Observations & Insight
Sweet 16: The Tops For 2016 – Technology
Technology is the lifeblood of the financial markets. As we look ahead in our Sweet 16 series for 2016, here are four ideas from Matthew Rees, Hazem Dawani, Adam Honore and Matt Hughes – about where we are headed with new technology.
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***DA: This is the fourth and final installment of our Sweet 16 series. In case you missed the first three, here they are: Part 1 – Exchanges; Part 2 – Economics and Part 3 – Regulation
Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016
Javier Blas – Bloomberg
Oil speculators are buying options contracts that will only pay out if crude drops to as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices.
The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut.
****SD: From Reuters today, “Black box hedge funds lead winners from oil collapse.”
Markets Are Getting Jumpier, and We Can’t Tell if That’s Good or Bad
Tracy Alloway – Bloomberg
“Those aren’t mountains, they’re waves,” says Matthew McConaughey’s character in the movie Interstellar, after the team of space explorers’ search for an earth-like world takes them to an oceanic planet that is not quite as it seems. What appears to be a planet of tranquil waters is rocked by a nightmarish tsunami before returning to its earlier, placid state.
Binary Options in 2015 – A Year in Review
Avi Mizrahi – Finance Magnates
Emerging just over seven years ago, the binary options industry is still a new phenomenon, with young companies and an ecosystem which is still very much developing. As such, the field is characterised by faced-paced changes, helping to make for an exciting 2015.
Odds Rising That S&P 500 Ends Year in the Red
Paul Vigna – WSJ
You’re running out of time to get this thing back in the black, bulls.
The S&P 500, after Monday’s rally, was down 1.8% on the year, about 38 points. The Dow Jones Industrial Average was down 3.2%, or 571 points. It’s certainly not impossible that the bulls can push those two up by that much through Dec. 31, but the way this year is going, it’s just as likely that the bears will push them down even further. In short, there are seven trading sessions left in 2015, and it increasingly looks like the S&P 500 will end this year lower than it ended 2014, when it closed at 2059.
Why This Chart Isn’t a Screaming Buy Signal
Adam Warner – Schaeffer’s Research
The financial Twitterverse was abuzz on Monday morning with a chart from Bespoke Investments showing a parallel between 2011 to 2015. Well, here’s my rendition using 2015 dates as the S&P 500 Index (SPX) baseline
And yes, it looks very similar. It was a bit better earlier in 2011, and the big drop happened modestly earlier in August. And then in 2015, we recovered quicker and (thus far) have avoided an echo, shallower dip. But nothing ever duplicates to a T, and this sure looks pretty close.
Did the Fed Rate Hike Remove Uncertainty?
Bob Lang – CBOE Options Hub
If you believe that first move following the first Fed rate hike in nine years, then you believe the market was relieved exhaling. In a perverse way, the market seemed to be applauding tightening of policy, which is counter to what we have seen for years. Sure, the near zero interest rate policy (ZIRP) is still in effect, but the irrational behavior is quite remarkable. While the overall monetary policy is accommodative, a removal of access via higher rates is hawkish behavior – any way you slice it.
The events that rocked financial markets in 2015
Anora Mahmudova – MarketWatch
If there was a prize for most important story of the year, it would likely go to crude oil. Financial market dynamics have been affected by oil prices more than people expected.
Values of CME Group seats decline despite volume rise
Lynne Marek – Crain’s Chicago Business
CME Group “seat” values have steadily dropped this year, some as much as 67 percent, despite a rise in the company’s volume.
Traders and ex-traders blame the decline mainly on consolidation of futures trading into the hands, or on the screens, of fewer trading firms. The company has different types of membership seats available for trading in various contracts.
With the advance of electronic trading and CME’s partial closure of futures trading floors earlier this year, trading in futures and futures options is increasingly handled by big high-speed trading firms. A hub of such firms has emerged in Chicago over the past decade as traders left the floors and combined their trading skills with the latest technological tools.
Eurex aims to tap new traders with incentives
Alice Attwood – Futures & Options World
German exchange giant Eurex will launch at the start of next year a new clearing incentive programme for traders who are new to its exchange markets, with participants set to benefit from “significant” fee waivers. Eurex Clearing, the German clearing house, will launch the Trading Development Programme 2016 incentive scheme on January 1, with the programme open to new traders from Europe, Asia, Australia, the Middle East, Africa and the Americas.
