Options Traders Feel Liquidity Pinch
Regulatory requirements that dealers keep more capital on their balance sheets is squeezing options liquidity for institutional traders, who buy and sell the equity derivatives to generate alpha and hedge long- and short-term exposures in their portfolios.
***DA: Sounds like an opportunity for prop groups and others who do not have the same balance sheet considerations.
“Its Crazy” Banks Don’t Have Insight Into Derivatives Risk
Mark Melin – ValueWalk
As the derivatives that underlie the world economy face unknown interconnected risk in a Greek sovereign default, behind the scenes the problem is dissected and corresponding solutions are offered. But the real issue is: will those who control the underwriting of derivatives contracts allow any degree of transparency into what is documented to be a threat to economic security?
***DA: Painting with too broad a brush here in my opinion.
Perrigo options attracted large bullish bet ahead of Mylan offer
Saqib Iqbal Ahmed – Reuters
Perrigo Co Plc’s (PRGO.N) options attracted an unusually large bullish bet days ahead of an offer from generic drugmaker Mylan NV (MYL.O) to buy the company, options data shows.
On Wednesday, Mylan said it made a proposal to acquire Perrigo for about $29 billion in cash and stock, sending the Dublin, Ireland company’s shares up by more than 30 percent to an all-time high of $215.73. Mylan shares rose as much as 16 percent to a high of $69.45.
India’s VIX Posts Biggest Weekly Gain in 7 Weeks Before Results
Santanu Chakraborty – Bloomberg
India’s benchmark gauge of equity options made its biggest weekly advance in seven weeks, signaling traders are increasing hedges before the quarterly earnings season starts next week.
The India VIX Index fell 1.1 percent to 14.26 at the close in Mumbai, after rising as much as 2.6 percent earlier. The gauge has risen 4.3 percent this week, the most since the period ended Feb. 22. The CNX Nifty index and the S&P BSE Sensex closed little changed on Friday, while posting weekly gains.
China forex market says to launch FX borrowing/lending business next week
Lu Jianxin and Pete Sweeney – Reuters
China’s foreign exchange market will launch its first ever borrowing and lending business in a number of major global foreign currencies starting next week, in a move that traders said was aimed at bolstering trading activity in the market.
The interbank China Foreign Exchange Trade System (CFETS) will allow financial institutions to borrow and lend in U.S. dollars, the euro and Hong Kong dollars, it said in a statement published on its website, www.chinamoney.com.cn.
***DA: Next step toward a fully functioning FX market.
M&A is back — and it’s being fueled by MEGA transactions
Jonathan Marino – Business Insider
Mergers and acquisitions are back, and the rise of the big deal is set to fuel banks’ top lines.
Since the second quarter kicked off last week, bankers and hedge fund execs alike have been rubbing their hands with glee as a spree of M&A, fueled by the expectation of prolonged cheap money and expectations that oil may finally be bottoming, is expected to push transactions that could top record value amounts, several Wall Street insiders are now saying.
***DA: The cheap money policy was supposed to usher in a new era of consumption, infrastructure spending, capital improvements, etc. M&A activity, like share buybacks, shuffles the deck chairs but does little to stimulate aggregate demand.
Regulation & Enforcement
Fed Heeds Banks’ Warning on Where Next Crisis May Come From
Silla Brush and Jesse Hamilton – Bloomberg
JPMorgan Chase & Co. and BlackRock Inc. have argued for years that a key response to the last financial crisis could help fuel the next one. Global regulators are starting to heed their warnings.
At issue is the role of clearinghouses — platforms that regulators turned to following the 2008 meltdown to shed more light on the $700 trillion swaps market. A pivotal goal was ensuring that losses at one bank don’t imperil a wide swath of companies, and the broader economy.
***DA: Some see CCP clearing as gravitation to a superior market structure while others see it as a single point of failure.
Deutsche Bank Said Near $1.5 Billion Settlement on Libor
Greg Farrell, Keri Geiger and Shane Strowmatt – Bloomberg
Deutsche Bank AG investors reacted with relief as the lender moved closer to reaching a settlement in the global interest-rate rigging probe.
Germany’s largest lender is set to pay more than $1.5 billion this month after an investigation into how traders colluded to rig the London interbank offered rate and related benchmarks to profit from their own derivatives bets, according to a person familiar with the matter, who asked not to be identified because the talks are private. The unit expected to plead is Deutsche Bank Group Services, another person said. The U.K. unit is one of the lender’s main employers.
OptionsCity’s Automated Trading Engine Powers 3rd Annual University of Chicago Algorithmic Trading Competition
Press Release – OptionsCity
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, has teamed with the University of Chicago Careers in Business: Financial Markets (UCIB: FM) for the third Annual UChicago Midwest Trading Competition. The competition will take place on April 11 at the Chicago Innovation Exchange, the University of Chicago’s new innovation center that supports business start-up activities by University faculty, students, and area entrepreneurs. Students in the competition will use OptionsCity’s Freeway, an automated trading engine, to develop algorithms and prepare for the simulated trading scenarios.
Block Trade Analysis – TWTR from 4/9/2015
Russell Rhoads – CBOE Options Hub
Earlier this week I was asked about option volume in shares of Twitter (TWTR) so the stock is sort of on my radar screen these days. Looking over block trading data from yesterday I came across the following trades that were done in two blocks of 15,000 late Thursday –
Exploring Options: An Introduction To Multipliers
Venturing into the options market for the first time might feel a bit like traveling to a foreign country without a translator.
The terminology is sometimes so odd that it seems like traders are speaking a different language. Never fear. We’ll make sure you don’t get lost in translation.
Let’s start with a term that’s unique to the options market: multiplier.