Observations & Insight

Scott Gordon, Rosenthal Collins Group – Seven (Slightly Unconventional) Career Tips From a Former Summer Intern

“Trying is the key. I’ve had some successes in my life and I’ve had a bunch of failures — some spectacular failures… But whichever you have, if it’s a success or a failure, they’re momentary. You can take a victory lap if you have a success or you can take a misery lap if you have a failure. But in either case it’s fleeting, it’s gone and you better get on with your life.”

Scott Gordon, CEO of Rosenthal Collins Group, has career advice that applies whether you are shoveling snow or breeding horses: start by taking a holistic look at what is going on in the industry, not just the day-to-day activities that involve you personally. If you are able to take that big picture look into account, the rest is fairly simple to implement. Once aware of the situation, be ready for anything, since careers are taxis not trains — they don’t take linear paths to their destinations. Gordon expands on his career advice in this video, perhaps most importantly reminding audiences not to obfuscate their lexicon.

Watch the video at MarketsWikiEducation.com »

Lead Stories

US Listed Options Volumes Slip in September; CBOE Trade Value Reaches Highest in 2015 – September Options LiquidityMatrix
TABB Forum
US listed options volumes came in at 354.8 million contracts for September 2015, 3% lower than September 2014 and 17% lower than August 2015, which garnered the highest monthly options volume in 2015. Still, September was the third-highest month for volume in 2015. Total US listed options volume year-to-date is down 0.2% from the same period in 2014.

Volatility Traders Have a Big Problem – Themselves
Tracy Alloway – Bloomberg
After surging to a multi-year high in August, the index has now plummeted back to earth.
In fact, the so-called term structure of the VIX has returned to its norm, after inverting during that month’s dramatic stock market selloff. The forward curve of VIX futures has since reverted to its usual shape of sloping gently up. (The price of real-time, or spot volatility, normally sits below the price of later-dated futures, reflecting the possibility that something bad will happen between now and then.)

‘Option sellers can now bet on falling volatility to profit’
Ram Sahgal – Economic Times
Traders with deep pockets and an appetite for risk could take a cue from their more sophisticated peers -FIIs -and sell Nifty options for tidy profits amid falling market volatility and range-bound markets, derivatives analysts said.

Loonie Traders Paying Up for Insurance Ahead of Tight Election
Ari Altstedter and Vincent Cignarella – Bloomberg
Currency traders are starting to get nervous about Canada’s election next week.
They’re paying more for options contracts that protect against currency swings expiring next week — the aftermath of Canada’s Oct. 19 vote — than for similar contracts that expire in a month, data compiled by Bloomberg show.

IG Group’s CEO Tim Howkins Formally Relinquishes Position
Jeff Patterson – Finance Magnates
IG Group Holdings plc has announced that acting Chief Executive Officer (CEO) Tim Howkins has relinquished his role and will be retiring, effective immediately, according to an IG Group statement.


New York Stock Exchange Launches Enhanced Buy-Write Index, “NYBW”
Press Release – ICE
The New York Stock Exchange, part of the Intercontinental Exchange (NYSE: ICE) global network of exchanges, today announced the launch of a new index that aims to provide an innovative, smart beta solution for investors wishing to access the buy-write strategy.
Developed in association with T3 Index, a research-driven financial indexing firm specializing in volatility and options benchmarking, the NYSE Enhanced Buy-Write Index is published on the NYSE Global Index Feed (GIF) under the symbol “NYBW.

PHLX, NOM, and BX Options Updates Technical Specifications to Support EDGX Options
PHLX, NOM and BX Options have updated its technical specifications to support the addition of a new options market, EDGX Options.

Deutsche Börse Announces Conclusion of 360T Acquisition
Victor Golovtchenko – Finance Magnates
Deutsche Börse has concluded the acquisition of over-the-counter (OTC) instruments trading venue 360T. The company’s CEO highlighted in the announcement the importance of the deal by saying, “This acquisition is a strategic fit as it broadens Deutsche Börse’s asset class spectrum.”

Regulation & Enforcement

FIA to hire former Traiana product head Nick Solinger
Luke Jeffs – Futures & Options World
Trade body FIA said it will hire in the new year the former head of product at Icap Traiana Nick Solinger as the president of FIA Technology Services, its for-profit tech arm.
Solinger will join FIA Technology Services on January 4, replacing Mary Ann Burns, who is stepping up to chair the FIA Tech board of directors.

