Observations & Insight

Telling the Story
John Lothian – John Lothian News

We need you to tell a story and help us fill up our MarketsWiki Education World of Opportunity events in Chicago and New York.

We love to tell stories. People in this industry are always telling stories about the markets. We replay the day’s trading with our fellow traders or friends. We tell strangers about the amazing things that happen in the markets. Everyone talks about some market event or action – even cab drivers sometimes, according to industry lore.

Those events, that market action and happenings, and the stories, have attracted thousands of young people into our markets over the years. Based on the stories, and the swirl and whirl of the kaleidoscope of the trading floor, there was never a shortage of fresh new talent attracted to our industry.

For the rest of the commentary, go here

Lead Stories

Hedges Triggered in U.S. Stocks as Puts Explode, VIX Takes Dive
VIX tumbles 8.4 percent after spiking 49 percent on Friday
Volume on VIX futures surged in the days leading up to Brexit
Say what you want about U.S. equity investors after the U.K. vote on the European Union. Just don’t say they were unprepared. The precautions taken by traders to hedge against Brexit are playing out in today’s market, where options-derived measurements of market stress are actually falling despite a second day of weakening stocks.

****SD: News about today’s rebound from Bloomberg here

Derivatives to be less impacted by Brexit – WMBA
Futures & Options World
UK’s exit from the EU could lead to higher margin requirements, says industry body
The global nature of the derivatives trading means that the market should be less impacted than other asset classes by the UK’s exit from the European Union, according to industry body the Wholesale Markets Brokers’ Association. “The derivatives market is truly global, so is unanchored to one geographical domain, therefore it should be less impacted by global politics than domestic markets,” chief executive officer, Alexander McDonald, told FOW.

Kraft, Mondelez must face wheat price-rigging lawsuit: U.S. judge
A federal judge in Chicago on Monday refused to dismiss a lawsuit in which wheat futures and options traders accused Kraft Heinz Co and Mondelez International Inc of illegally manipulating the grain’s price at their expense.

****SD: This decision will have far-reaching implications.

Brexit Is a Boon for Volatility Traders
The havoc unleashed by Britain’s vote to leave the European Union has benefited some investors: volatility traders. The U.S. stock market’s swoon Friday and Monday, after Thursday’s Brexit vote, sent the CBOE Volatility Index, or VIX, to a four-month high.

Volatility Signals Growing Investor Concern, But No Panic
Stocks go down, volatility goes up. That’s a pattern we’ve seen time and time again in the financial markets, and this time is no different following the Brexit shocker last week.

OCC Announces New Options Industry Council Roundtable Members
Press Release
OCC, the world’s largest equity derivatives clearing organization and a leading provider of options education content through The Options Industry Council (OIC), today announced that Geralyn Endo, Vice President at Bank of America Merrill Lynch; Gary Franklin, Vice President and Manager, Options Trading and Strategies at Raymond James; Frank A. Magnani, Global Prime Brokerage Institutional Sales at Interactive Brokers and Barry Metzger, Senior Vice President, Trading Services, Charles Schwab & Co., Inc. and Chief Executive Officer, optionsXpress, have joined the OIC Roundtable.

Machines Lead Hedge Fund Traders in Brexit Chaos, Braga Wins
Lynx Asset Management posted 5.1 percent gain on Friday
George Soros said he was ‘long’ sterling before vote
As more details emerged on how hedge funds fared following Britain’s surprise decision to leave the European Union, computer-driven hedge funds led the winners. Human traders appeared to have limited losses by reducing risk.

****SD: Not all hedgies fared well… Bill Ackman Has Lost Over Half a Billion Dollars Since Brexit. More on the successful ones from Yahoo: Soros, Druckenmiller among hedgies profiting in market plunge

Brexit could see prop traders heading for Europe
Alice Attwood – Futures & Options World
Amsterdam and Dublin have been cited as potential relocation options
Brexit could see UK-based proprietary trading firms forced to move to new European homes or add new satellite sites in member nations to continue trading on European exchanges, experts have warned. “There will be changes but it is still hard to predict when/where/how these will emerge. If an exodus of London based prop will happen Amsterdam and Dublin will be most likely destinations,” Harold Duineveld, managing director at tech-driven prop trading firm, Audacity Capital DMCC, told FOW.


What next for LSE and Deutsche Börse if the deal fails?
Financial News
The London Stock Exchange Group’s tie-up with German counterpart Deutsche Börse is hanging in the balance following the referendum vote. After speaking to executives across the industry, here’s an FN guide to what might transpire if the deal does hit the rocks… The Brexit vote will have heightened concerns held by German regulators about the combined group’s holding company being in the UK: that HQ would sit outside the EU once the UK negotiates the terms of its exit. Furthermore, the depreciation of the pound since June 24 makes the proposed ‘merger of equals’ tie-up look much worse for Deutsche Börse’s shareholders.