CME equity executive director Tagliani departs
Alice Attwood – Futures & Options World
Derivatives marketplace CME Group has parted ways with an executive director in its equities team, the latest in a number of changes at the firm. Matthew Tagliani has left his role as an executive director for equity products at CME Group in London.
Regulation & Enforcement
Statement of Chairman Timothy Massad on the Fiscal Year 2016 Budget Agreement
The failure to provide the CFTC even a modest increase in the fiscal year 2016 budget agreement sends a clear message that meaningful oversight of the derivatives markets, and the very types of products that exacerbated the global financial crisis, is not a priority.
CFTC chair slams Congress over flat budget
Cian Burke – Futures & Options World
CFTC chair feels his agency should be funded in line with its peer the SEC
Commodity Futures Trading Commission (CFTC) chair Timothy Massad has slammed US lawmakers for failing to hike the regulator’s 2016 budget, warning the move would undermine efforts to enforce Dodd-Frank financial reforms.
In a statement released on Monday, the regulator said Congress’s failure to increase to the regulator’s budget had sent “a clear message that meaningful oversight of the derivatives markets… is not a priority”.
Massad warned the CFTC’s current budget doesn’t match its responsibilities, which had vastly expanded under the Dodd-Frank Act to include the $400tn US swaps market.
Spoofing Went Mainstream in 2015
Matthew Leising – Bloomberg
High-frequency bait-and-switch schemes take years to detect
Tech available to regulators just now catching up to industry
Inside Ken Griffin’s $25 billion empire, Citadel LLC’s cyber investigators had isolated a new enemy: spoofers.
It was late 2013, and at the firm’s Chicago headquarters, a team of researchers discovered that a rival company’s algorithm was outmaneuvering their automated trader. The algo was placing futures orders it had no intention of filling to entice firms like Citadel into the transactions, then canceling them, leaving Citadel with money-losing trades. Citadel’s plan: to pit its computers against the spoofer in a high-stakes duel over market manipulation.
SEC Appeals Process on the Slow Track
Jean Eaglesham – WSJ
After five years, four judges, three rulings, two appeals and the loss of their careers, John Flannery and James Hopkins this month won their legal battle against the Securities and Exchange Commission.
The former State Street Corp. executives’ long legal fight took place almost entirely in the SEC’s in-house court system, which agency officials have lauded as offering a fast-track alternative to federal court. In fact, the SEC’s use of its own tribunal, more frequent in recent years, has coincided with longer delays in the agency’s handling of appeals, according to a Wall Street Journal analysis of rulings stretching back a decade.
‘Bridesmaid strategy’ beats the market
Michael Santoli – CNBC
“Better luck next year.”
It’s the classic put-down, veiled as consolation, that’s leveled at a team that falls just short of the title at season’s end.
Yet it turns out that when it comes to stock sectors, one season’s runner-up often does become a winner the next year. In one of the quirkier and lesser-known market patterns, the second best-performing sector in a given year has tended to outperform the broad market over the subsequent 12 months.
Weekly Market Outlook – Reasons For Caution Here
Price Headley – CBOE Options Hub
Talk about a 180-degree turnaround! Traders were bullish leading up to last Wednesday’s big news, and remained a little bullish for the last part of that session. With a night to sleep on it though, they changed their minds. Thursday as bearish and Friday was even more so, turning what started out as a great rebound effort into a weekly loss as well as a break below several key support levels.
Russell 2000 Index Options (RUT) – “Weeklys” New PM-settled Expirations
Rick Rosenthal – CBOE Options Hub
The Russell 2000 Index (RUT) Weeklys options are listed to provide expiration opportunities every week. Weeklys are typically listed on Thursdays and expire on Fridays, provided that such expirations were not previously listed (i.e. Weeklys are not listed if they would expire on a 3rd Friday or if a Quarterly option would expire on the same day).
Will the volatility of volatility continue in 2016?
Michael A. Gayed – MarketWatch
I think a lot of investors and traders are more than happy to see this year come to an end. What finally ended up being the year the Fed hikes rates was nothing more than a sloppy mess of volatility and extreme divergences which frustrated bulls and bears alike. As I noted in my latest week in review, the volatility of volatility in 2015 has been nothing short of incredible.
The VIX Index on numerous occasions spiked, came right back down, and then spiked again with little to no pause in between. Broadly this made risk-management positioning frustrating for most given that there was no time to really position fast enough in either direction. The end result has been a ton of whipsaw movement in the S&P 500 SPY, +0.56%