

Chevron: Investors Should Follow $19M Insider Buy
By Steven M. Sears – Barron’s
John G. Stumpf of Wells Fargo is one of the banking industry’s sharpest chief executives. Warren Buffett, for one, has given him a big vote of confidence: Wells Fargo is a core holding for Berkshire Hathaway.
So investors should pay close attention to Stumpf’s recent purchase of 180,000 Chevron shares. Investors can piggyback the position with a well-placed options trade.


Goldman: These Are the 100 Most Important Stocks to Hedge Funds
By Julie Verhage – Bloomberg Business
Goldman Sachs is out with its latest “Hedge Fund Trend Monitor,” shedding light on which stocks the “smart money” is flowing into.

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