JLN Options: Market legend Art Cashin says a ‘conspiracy theory’ is going around that explains the latest stock rally; We Haven’t Seen This Kind of Momentum Since 2009; BOE’s Haldane Signals ‘Sledgehammer’ August Stimulus Push

Jul 15, 2016

Observations & Insight

MarketsWiki Education Series in Chicago, Day Two
By Sarah Rudolph and Spencer Doar

If you want to know where technology is going and how to navigate your way through, Thursday’s MarketsWiki Education event was the place to be.

Drew Shields, chief technology officer at Trading Technologies, started the second day of MarketsWiki Education World of Opportunity series by challenging another packed house of interns to resist falling in line with the status quo. Shields knows firsthand how far hunger and initiative can get you in this industry. He’s chief technology officer at a premier technology firm and never took a course in engineering or capital markets in his life. But employers saw his hunger and that is what has propelled him his whole career.

Drive and ambition are also things that an individual in their nascent professional life can control. At some juncture, there will always be someone smarter than you, but you can run circles around them if you demonstrate an ability to challenge the status quo, take initiative and speak your mind “gracefully.” Equally important to success is resisting entitlement. Entitlement in the workplace is toxic and can undermine the drive and ambition that is essential to a career that is much more than average.

In a time of great uncertainty, risk management – which is what the industry is all about – is crucial. Walt Lukken, president of the Futures Industry Association, said we are living in what a Chinese curse calls “interesting times”, what with the Brexit decision, an upcoming U.S. presidential election in which both candidates are disliked by nearly two-thirds of the populace, and a continuing war against terrorism. In the futures industry, volumes are underperforming and regulatory costs are forcing firms to make tough decisions. Nevertheless, Lukken said he is very optimistic about the industry, because of the power of markets and of innovation. “The demand for risk management is not going to disappear,” he said.

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Lead Stories

Market legend Art Cashin says a ‘conspiracy theory’ is going around that explains the latest stock rally
Bob Bryan – Business Insider
Look around the economic landscape and it’s not hard to find bad news: Brexit fears, another possible quarter of bad earnings, sliding oil prices, record lows for bond yields, and so on. And yet, the stock market has eclipsed its all-time highs for both the S&P 500 and the Dow Jones indexes. This dichotomy of news and market moves has some traders frustrated, according to Art Cashin, UBS’ director of floor operations and trading-floor legend.

****SD: “Just because you’re paranoid doesn’t mean they aren’t after you.” – Joe Heller

We Haven’t Seen This Kind of Momentum Since 2009
Andrea Kramer – Schaeffer’s Research
Considering the S&P 500 Index (SPX) has notched a record high for the fourth straight day, stocks’ post-“Brexit” bloodbath seems like another lifetime ago. Since its June 27 intraday low south of 2,000, the S&P has rocketed to an all-time peak of 2,168.99, at last check — a roughly 8.9% surge in less than three weeks. Against this backdrop, stocks are muscling higher at a rate not seen since 2009 — and bulls are starting to emerge.

****SD: Know what else we haven’t seen since 2009? Rod Blagojevich in the IL governor’s office.

BOE’s Haldane Signals ‘Sledgehammer’ August Stimulus Push
Lucy Meakin and Jill Ward – Bloomberg
Policy makers voted 8-1 to keep rate at 0.5% at July meeting
Agents surveys indicate reduced hiring and investment plans
Andy Haldane said he will probably push for Bank of England stimulus next month, to bolster an economy reeling in the aftermath of the vote to leave the European Union.

****SD: So, we’ve moved on from central banking firearms to simpler, but powerful, hand tools?

Time For A Victory Lap?
Seeking Alpha
The market appears to be due for a near-term pullback. Longer-term, the market should see far more upside. I take a technical look at the market and talk about a study I did on the VIX.

Understanding is a Poor Substitute for Convexity (Antifragility)
Nassim Nicholas Taleb – Fooled By Randomness
Something central is missing in historical accounts of scientific and technological discovery. The discourse and controversies focus on the role of luck as opposed to teleological programs (from telos, “aim”), that is, ones that rely on pre-set direction from formal science. This is a faux-debate: luck cannot lead to formal research policies; one cannot systematize, formalize, and program randomness. The driver is neither luck nor direction, but in the convexity of payoffs, a simple mathematical property that has lied hidden from the discourse, and the understanding of which can lead to precise research principles and protocols.

****SD: This is a piece from 2012. Figured since it’s Friday and options news slows down a bit, I’d include it. Agree or disagree with his points, it will definitely get your gears whirring.

Herbalife: Ackman’s Pyrrhic Victory
Brooke Sutherland and Gillian Tan – Bloomberg
On the surface, it looks like Carl Icahn came out on top in the battle over nutritional-supplements seller Herbalife. But rival Bill Ackman has reason to feel at least somewhat vindicated.

****SD: Does this make Herbalife the Roman Empire? I wasn’t aware the home of Caesar was into multi-level marketing.

Silver Glut Swamps India as Buying Frenzy Passes Country By
Silver imports by India are set to plunge from last year’s record as jewelers grapple with slowing demand and excessive inventories after domestic prices climbed to the highest levels since 2013.

