In Oil, the Big Bet Is on a Big Swing
Tim Puko – WSJ
Oil traders are making an OPEC bet that’s big on volatility. That action is in the options market, where bets on both higher and lower prices are soaring ahead of a meeting of the Organization of the Petroleum Exporting Countries Wednesday on whether and how to cut production.
****SD: I love it when this happens — three stories about the same goings-on but with different takes. Pretty much, there is money everywhere — bearish money, bullish money, we-just-want-volatility money. So far, the tale from Vienna doesn’t seem rosy. CNBC has The ‘dysfunctional family’ known as OPEC could make oil prices crater and Bloomberg has Goldman Sees OPEC Meeting Down to the Wire With 30% Odds of Deal. But if other recent events are any indicator, that means a huge cut is about to happen.
Faith in OPEC Deal Turns Options Traders Into Oil Bulls
Gunjan Banerji – WSJ
Oil prices have jumped 8.7% since Nov. 14 when OPEC said its members agreed to cut output. Options players are betting on another 17% run-up in prices. As of Friday, traders have concentrated on contracts that pay out when West Texas Intermediate hits $55 a barrel. While prices of crude futures have been whipsawed by uncertainty ahead of the Organization of the Petroleum Exporting Countries’ meeting this week, market participants have built up bullish positions in options.
Bearish Option Bets Build on Oil Ahead of OPEC Summit
Alex Eppstein – Schaeffer’s Research
Ahead of tomorrow’s Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna, crude oil prices are pulling back. Weighing on liquid gold is rising skepticism toward a production freeze, bolstered by comments from Iran’s oil minister. Meanwhile, options traders have recently expressed their doubts about a potential output cut, via bearish bets on the United States Oil Fund LP ETF (USO) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Banks to finally turn a profit from derivatives clearing, finds research
Joe Parsons – The Trade
Banks could finally see a profit from derivatives clearing following years of increased capital costs and balance sheet constraints, according to research from TABB Group. According to the research , which interviewed managers at the top 10 US future commission merchants (FCMs), banks could see around $4.5 billion in revenue available from derivatives clearing in 2016, up 5% from 2015.
New approach predicts price trends in the stock options market
A new research paper from the University of Luxembourg outlines a novel method to identify how options traders exploit mutual fund non-fundamental price pressure on aggregate stock prices. Decisions of retail investors in the stock market are often influenced by short-term perceptions, which sometimes leads to a form of herding behaviour. If the general mood towards a certain asset or class of assets is positive, investment funds receive massive orders and money inflows. The funds’ money managers then carry out the orders—often regardless of the fundamental data behind the companies or markets—pushing up prices in those segments. These temporary booms are often followed by price slumps.
VIX – Calm Before The Storm Or Just Calm?
Peter Tchir – Forbes
VIX has been behaving rationally recently, as far as I’m concerned. First we had the rise in volatility and the so-called Fear Gauge coming into the election as anticipated and we even had an overnight ‘limit down’ session similar to August 2015 (which I highlighted as a risk here). Then immediately post election it quickly pulled back, which seemed the most likely path in the immediate aftermath of the election (here).
Conquering Chaos: Three Traders, Three Stories
Brian Mehta – Trading Technologies
As I mentioned last month in Conquering Chaos: Fari Hamzei, Hamzei Analytics, we’ve partnered with Futures Radio Show host Anthony Crudele to ask successful traders how they’ve managed the chaos on the most chaotic trading days of their careers. Today, we’re recapping stories from three of Anthony’s recent guests.
Exchanges and Clearing
New Eurex trading platform stopped twice last week
Julie Aelbrecht – FOW
Frankfurt-based exchange said trading was halted on Monday and Tuesday
Trading on Eurex’s new T7 system was halted twice last week after the new exchange trading system experienced technical issues. Version 4 of Eurex’s T7 trading platform was launched last Monday but certain “partitions” experienced technical issues, meaning trading in certain Eurex futures and options was not possible for periods on Monday and Tuesday.
***SD: Plenty of index options affected by this.
Options Clearing Corp.’s CRO for the SIFMU Era
Jeffrey Kutler – Global Association of Risk Professionals
For a select few clearing and settlement institutions, Title VIII of the Dodd-Frank Act of 2010 introduced the notion of Systemically Important Financial Market Utilities, as designated by the U.S. Treasury-led Financial Stability Oversight Council. “The Dodd-Frank and related FSOC provisions are designed to promote robust risk management and safety and soundness, reduce systemic risk, and support the stability of the broader financial system,” Options Clearing Corp. explained when it announced its SIFMU designation in July 2012. “OCC expected this designation, which reflects its critical role within the U.S. financial markets infrastructure.”
