Observations and Insight
Riders on the Storm: Orc Group’s Troels Philip Jensen Looks at Consolidation in the Vendor Space
The financial sector has been feeling the squeeze over the past few years. Lower trading volume, sustained low volatility and added expense from new regulations have combined to create a precarious situation for independent service vendors serving the listed derivatives space, and has led to a wave of consolidation among its players. Orc Group’s Troels Philip Jensen says the trend will eventually subside, but only the most strategic-thinking firms will survive and thrive.
As Fed Meeting Looms, Options Traders Brace for Stock Swings
Saumya Vaishampayan, The Wall Street Journal
Options traders are bracing for stepped up price swings in stocks around this week’s Federal Reserve meeting, but don’t expect an extreme or prolonged sell-off.
All eyes will be on the Fed when it issues a statement at the conclusion of the two-day Federal Open Market Committee meeting Wednesday, and follows it up with a press conference by Fed Chairwoman Janet Yellen.
Pension fund exit from hedge funds sparks debate
Adam Shell, USA Toda7y
Is the thirst for “alternative” investments, which became unquenchable during the stock market downturn in 2008-09, drying up? That’s the big debate after a giant pension fund announced that it’s dumping all its hedge fund investments.
Gold Party Ends as Volatility Drops to Lowest Since 2010
By Debarati Roy, Bloomberg
Gold Party Ends as Volatility Drops to 4-Year Low Before Fed
Last year, gold fell 28 percent, the most in three decades. Photographer: Brent Lewin/Bloomberg
After gold’s rally in the first half of the year beat gains for commodities, equities and Treasuries, bullion is starting to bore investors.
The metal’s 60-day historical volatility is near the lowest since October 2010, according to data compiled by Bloomberg. Open interest in New York futures and options is holding near the lowest in five years, while money managers cut their bullish holdings for four straight weeks.
Treasury Volatility at 5-Month High Before Fed Meets
By Susanne Walker and Cordell Eddings, Bloomberg
Treasury market volatility climbed to a five-month high before the Federal Reserve issues its latest policy statement tomorrow and Scotland votes on independence the following day.
U.S. government debt was little changed after advancing earlier as Wall Street Journal reporters speculated during a webcast that Fed policy makers would retain the pledge to keep benchmark overnight rates low for a “considerable time” after the bank ends its bond-buying program. The U.S. sold $30 billion in four-week bills today at a rate of 0.0 percent for the first time since January.
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Sterling slips, but no sign of panic as Scottish vote nears
By Anirban Nag, Reuters
Sterling dipped towards recent lows on Tuesday, two days before Scotland’s independence vote, keeping the cost of hedging against sharp swings in the pound over the next week at its highest in four years.
Investors briefly focused on UK inflation data, after days of heated debate on the Scottish referendum, in which the pound is centre-stage. But consumer price rises slowed as forecast, barely diverting attention from the possible break-up of the United Kingdom.
Markets are pricing in a small chance of the first rate hike in the spring of 2015.
With uncertainty over the Scottish vote and the durability of the UK economy, hedge funds continued to seek protection against near-term swings in sterling. Many were buying options with downward strikes – bets on more declines – traders said.
Options Mart Sees Uptick in Weeklys Volume, Spreads Stable in H1: TABB
Traders Magazine Online News, September 16, 2014
The first half was a good one for the options markets, with an uptick in one particular instrument and steady bid/ask spreads for all.
Not a bad first six months.
The good news was part of a new report from market consultancy TABB Group. In its latest U.S. Options Market Review research, head options analyst Andy Nybo noted that weekly options expirations remained a “bright spot” in the quarter, with volume in options with weekly expirations totaling almost 500 million contracts, a 38 percent increase from the same period in 2013.
S&P 500 powers on in a market without big pullback
By Rodrigo Campos, Reuters
For all of those waiting for a correction in U.S. stocks, here’s the news: you may have already missed it.
It is true that the broad S&P 500 has not gone through a by-the-book 10 percent decline since October of 2011. But seven of the 10 S&P 500 industry groups, the Nasdaq Composite .IXIC and the small-cap Russell 2000 .RUT have all fallen more than 10 percent at some point since, many more than once.
ISE and ISE Gemini to List Options on Alibaba on September 29, 2014
NEW YORK, September 16, 2014 – The International Securities Exchange Holdings, Inc. (ISE Holdings) today announced that the ISE and ISE Gemini® options markets will list options on Alibaba Group (NYSE: BABA) beginning Monday, September 29. The options listing date is contingent on a successful completion of Alibaba Group’s initial public offering with shares to begin trading on Friday, September 19.