****SD: From the story: “Funds have boosted their U.S. net-long futures and options positions to the highest since the data started in 2006.”


LSE-Deutsche Börse merger stumbles on ‘technical error’
Financial Times
Is the London Stock Exchange jinxed? Or rather, is it doomed never to complete the mergers its managements always seem to want? In the latest case, its shareholders also seem to want to be taken over by Deutsche Börse, but since they voted overwhelmingly for the deal another stone has appeared on the road. This one is a “technical error”: DB demanded a 75 per cent majority from its own shareholders, but the 15 per cent in tracker portfolios cannot assent until sufficient other shareholders have accepted to allow the bid to proceed.

****SD: Portugal is protesting the merger as well. Given the obstacles faced, maybe LSE/DB should bring Edwin Moses in as a consultant? (Forgive the obscure reference but the Olympics start in three weeks.)

CME Europe chief regulatory officer departs
Alice Attwood – Futures & Options World
Prior to CME Richardson spent 14 years at the Financial Services Authority
CME Europe has parted ways with its chief regulatory and surveillance officer, Paul Richardson, according to market sources.

Nasdaq Elects Additional Directors to Subsidiary Boards Nasdaq
Press Release
Following the completion of Nasdaq’s acquisition of International Securities Exchange on June 30, 2016, Nasdaq, Inc. (Nasdaq:NDAQ) announces the election of seven additional directors to the Boards of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC and NASDAQ BX, Inc. and the election of sixteen directors to the Boards of the International Securities Exchange, LLC and ISE Gemini, LLC and fifteen directors to the Board of ISE Mercury, LLC. Directors serve a one-year term.

ICE reshuffles European management with new futures COO
Joe Parsons – The Trade
Intercontinental Exchange (ICE) has reshuffled management for its European franchise, appointing a new chief operating officer (COO) for its futures exchange.

SGX securities market to open per normal on 15 July
Singapore Exchange (SGX) today said that its securities market will open per normal on 15 July, following a market disruption yesterday.

Regulation & Enforcement

EU Plays Catch-Up on Swaps Collateral Under U.S. Pressure
Silla Brush – Bloomberg
European Union regulators are considering ways to speed the implementation of collateral requirements for derivatives as the bloc’s failure to meet a global deadline threatens to fracture the $493 trillion market.

CFTC orders Michigan Introducing Broker fraudster to pay over $7 million
Mike Fox – LeapRate
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Respondents Atlantas Group, Inc. (Atlantas) and Edmund Hysni for committing solicitation fraud in connection with options on futures contracts trading on the Chicago Board of Trade and the Commodity Exchange, Inc., and against Hysni for willfully making material false statements to the National Futures Association (NFA) in connection with its investigation of the fraud.

SEC Tightens Clock-Sync Mandate
Rob Daly – Traders News
In preparation for the Consolidated Audit Trail and to help detect spoofing and layering, the U.S. Securities and Exchange Commission recently approved shrinking its one-second server-clock synchronization tolerance to a 50-millisecond window that will be measured against the time kept by the National Institute of Standards and Technology’s atomic clocks.


BNP’s Ex-Blockchain Lead is Building Smart Contracts for Clearinghouses
Michael del Castillo – CoinDesk
Even if centralized clearinghouses are eventually built into or replaced by a blockchain, some services will inherently require the aid of a middleman, according to Collin Platt, the former lead blockchain developer at BNP Paribas who earlier this year launched his own blockchain startup to test this market thesis.

****SD: From the story: “He said an earlier plan his team made to deliver a pilot alpha of the derivatives blockchain product for exchange-traded futures and options was derailed earlier this month when the UK voted to exit the European Union.”


Earnings Next Week – 7/18 – 7/22
Russell Rhoads – CBOE Options Hub
Finally! The second quarter earnings season kicks into high gear next week. As always the data below is based on the last three years of earnings results unless the ticker is in italics. The columns show the biggest rally, biggest drop, average move, and what the stock did last quarter in reaction to earnings.

Active management of ETF positions with Eurex ETF options
Eurex Group
Eurex ETF options allow investors to actively manage ETF positions and thereby yield a higher return. Among the considerable benefits are the physical delivery of the underlying instrument in exercising the options and the increasing Eurex order book liquidity.

Developing A Volatility Carry Strategy
Seeking Alpha
We examine how to build a volatility carry strategy using a mix of ETNs and futures. The strategy exploits the tendency of volatility ETNs to decay more rapidly than futures. Portfolio performance characteristics can be further improved by introducing non-volatility ETFs. We apply the techniques to construct an investment portfolio producing CAGR just under 16%, with annual volatility and correlation of 10%.


Citadel adds phone trading to European swaps market push
Philip Stafford – Financial Times
Citadel Securities has added a surprising weapon to its market-making arsenal in Europe as it attacks a fixed income market left by retreating banks: old fashioned voice trading.

****SD: Next up, algos run with punch cards.

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