Observations & Insight
ISE Mercury Completes Successful Launch
International Securities Exchange, LLC
The International Securities Exchange Holdings, Inc. (ISE Holdings) today announced that ISE Mercury, ISE Holdings’ third options exchange, launched successfully yesterday. ISE Mercury launched with twelve symbols that were selected as the first of four phases of product rollouts. The rollout schedule, which initially includes more than 600 of the most actively-traded options products, is available here.
****SD: Welcome to the fold. We’ll be keeping an eye on Mercury as the exchange gets its footing and continues to rollout symbols. Tuesday volume: 128 contracts. Wednesday volume: 167 contacts. As for the other new(er) options exchange, BATS’ EDGX is coming off of two straight months of over one million contracts traded and have already surpassed that mark in February. May the volatility gods be praised. Also, stay tuned for more on the 2016 launch of MIAX’s second exchange which will implement a price-time allocation model. That will be the 15th(!) U.S. options market.
Risk Swings Weaken FX Options’ Focus on Central Banks: Analysis
Vassilis Karamanis – Bloomberg
Persistent financial-market unrest is eroding the dominance of central banks as the top drivers of currency option prices. Traders now assign increasing importance to short-term risk perceptions based on global economic developments, Bloomberg strategist Vassilis Karamanis writes.
Do 95% of People Really Lose Money Trading Options?
Fred Oltarsh – MoneyShow.com
Though there is a multitude of reasons for why this staggering statistic may be accurate, Fred Oltarsh at Options Strategy Network points out that there are also options contracts that have a high degree of leverage and provide a reasonably small degree of slippage when traded.
****SD: I’ve gotten spam regarding how much people “lose” trading options. But looking at just a statistic is misleading. If you’re using options to hedge, you may “lose” money, but you’re gaining insurance, which is far from a “loss.”
The Markets & Oil decoupled yesterday. Good news for equities?
Todd Rich – OptionsHouse Blog
For the first time in a long time we had the markets and oil move in opposite directions. Generally, the price of oil is used as a barometer for the health of the economy. However, the roughly 20% move down in oil since the beginning of the year was largely supply driven, not demand driven. The markets have had a sympathy sell-off this year in conjunction with the decline of oil. Yesterday we saw a decoupling of this behavior.
Pound Volatility Is Highest Since Debt Crisis as EU Talks Begin
Pound traders’ expectations for price swings against the euro in the next six months are at the highest level since the currency bloc’s debt crisis as U.K. Prime Minister David Cameron seeks a deal on the terms of Britain’s membership of the European Union.
****SD: Also see the WSJ’s Currency Traders Move to Shield Themselves From Brexit Fallout
Hedge Fund Citadel to Anchor L&L’s 425 Park Avenue
Citadel, a Chicago-based hedge fund, has signed an 11-year, 200,000-square-foot lease at L&L Holding Company’s planned 41-story luxury office tower at 425 Park Avenue, the developer announced in a press release.
****SD: I always preferred to gain/trade for monopolies on the pinkish-purple and orange properties that are bookended by Jail and Free Parking, add three houses to each to limit other players’ access to the already limited real estate pieces, and thus stymie the slow development usually employed by less skilled board gamers. But 200,000 square feet seems nice too. (And before that comment peeves any Big Applers, I’m aware that Park Avenue and Park Place are not at all the same.)
Oil Prices Are “Coiled Spring,” Ready to Bound Higher
Chris Dieterich – Barron’s
Volatility continues in the oil market and one analyst likens crude prices to a “coiled spring” that’s ready to bound higher.
Headcount in trading slashed 20% over last five years
The Trade News
Jobs within sales and trading have decreased by almost 20% between 2010 and 2015 at top banks in the world, according to data from Coalition.
Coalition made the findings as part of its index of top global banks, which included data from BAML, Citi, JP Morgan, Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank.
