Observations & Insight

Kenny Polcari, O’Neil Securities – Charting a Career

“Let me go and check this out. I’m either going to love (an intern job at the NYSE) or I’m going to hate it. If I hate it, OK, chalk it up to experience, but if I love it, it may change the course of my life. And, in fact, it changed the course of my life.”

Market strategists love to follow charts. They look for trends, breakouts and key reversals. They pay close attention to entry points and exit strategies. Most importantly, they know they must concentrate not on the last trade, but rather the next one.

In this highly energetic and entertaining MarketsWiki Education talk, Kenny Polcari charts his 30-year career in the context of a 30-year chart of the Dow Jones Industrial Average. The stock market, like most people’s careers, will see plenty of highs and lows, periods of consolidation and periods of volatility. And if you are lucky, you will also see a whole lot of action and a whole lot of fun.

Watch the video »

Lead Stories

Share trading in America – Warping the loom
The Economist
The controversies that beset America’s financial markets extend to even the most basic activities, such as trading a security. What was once the preserve of a stockmarket duopoly of the New York Stock Exchange and NASDAQ, and a handful of narrow commodity markets, is now a bewilderingly complex tapestry. It is also subject to incessant reweaving: take this week’s announcement that BATS Global Markets, an operator of four stock exchanges, will be sold to the CBOE, an options exchange, for $3.2 billion.

****SD: If you’ve been Rip Van Winkling for the past week and didn’t get the memo, CBOE is buying Bats.

SEC vote brings US-EU closer to derivatives equivalency
Joe Parsons – The Trade
A key vote by the US Securities and Exchange Commission (SEC) on clearing derivatives has brought it closer to an agreement on cross-border regulation with the European Union (EU). The SEC passed unanimously a vote to bring new standards, such as risk management, to clearing houses that clear equity derivatives and fixed income. The vote from the SEC is set to bring the US closer to gaining equivalency from the EU, which would allow US clearing houses to clear trades from European banks.

OPEC oil deal is not really a deal, it’s more of an ‘agreement to agree’
Rania El Gamal and Alex Lawler – CNBC
The Organization of the Petroleum Exporting Countries agreed to curb production for the first time since 2008 on Wednesday, but just a day later, energy market analysts are questioning the meaning of the deal. OPEC minted a preliminary plan to cut production to as little as 32.5 million barrels a day, from about 33.2 million barrels in August, sources told Reuters. But production quotas for each of OPEC’s 14 members would be left undecided until its annual meeting on Nov. 30.

****SD: Reminds me of my friend when we argue — “Can’t we agree to disagree?” “No, I will not.” TradingFloor.com — Risk riding high on Opec deal; Reuters — Iraq’s OPEC revolt shows Saudi-Iran oil deal fragility; MarketWatch — OPEC has a terrible record adhering to quotas, oil analysts say. The tone of the stories about this “deal” make it seem like a short-term price mover with little chance of much long term effect.

Yuan Derivatives Trade Dries Up as Drop Swells Hedging Costs
Hedging against further declines in Asia’s worst-performing currency has become so expensive that some global investors are throwing in the towel on yuan bonds. The cost of swapping dollars for China’s currency has risen above the yields on onshore sovereign notes as depreciation extends into a third year. Daily trading in yuan derivatives, which accounts for more than 40 percent of the total for the currency, slumped 30 percent from three years earlier, data from the Bank for International Settlements show.

Wizards of Today’s Markets: Ray Cahnman, Part 1
It’s September, when many traders return to the markets looking for opportunity. It’s appropriate then that this third installment of “Wizards of Today’s Markets” features Ray Cahnman, Chairman and Founder of TransMarket, a trader who has been seeking out trades and making markets since the mid-seventies. Founded in 1980, TransMarket has had offices in Chicago, New York, London, Madrid, Sydney, Singapore and Mumbai, and at one time, over 400 employees. In 2016, the firm is enjoying its most robust year in both volume and profits generated. I’m grateful Ray stopped by the Tech Tap to speak with me, as he was very open in discussing the highlights and lowlights of his career.

Scattered markets can’t find focus
Neil Staines – TradingFloor.com
Earlier this week we wrote of the nascent global transition towards fiscal policy and away from increasingly ineffective (and increasingly questioned) monetary expansions. With a limited array of data this week, there has been much time for the market to ponder this evolution. In the meantime, risk appetite has played the dominant role in market positioning and direction.