Election Night Option Liquidity
Matt McFarland – CBOE Options Hub
CBOE’s Extended Trading Hours (ETH) options session reached a significant milestone in the wake of the surprising U.S. election results, surpassing 100,000 contracts for the first time on November 9.
LME outlines change to options reporting regime
Luke Jeffs – FOW
London market has asked members if they want to retain two day reporting waiver
The London Metal Exchange has proposed to remove an options reporting rule a year after it was introduced to bring the market into line with the European Mifid II reforms set to take effect in early 2018. The LME issued on Monday its second consultation paper in as many days suggesting changes to its reporting rules for futures and traded options.
Intercontinental Exchange Announces Appointment of Lee Yi Shyan as Chairman of ICE Futures Singapore and ICE Clear Singapore
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced the appointment of Lee Yi Shyan as Chairman of ICE Futures Singapore (IFSG) and ICE Clear Singapore (ICSG) effective as of November 24 2016.
SGX named “Asia Exchange of the Year” at Energy Risk awards
Singapore Exchange (SGX) has been named “Asia Exchange of the Year” by Energy Risk, adding to its earlier “Exchange of the Year” title at the magazine’s global awards.
Paxos Adds Former NYSE CEO Duncan Niederauer to its Board of Directors
Paxos, a financial technology company that provides blockchain solutions to the global financial industry, has announced a new senior appointment, adding Duncan L. Niederauer to the group’s Board of Directors, according to a company statement.
TRADING UP: Former ITG CEO Gasser Lands at Barclays; BTIG Nabs ADR Pro Amato
Splashy bulge-bracket hire highlights this week’s personnel moves in the securities space.
Regulation & Enforcement
Beijing Proposes New Rules on Derivatives
Han Yi and Wang Yuqian – Caixin
China’s banking regulator has released the draft of a new policy to better control the risk of derivatives trading at commercial banks, apparently over concerns that the current method of calculating risk gives banks too much leeway and overestimates their ability to deal with loss under extreme conditions. The proposed regulations, announced Monday by the China Banking Regulatory Commission for feedback from institutions, would cover both exchange-traded derivatives, such as stock options, and over-the-counter varieties such as exchange-rate and interest-rate-linked products.
Clock synchronisation…time is ticking
Hayley McDowell – The Trade
In August this year, UBS signed an agreement with the National Physical Laboratory in the UK to implement its time accuracy technology, ahead of regulatory synchronisation reporting requirements. The technology was described as ‘atomic’, with the laboratory currently operating two of the world’s most accurate clocks – accurate to one second every 158 million years.
The Perks of Put Selling
Celeste Taylor – Schaeffer’s Research
When most people think of options trading, buying puts and calls is generally the first thing that comes to mind. However, selling puts and calls is another way to make a profit in options trading. Under the right circumstances, put selling can be an excellent way to rake in some cash — but it does come with its own unique set of risks.
Volatility Update: The hunt for premium
Georgio Stoev – TradingFloor.com
As US equities extended their November gains for another week, the CBOE market sentiment index, or VIX, made its way back to the bottom of the barrel. The VIX settled at $12.34 on Black Friday in an abbreviated trading session.
Options Insight: How to Trade the SPDR S&P Oil & Gas ETF (VIDEO)
Jim Strugger, MKM Holdings derivatives strategist, discusses the performance of financial markets and his options strategy for the SPDR S&P Oil & Gas Exploration & Production ETF.
Natural Gas Options Summary
Lou Pellathy – OptionsCity
The bullish expiration of the December 2016 futures contract has followed through to January 2017. The options market reinforces the rally. A positive call skew is evident in the winter months. The Jan 2017 $3.75 (~25 delta) and $4.00 (~10 delta) calls are bid.
Analysis: Binary Options Industry Contributes $1.25b To Israeli Economy
Dan Magen – Finance Magnates
The online trading industry enriches the Israeli treasury with over 2 billion USD a year, representing almost 0.7% of the startup nation’s Gross Domestic Product (GDP), according to Finance Magnates estimates. Breaking down the numbers, we see that the binary options industry alone is responsible for 1.25 billion USD, the remainder coming from its parent forex industry. These industries together employ 8,000 Israelis in a wide range of capacities.
Just In: Tick-Size Pilot – Shifting Costs, Market Share & Trading Strategies
Larry Tabb – TabbForum
After approximately six weeks, the initial results of the Tick-Size Pilot point to a visually appealing but practically challenging market, as smaller investors are paying more, while larger investors are aggregating more liquidity at a better price; but the overall amount of liquidity has not really changed and effective spreads – what investors actually pay – have widened.