****SD: So long as your head is still attached afterwards, life could always be worse.
CBOE Holdings Declares First-Quarter 2016 Dividend; Announces Increase in Share Repurchase Authorization
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that its Board of Directors has declared a quarterly cash dividend of $0.23 per share and increased its share repurchase authorization by $100 million. The quarterly cash dividend of $0.23 per share of common stock will be payable on March 18, 2016, to common stockholders of record on March 4, 2016.
Additionally, CBOE Holdings’ Board of Directors has also authorized the company to repurchase up to an additional $100 million of its outstanding common stock, effective immediately.
Euronext reports 46% hike in 2015 profit
Futures & Options World – Let’s Talk Derivatives
European exchange operator Euronext reported on Wednesday an impressive 46.1% hike in yearly profits due to growth in most sectors and lower costs, and despite a fall in derivatives trading. The sharp rise in Euronext profit can be attributed to growth in most of its main trading segments amid high volatility linked to monetary injections from the European Central Bank.
The Paris-based group had a 19.1% rise in annual revenue from cash trading, up to EUR197.2 million, with a particular spike in exchange traded funds activity, where the daily average…
LME Commits to Old Practice with New Open-Outcry Trading Pit
The London Metal Exchange (LME) has today announced its newly revamped open-outcry trading floor after moving its operations earlier this month to a new location. The new circular trading ring demonstrates a solid commitment to keeping an old-fashion trading approach relevant and new, as exchanges become increasingly automated in terms of the need for human operators.
****SD: Open-outcry is dead. Long live open-outcry!
OCC Welcomes ISE Mercury Options Exchange
OCC, the world’s largest equity derivatives clearing organization, announced today that ISE Mercury has become an OCC participant exchange. ISE Mercury, ISE’s newly launched options exchange, began operations on February 16, bringing to 14 the total number of U.S. options markets.
NYSE Arca Expands Market Making Program For ETPs To Deliver Deeper Liquidity
The New York Stock Exchange, a subsidiary of Intercontinental Exchange (NYSE:ICE), today announced the addition of Royal Bank of Canada’s RBC Capital Markets as a Lead Market Maker (LMM) on NYSE Arca, deepening the pool of liquidity for Exchange Traded Products (ETPs).
Tokyo Commodity Exchange: Suspension Of Listing New Contracts Of Gold Options
The Tokyo Commodity Exchange, Inc. will update Gold options contract specifications in conjunction with the launch of the new trading system scheduled on September 20. To maintain consistent contract specifications, the Exchange will suspend listing new contracts of which trading period will continue beyond the new system launch date.
A Cannabis Futures Market? Seed CX Aims to Pave the Way for Hemp
According to filings with the US Commodity Futures Trading Commission (CFTC), US-based Seed CX (short for Seed Commodities eXchange) has filed an application to become a Swap Execution Facility (SEF) under the name Seed SEF LLC where it aims to act as an institutional trading platform for Hemp-related commodity derivatives contracts, among other tradable instruments.
****SD: Looking into my crystal ball… seeing 2018 headlines… “A Cannabis Options Market? Snoop Dogg Continues to Innovate Pot Industry”
CME’s Terry Duffy: I think Apple CEO Cook Made a Bad Decision
CME Group (CME) Executive Chairman Terry Duffy discussed the mounting battle between Apple (AAPL) and the Federal Government over privacy versus national security with FOX Business Network’s Maria Bartiromo.
****SD: Obviously not options, but hey, this Apple thing is a big deal.
Regulation & Enforcement
Sebi unearths stock options scam
India’s stock market regulator, Securities and Exchange Board of India (Sebi), on Wednesday barred 22 entities, mostly brokers, from the securities market for allegedly pocketing illicit gains through manipulation of illiquid stock options.
Sebi found that these entities were executing ‘reversal trades’ in the stock options segment.
****SD: “The entities, according to Sebi, manipulated deep in-the-money options and deep out-of-the-money options on individual stocks that were thinly traded. In fact, nearly 70-100% of the volumes in these counters were by the alleged manipulators.”