Some Deutsche Bank Clients Reduce Collateral on Trades
William Canny – Bloomberg
A number of funds that clear derivatives trades with Deutsche Bank AG have withdrawn some excess cash and positions held at the lender, a sign of counterparties’ mounting concerns about doing business with Europe’s largest investment bank.

Fedspeak Can’t Jolt 2-Year Notes From Tightest Range Since 2014
Rebecca Spalding – Bloomberg
Three central-bank meetings and a barrage of Federal Reserve speakers this month haven’t been enough to nudge Treasury two-year notes out of the tightest trading range since November 2014, a sign investors may be growing more confident about gauging the path of interest rates.

Volatility Update: VIX Dips Back to 12 as Fear Subsides
Frederic Ruffy – The Ticker Tape
In life, there’s perception and then there’s reality. For instance, you might perceive yourself to be the same athletic superstar that you were in your youth. But then there’s reality, when you can’t lift yourself out of bed the day after a one-hour workout at the gym.

Volatility and Low Volume During the Holidays
The Ticker Tape
Holiday season is approaching and even though there are only a few days when the markets are closed, traders often take time off around them. This can lead to lower holiday trading activity, which can mean larger swings in stocks.


Will LSE’s Sale Satisfy Competition Regulators ?
Shanny Basar – MarketsMedia
The London Stock Exchange Group’s attempt to sell its French clearing subsidiary may not satisfy competition concerns about its merger with Deutsche Börse according to Axel Pierron, co-founder and managing director at consultancy Opimas.

SEBI Allows Options In Commodity Trading
Azman Usmani – Bloomberg
In a major push to deepen the commodity derivatives market, regulator Securities and Exchange Board of India on Wednesday allowed options trading on exchanges while six new products including diamond have been added to the list of commodities on which derivative contracts can be launched and traded. The new items – diamond, tea, eggs, cocoa, pig iron, and brass – have taken the total number of permitted commodities on the notified list to 91.

****SD: Tea!

Trading in options to bring in more SMEs, farmers: MCX
With an aim to deepen the commodity derivatives markets and enhancing liquidity, markets regulator SEBI allowed options trading on commodity bourses. This has been a long pending demand from the exchanges, investors and market participants. So far, only future trading was permitted on commodity bourses.

Intercontinental Exchange Announces Promotion of Hester Serafini to President of ICE Clear U.S. as Tom Hammond Retires
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced that derivatives industry veteran, Thomas Hammond, will retire as President of ICE Clear U.S. on January 1, 2017. Hester Serafini, currently Chief Operating Officer of ICE Clear U.S., will become President at that time. Hammond will begin transitioning his ICE Clear U.S. responsibilities to Serafini starting October 1, and, beginning January 1, will take on new responsibilities advising on global strategic clearing initiatives.

Indian Exchange Grapples With Technology Divide Among Customers
Annie Massa and Laura Zelenko – Bloomberg
The head of India’s largest stock exchange, which is facing questions about whether the fastest traders have an unfair advantage, said it’s a challenge to balance the needs of investors with vastly different technological capabilities.

NSE extends concession scheme for currency derivatives
Business Standard News
The National Stock Exchange (NSE) has extended its concession scheme – NSE MORE – in the transaction charges for the currency derivative segment till November 30. Earlier, the scheme was available for a period of three months from July 1 to September 30.

Regulation & Enforcement

US options watchdog takes tough line on clearing
Julie Aelbrecht – Futures & Options World
The main US options regulator has adopted tighter rules for clearing houses
The US options regulator has introduced tougher new standards for systemically important clearing houses, marking another step in central counterparty oversight. The new Securities and Exchange Commission rules require policies and procedures for daily stress testing, conservative haircuts subject to yearly reviews, testing of liquidity providers and the introduction of recovery or wind-down plans. The new requirements are consistent with the CPMI-Iosco principles for financial market infrastructures proposed in December last year.

SEC agrees next step in T+2 transition
Securities Lending Times
The US Securities and Exchange Commission (SEC) has voted in favour of shortening the standard settlement cycle for broker-dealer securities transactions from T+3 to T+2.

ASIC Levies Permanent Ban Against Former Deutsche Bank’s Andrew Donaldson
Finance Magnates
The Australian Securities and Investments Commission (ASIC) has taken action today, permanently banning Andrew Donaldson, a former Deutsche Bank foreign exchange (FX) options and futures trader, from providing financial services following his misconduct and falsification of information, according to an ASIC report.