Will regulation help or hinder derivatives risk management?
James Williams – Hedgeweek
Managing derivatives risk in the portfolio is a demanding task at the best of times. But as global regulators make inroads to drive transparency in OTC markets, managers find themselves having to file detailed risk positions under CFTC regulations in the US, EMIR reporting in Europe, not to mention the unnecessarily dense Annex IV report under AIFMD.

High speed trading becomes US election issue
Philip Stafford – Financial Times
Has a US presidential candidate ever focused on equity market microstructure before?
Hillary Clinton, seeking the Democratic nomination, has announced she wants to impose a tax on high-frequency trading because it has “unnecessarily burdened our markets and enabled unfair and abusive trading strategies that often capitalise on a ‘two-tiered’ market structure with obsolete rules”.


Mayor of London Boris Johnson Travels to Japan to Pitch Fintech Industry
Ron Finberg – Finance Magnates
The Olympics is arriving in Tokyo in 2020, and all goes as planned by London Mayor Boris Johnson, the sporting event will include an array of products powered by technology from London fintech firms. Potential examples could be kiosks for low cost currency exchange and transfer, bracelets with embedded banking information to allow simply swiping an arm to purchase tickets or memorabilia, and additional contactless payment solutions to help increase efficiency for travelers using public transportation.

****SD: In related news, there’s video of Mayor Johnson on this trip bowling over a 10-year-old while playing touch rugby. (The kid is fine.) I’ll leave it to you to decide if that’s worth looking up.


Volatility And Derivative Strategies
This is the concluding Epsilon Theory note of a trilogy on coping with the Golden Age of the Central Banker, where a policy-driven bull market has combined with a machine-driven market structure to play you false. The first installment – “One MILLION Dollars” – took a trader’s perspective. The second – “Rounders” – was geared for investors. Today’s note digs into the dynamics of the machine-driven market structure, which gets far less attention than Fed monetary policy but is no less important, to identify what I think is an unrecognized structural risk facing both traders and investors here in the Brave New World of modern markets.

Is The VIX Screaming “Lower Lows” Ahead For Stocks?
Chris Ciovacco – See It Market
The Volatility Index (VIX) is often referred to as the “fear index” since it tends to rise when market participants are concerned about future volatility in stocks. The charts below allow us to compare moves in the VIX during 2007-2009 and 2014-2015.

Informed Trading Around Stock Split Announcements: Evidence From The Option Market
Philip Gharghori, Edwin D. Maberly and Annette Nguyen – ValueWalk
Prior research shows that splitting firms earn positive abnormal returns and that they experience an increase in stock return volatility. By examining option-implied volatility, we assess option traders’ perceptions on return and volatility changes arising from stock splits. We find that they do expect higher volatility following splits. There is only weak evidence though of option traders anticipating an abnormal increase in stock prices. We also show that our option measures can predict both stock volatility levels and changes after the announcement. However, there is little evidence that they can predict the returns of splitting firms.

Micron Technology, Inc. (MU) and the $250K Wager
Alex Eppstein – Schaeffer’s Research
Bloomberg’s report claiming Micron Technology, Inc. (NASDAQ:MU) is in takeover talks with SanDisk Corporation (NASDAQ:SNDK) has the former’s options pits in overdrive. Intraday call volume more than doubles the expected amount, in large part thanks to a number of huge blocks that have changed hands.


Making Sense of the ‘Black Swan’ Indicator at All-Time Highs
Adam Warner – Schaeffer’s Research
While we were sleeping … the SKEW index hit all-time highs? What’s SKEW? I don’t know — what’s SKEW with you? (I’ll be here all night. Try the veal!)
OK, sorry, it’s just that I find it impossible to type “SKEW” without adding a terrible joke. Here’s the Chicago Board Options Exchange (CBOE) quick description:
“The CBOE SKEW Index (“SKEW”) is an index derived from the price of S&P 500 tail risk. Similar to VIX, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant.”
The CBOE SKEW Index (SKEW) is essentially the relationship between the implied volatility of S&P 500 Index (SPX) out-of-the-money (OOTM) puts to comparable OOTM calls.

How to make risk management more strategic
James Williams – Hedgeweek
One aspect to operational risk, which can have a meaningful impact on performance, not to mention the integrity of the manager, is valuations. According to Deutsche Bank’s Global Prime Finance group’s third annual Operational Due Diligence Survey, asset valuation is in sharp focus for 38 per cent of investors surveyed. Unilaterally, respondents said they would review a fund’s valuation policy during their ODD review whilst 78 per cent stated they would verify the valuation procedure during the on-site review.

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