ESMA Warns on Unauthorized Use of Identity and Credentials
The European Securities and Markets Authority (ESMA) has issued a warning to the public that its logo and identity have been subject of illegal use by fraudulent entities, without any prior authorization from the authority itself, per a recent ESMA statement.
****SD: As opposed to use by fraudulent entities with prior authorization? Odd phrasing.
IEX `Speed Bump’ Seems to Comply With Rules, Finra CEO Says
IEX Group Inc. should have a clear path to winning Securities and Exchange Commission approval to be a stock exchange despite claims that its trademark speed bump would violate market rules, according to a top U.S. financial regulator.
****SD: I was planning on making a joke here, but after some Googling, apparently there are great differences between a speed bump and a speed hump. Nevermind.
Quantitative Brokers launches best execution algos for VIX futures
Quantitative Brokers, the provider of clearer and dealer-neutral agency algorithms for fixed income and futures markets, has launched its best execution algorithmic offering on CBOE Futures Exchange. As an agency broker, QB will work closely with its buy and sell-side clients to deliver QB’s market algorithmic expertise to CFE’s Volatility Index (VIX) futures.
Mutiny at the mast: No plain sailing for Kent HFT tower
An application by a Canadian trading firm to build a 1,000-foot radio mast in rural England has hit opposition from local residents concerned both by its height and the failure of the company to address safety concerns. Attendees of a parish council meeting held on February 15 in Ash, a village near the site of the proposed radio mast in Richborough, Kent, voted unanimously to oppose the construction of the tower, according to records of the meeting published on the council website.
****SD: I want this to get built. Something about saying “screw you” to the earth’s curvature with the aim of trading faster appeals to me. However, where’s the Chicago love? Vigilant is owned by DRW.
E*TRADE Earns Array of Accolades from StockBrokers.com and Corporate Insight
E*TRADE Financial (NASDAQ: ETFC) today announced top accolades from StockBrokers.com’s 2016 Online Broker Review and Corporate Insight’s e-Monitor Awards. E*TRADE earned the #1 Smartphone App award, along with nine best-in-class distinctions for overall performance, offering of investments, platforms and tools, research, customer service, education, mobile, new investors, and order execution in StockBrokers.com’s 2016 Online Broker Review. Best-in-class distinctions are awarded to the top five brokers within each category. E*TRADE tied for first in earning the most of these distinctions across those categories awarding them. The review assessed 13 online brokers on 295 variables across 10 categories. E*TRADE’s mobile app earned the #1 ranking for the fourth consecutive year.
How the Call-Put Implied Volatility Spread Options Trade Can Be Profitable
Because of the complexity of options trading, the options market is presumably dominated by more sophisticated investors than an average stock investor. However, when options investors let their emotions get the best of them, they can impact the implied volatility spread between call and put options (CPIV), leading to option mispricing and very low returns. The question then becomes how to successfully trade options when CPIV is affected.
Bill Ackman Bought More Valeant
Pershing Square’s Bill Ackman has increased his stake in Valeant Pharmaceuticals’ common stock by 30%. According to a Feb. 5 filing with the Securities and Exchange Commission, Pershing added nearly one million shares of Valeant to its portfolio since the fourth quarter of 2015, increasing its stake from 8.5% of the company to 9%. That includes call options.
****SD: More on Ackman’s bet that just won’t quit. I get the feeling that, in regards to Valeant, Ackman keeps saying “hit me” even though his blackjack hand went bust on the last card. Look at Valeant’s one-year stock performance. Ouch.
VIX Front Month – Second Month Backwardation Streak Ends at 30 – So Now What???
CBOE Options Hub
For the first time in 2016 the front month VIX future closed at a discount to the second month. This brings the recent streak of backwardation to an end at 30 days. The table below shows the 10 longest first month versus second month backwardation streaks with the recent run coming in a solid fourth place.