JLN Options: Three Gray Swans; China Options Markets To Follow U.S. Model; Trouble in a Quiet Market?

Jul 23, 2014

Lead Stories

Three Gray Swans – Week of Jul 28 – Aug 1
Russell Rhoads – CBOE Options Hub
Next week is a dream week for those that look for new information to be digested by the markets. When I say new information being digested I’m really saying increased volatility based on major economic announcements. We have the two biggies – FOMC and Non-Farm Payrolls – coming out. Since the title is Three Gray Swans I’m going to add the ADP Employment Change report as a third event to watch next week. I’m adding this one due to the close association with the big employment number that comes out on Friday.

China Options Markets To Follow U.S. Model
China is preparing to launch equity index options on the China Financial Futures Exchange and single stock options on the Shanghai Stock Exchange. The move has been welcomed by market participants as providing more investment opportunities, while market operators and trade handlers see access to a huge and untapped market.

Trouble in a Quiet Market?
Wes Moss – Morningstar
Some indicators point to a complacent market lately. Boon or warning? How scared or comfortable are investors now and, for that matter, how reliable are our indicators?
The Chicago Board Options Exchange Market Volatility Index (VIX) measures implied volatility in the stock market for the coming 30 days. Aka the fear gauge, the VIX also represents how investors perceive current markets’ risk and it currently sits at 11.8.

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This is Yellen’s gravest mistake
Michael A. Gayed – MarketWatch
Today’s investing environment — an outlier we’ll call post-quantitative easing part III — makes the age of moderation look like the age of turbulence.
Volatility in large-cap indices like the S&P 500 is nowhere to be found (so far). The VIX has failed to show any kind of movement, largely because the crowd believes with gusto that SuperYellen and the League of Extraordinary Bankers got it right. Rates will likely remain low for longer than might otherwise seem necessary, and anyone who attempts to short the stock market seems to get crushed as the “everything boom” in asset markets continues.

VIX Futures are Rising — But Are We All That Afraid?
Adam Warner – Schaeffer’s Investment Research
Well, we’ve now officially retraced our non-cataclysmic declines off the highs. And all we got were some lousy t-shirts, and some worthless CBOE Volatility Index (VIX) calls.
… OK, not really.
We did get an overbought VIX signal that may look kind of odd in hindsight. And we got a spike in 10-day realized volatility (RV) in the S&P 500 Index (SPX) — all the way to double digits!

Videocast: Target 19 line in VIX

What If The Federal Reserve Is Right?
Martin Sosnoff – Forbes
The Fed’s July Monetary Policy Report is so benign that it could have been written by Monsignor Fulton J. Sheen for one of his 1950’s television broadcasts. Strangely, I agree with the Fed’s sense of our becalmed economic setting and how it unfolds in 2015, ‘16.
It’s as if I carry a busload of the Fed’s economists at my beck ‘n’ call. Economists call the “nothing changes much” the naïve forecast, because it rarely pans out. This may be one of the rare times it’s on the money.

Credit Suisse to Exit Commodities, Posts Big Quarter Loss
Jeffrey Vögeli and Elena Logutenkova – BloombergBusinessweek
Credit Suisse Group AG said it will abandon commodities trading as a $2.6 billion fine to settle a U.S. tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008.
The bank’s net loss in the second quarter was 700 million Swiss francs ($779 million), compared with a profit of 1.05 billion francs a year earlier and a 691 million-franc estimate from analysts. Zurich-based Credit Suisse posted higher-than-forecast earnings at the investment bank and lower profit in wealth management even as it attracted more net new money from rich clients than analysts had estimated.

BCS bolsters equity derivatives trading team in London
Press Release (via Hedgeweek)
Ressencourt joins from VTB Capital where he headed up the equity volatility trading until departing in March 2014.
 He was one of the founding members of the equity volatility trading team in 2008 at VTB Capital and helped to develop both the institutional client business and options market making activity on LSE Derivatives, Eurex and the Moscow Derivatives Exchange.

Regulation and Enforcement

Former Trading Regulator Scott O’Malia to Lead Derivatives Group
Dealbook – NY Times
Scott D. O’Malia, formerly a commissioner on the Commodity Futures Trading Commission, has been named chief executive of the International Swaps and Derivatives Association.
He succeeds Robert Pickel, who is stepping down as chief executive after nearly 17 years with the trade group for the $600 trillion derivatives industry

Timing And Scope Of EU Clearing Obligation For Derivatives – Finance and Banking
The European Securities and Markets Authority is consulting on the mandatory clearing obligation for certain derivatives. Draft regulatory technical standards have been published for the mandatory clearing of certain interest rate swaps and credit default swaps. This note considers the proposals and the corresponding US rules and sets out the timing for implementation of the first EU clearing obligations.


Trading Technologies Appoints Robbie McDonnell EVP Global Sales
Press Release (Trading Technology)
Trading Technologies International, Inc. (TT), a provider of high-performance professional trading software, today announced the appointment of Robbie McDonnell to EVP Global Sales from VP/Managing Director of Asia/Pacific. McDonnell will relocate from Sydney to TT’s headquarters in Chicago, where he will report directly to CEO Rick Lane and be responsible for leading TT’s worldwide sales operation.
A 16-year TT veteran who has worked in senior-level sales management positions for TT in Sydney, Singapore, Hong Kong and London, McDonnell’s strong ties in the global trading community have been instrumental to TT’s success.

Intercontinental Exchange Completes Sale of Wombat Financial Software to SR Labs
Press Release (Intercontinental Exchange)
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that it has completed its previously announced transaction with SR Labs for the sale of the Wombat Financial Software, a unit of NYSE Technologies. The transaction closed today and terms were not disclosed.

CITIC expands derivatives business w/ FINCAD’s F3 analytics solution
Press Release (via LeapRate)
FINCAD, the leading provider of OTC derivatives pricing and risk management solutions, today announced that CITIC Securities Company Limited (CITIC) has implemented FINCAD’s F3 analytics solution to support the growth of its equity derivatives business in Asia.


Investors Bet on Pound’s Drop if Scotland Leaves U.K.
Chiara Albanese – WSJ
Opinion polls suggest, and London’s politicians hope, that Scottish voters will pass on the chance to break their ancient bond with the rest of the U.K. in a referendum in September. But bets are starting to build on a drop in the pound in the event of a surprise “yes” vote for independence.
For most of this year, despite the run-up to the Sept. 18 vote, sterling has been heading one way: up. It ranks among the best performing major currencies in the world this year, gaining about 5% against the euro and more than 3% against the dollar. The currency now stands at its strongest levels in almost six years against the buck, reflecting a rebounding economy and the growing chance that the Bank of England will be the first major central bank to bump up interest rates.

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