CBOE, C2 and CFE Trading Schedule for the Independence Day Holiday
CBOE Press Release
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the following trading schedule for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE) in observance of the Independence Day holiday:

SGX and Baltic Exchange extend period of exclusive discussions
Singapore Exchange (SGX) has agreed with the Baltic Exchange Limited (Baltic Exchange) to extend the period of exclusive discussions regarding a cash offer for 100% of the share capital of the Baltic Exchange (Transaction) from 30 June 2016 to 31 August 2016.

****SD: With all that’s been happening, I forgot this was ongoing.

Regulation & Enforcement

Brexit raises doubts over timing of Mifid II
Futures & Options World
Europe plans to implement the controversial Mifid II rules in early 2018
The European Commission could look to move the date for the introduction of the controversial Mifid II reforms to avoid a clash with the UK’s Brexit negotiations or reflect the fact that British demands are no relevant, lawyers have suggested. The Mifid II rules are due to take effect across the European Union in January 2018 but Brexit has prompted speculation from London-based lawyers the date could be brought forward or even moved back.

****SD: What doesn’t raise doubts over the timing of Mifid II?

Tax Treatment For Volatility Products
After the Brexit referendum vote on June 24, 2016, volatility-based financial products skyrocketed in price, and by Monday, June 27, prices had subsided. That’s volatility!

CySEC Warns Brokers About Providing Investment Advice, High-Pressure Sales
Finance Magnates
One of the main regulators for the European retail forex and CFDs trading industry, the Cyprus Securities and Exchange Commission (CySEC), has issued a major announcement which will affect some forex and binary options brokerages. The proposed circular which was issued this morning by the main overseer of the financial industry in Cyprus is outlining that major changes are needed when it comes to the practices of some companies.


Uncommon Data is the New Frontier in Risk Management
Huffington Post
Minimizing volatility is important to investment managers focused on capital preservation. After all, lower volatility helps protect capital and improve the key portfolio performance metric, the Sharpe Ratio, which is equal to the average annualized return divided by annualized volatility. An acceptable Sharpe Ratio for a portfolio starts in the 1.8 range. Some high-frequency trading funds produce Sharpe as high as 20. Even very small positive returns can produce large Sharpe ratios that attract investors, but only if the volatility of the portfolio is tiny.


Trading Calendars on Weekly Options
The Ticker Tape
The calendar spread is one of the most common income generating trades. Perhaps it’s because calendars may be easily adjusted. Or maybe it’s because calendars are handy for trading quickly decaying weekly options. Regardless, the calendar is a strategy every trader should know.

TradeCo Guide For The Brexplexed
Trading Technologies Blog
Here it is, summer 2016, and I am contemplating at least my fourth “once in a thousand year” event in my trading career: Brexit. The others include the dot-com bubble, LTCM and the 2008 financial crisis. Truly, though, these 1,000-year floods occur with alarming regularity, although not all are so global nor impact markets so widely, e.g., gold in 1999 or Enron in 2001. One of my colleagues thought enough of my opinion to reach out to me. It was at the end of a long night, so I’m not sure how helpful I was. Perhaps this may be of more use.

How Advisors Are Tackling Volatility
Financial advisors consider ongoing volatility one of the top macro issues that will adversely affect client portfolios over the next 12 months, according to Jefferson National’s second annual Advisory Authority survey.

Top ‘O The Vix, To Ya!
Seeking Alpha
The Brexit-born market uncertainty is now receding and market recovery may be at hand. VIX futures are declining and Market-Maker expectations for the VIX are receding along with them. Market-Maker expectations for widely-held equities are improving as their price erosion slows.


How Did the Brexit Timeline Affect Volatility?
CBOE Options Hub
Last Thursday, citizens of the United Kingdom voted to leave the European Union in a historic referendum, known as Brexit, creating turbulent markets on Friday. While the unknown ramifications of the UK leaving the European Union have undoubtedly increased uncertainty in the marketplace, the Brexit-related events leading up to the referendum have also had a substantial effect on our volatility indices. Here is a brief summary of these events:

Did Social Media Sentiment Regarding the Pound Predict Brexit?
CBOE Options Hub
One commentator described the Brexit process was described as entering uncharted territory over the weekend. The same could be said for gauging social media sentiment. Our friends at Social Market Analytics continue to take a look at data that may have been a predictor of an outcome that the pollsters and bookies got very wrong. I received a couple of charts this morning and one completely stands out. Below is a chart of the sentiment with respect to the British Pound versus the US Dollar leading up to, during, and after the recent election.


Brexit-related losses widen in relentless sell-off
The U.K.’s vote to leave the European Union was a costly decision in more ways than one. Between Friday and Monday, worldwide markets hemorrhaged more than $3 trillion in paper wealth, according to data from S&P Global, the worst ever recorded. For context, the amount shed by markets over the last two trading sessions far eclipses the turbulent trading losses of the 2008 financial crisis, according to S&P analyst Howard Silverblatt.

****SD: In case you missed the stunning numbers from the weekend.

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