CBOE and C2 Plan to List Options on Alibaba Group Holding Limited (BABA)
– Expected Start Date of Monday, September 29
CHICAGO, Sept. 16, 2014 /PRNewswire/ — CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that the Chicago Board Options Exchange (CBOE) and C2 Options Exchange (C2) plan to list options on Alibaba Group Holding Limited (ticker symbol: BABA) beginning on Monday, September 29, 2014, contingent on BABA meeting new options listing criteria.
Ten Takeaways from CBOE RMC Europe
By Russell Rhoads, CFA
There was so much I had trouble narrowing the list down to 10, but here goes –
Change in VIX Calculation
The change that is scheduled to go into effect on October 6th in the VIX calculation is an improvement on measuring 30 day expectations of volatility in the market. In reality this is not a change in the calculation, but a change to the inputs or option series that will be used to determine VIX. The two closest expiration series to the 30 day time frame will be used to determine the consistent 30 day measure that is VIX.
CME Group Announces Open Interest Record for FX Futures and Options
CHICAGO, Sept. 16, 2014 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, announced record open interest in its Foreign Exchange complex for Sept. 15, 2014.
Open Interest for FX futures and options combined stood at 2,630,556 contracts yesterday, the notional equivalent of $309 billion. The previous record was set on March 19, 2013 with 2,589,468 contracts, $286 billion in notional.
Reflecting resurgent growth of CME Group’s global FX franchise, this record follows CME Group’s all-time high FX Options volume record with $32.4 billion in notional value (231,307 contracts) on Sept. 4, 2014 as well as the all-time record volume of FX Futures on CME Europe on Sept. 9, 2014 of 4,080 contracts, $527 million in notional.
ICE Futures US Sets Daily Volume Record in mini MSCI Emerging Markets and mini MSCI Europe
September 16, 2014
NEW YORK–(BUSINESS WIRE)– Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reached a daily volume record in the mini MSCI Emerging Markets Index future and the mini MSCI Europe Index future on Monday, September 15, 2014.
Regulation and Enforcement
U.S. court mostly upholds CFTC’s cross-border rules on swaps
By Douwe Miedema, Reuters
A court on Tuesday largely rejected a challenge from banking groups to the way the U.S. swaps regulator applies its rules overseas, a hotly debated issue as it reins in the $710 trillion global market.
The majority of the claims by the three banking groups failed because the 2010 Dodd-Frank Wall Street reform law stated that the Commodity Futures Trading Commission could apply its rules to overseas business in certain cases, the ruling in U.S. District Court for the District of Columbia said.
Barchart Trader Platform Adds Options Analysis and Strategy Builder
CHICAGO, IL – September 16, 2014 – Barchart.com, Inc., a leading provider of market data and information, today announced the release of advanced options analysis and an options strategy builder within Barchart Trader. Barchart Trader is a desktop, tablet and mobile market data, trading and analysis platform for commodity, equity and foreign exchange traders and market participants. The new options analysis and strategy module brings powerful visualization tools to the Barchart Platform for analyzing options positions and strategies.
Traders Buying Insurance Against an October Crash
Investors are buying options that will pay off handsomely if the market gets ugly in coming weeks.
Steven M. Sears, Barron’s
Investors are tense as the Federal Reserve commences a two-day meeting to discuss the postcrisis future of interest rates.
Options trading patterns on the CBOE Volatility Index (VIX) indicate significant bearish pre-event positioning.
Trading patterns reveal investors think the stock market will make a sharp move lower in reaction to the statement released Wednesday afternoon by the central bank’s Federal Open Market Committee.
GBP: Trading The Scottish Referendum – Barclays
With Scotland’s independence referendum on Thursday posing a very significant event risk for the market, Barclays is out with a note advising clients on how to position for that event.
“While the polls still suggest ‘No’ votes ahead of ‘Yes’ votes, there has been increasing support for independence in recent polls. While actual votes in such referenda tend to result in lower support for independence than in the preceding polls, uncertainty around the final result has been mounting,” Barclays notes.
Two Bad Ideas for Volatility Traders
What does it mean when interest wanes in the VelocityShares Daily Inverse VIX Short-Term ETN (XIV)?
by Adam Warner, Schaeffer’s Investment Research
Despite the impression that I gave yesterday, not everyone in the trading/investing world wants to go long volatility.
As Bloomberg notes, the picture for the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) has changed. Short sellers are abandoning an exchange-traded fund that becomes more valuable during times of market tranquility after it soared 24 percent this year. Bearish bets on the fund, known as the VelocityShares Daily Inverse VIX (XIV) Short-Term ETN, make up 0.2 percent of outstanding shares, a record low, compared with 19 percent in June, according to data compiled by Markit Ltd.