Equinix (EQIX) to Open Internet Exchange in Helsinki, Finland
Street Insider
Equinix, Inc. (Nasdaq: EQIX) announced it will bring the Equinix Internet Exchange to Helsinki, Finland, launching in Q1 2017. Equinix’s global interconnection platform – Platform Equinix – is comprised of more than 145 data centers and provides the leading public Internet exchange fabric in the world.

Taking Data to the Edge: CDN’s Role Grows in the Data Center
Bill Kleyman – Data Center Knowledge
The first, and probably most important, point to understand is that there is simply more data traversing today’s internet and cloud ecosystems. At the cusp of the digital revolution, businesses and individual users are using more content, richer applications, and improved experiences. At the core of this technological shift is data and our capability to deliver and control its distribution.

Robinhood debuts advanced trading tools after processing $12 billion in transactions
Ken Yeung – VentureBeat
Investment app Robinhood has set out to make stock trading simple and frictionless for the millennial generation. And while it already offers commission-free trading of stocks in the public space, there are users who want to do more. That’s why today the company is introducing Robinhood Gold, a premium suite of tools for experienced investors.

****SD: I include this because on the FAQ page of the Robinhood website it still says that “We do not yet support the following, but hope to in the future: Foreign domiciled securities*,OTC equities, Options, Preferred Stocks, Tracking Stocks, Warrants, Mutual Funds, Bonds and fixed income trading.” Their customers — which includes a boatload of millennials — are an unusual segment. If that sometimes low-capital, commission averse base could get exposure to options trading…


High Volatility Doesn’t Mean High Prices
Thomas Preston – The Ticker Tape
Here’s a little dirt on volatility (“vol”). Just as love can be blind, so can friendship with this invisible force. It can pull a fast one, leaving you helpless, miserable, and eating dinner alone. As options traders, we focus a lot on implied volatility (IV). That’s because, all other things aside, higher vol means higher options prices. So when vol is high, we may look at short option strategies that take advantage of higher option prices, such as short naked options and short vertical spreads. But in practice, it’s not enough to look at high vol and execute the strategy.

Weekly Options: Stretch Them Out
Thomas Preston – The Ticker Tape
In just a decade, it seems weekly options have become one of the most actively traded products out there. Introduced in 2005 by the CBOE for S&P 500 options as “SPX Weeklys,” the number of stocks and exchange-traded funds (ETFs) with weekly options has since expanded dramatically.

What could bring volatility back to the stock market
Bob Pisani – CNBC
What are the chances for a volatility spike before the end of the year? Tony Dwyer, chief market strategist at Canaccord Genuity and an old friend, stopped by the New York Stock Exchange to talk about those odds. His conclusion: “Don’t buy spiking volatility in a non-recessionary environment.” In other words, be careful about head fakes — brief spikes that don’t ultimately move markets.

****SD: OPEC’s head fakes are better than Hakeem Olajuwon.

Deutsche Bank Teeters As BAML Says Buy Volatility Protection
Mark Melin – ValueWalk
Volatility protection time? The market is acting in “knee-jerk” like fashion and loading up on volatility protection is advised, a Bank of America Merrill Lynch research report noted. This impulsive behavior was driven by positive reaction to the US Federal Reserve not raising interest rates in the middle of a populist election and the Bank of Japan playing nice in the land of negative interest rates. But don’t kid yourself. With yet another bank derivatives crisis unfolding in Germany, one where interconnectedness is an issue that was known but never allowed to be addressed, and the end of a long eight-year bull market nearing the end of a reversion cycle, the market environment could change to high volatility in rapid fashion.

What Are Some Key Utility Stocks for Options Traders?
Robert Scott – Market Realist
As of September 28, 2016, NRG Energy (NRG) has the highest implied volatility figure of all the utility companies.


New Opportunities In Flow Derivatives – Bloomberg And London Stock Exchange Event In London
In an environment of low rates, investors can utilise the emerging markets and derivatives to provide income, performance and volatility management. Join Bloomberg, alongside the LSE and special guests to discuss new opportunities in Flow Equity Derivatives. This event will be split in to two sections; exchange traded emerging market options and FTSE 100 weekly options.


India, Pakistan markets fall as tensions flare
Share markets in India and Pakistan fell on Thursday after India said it had conducted “surgical strikes” on suspected militants preparing to infiltrate from Pakistan-ruled Kashmir, escalating tensions between the nuclear-armed neighbors.

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