Observations & Insight

Walt Lukken, FIA – The New Normal and the Five Tips


“We’re in a very exciting industry. Fundamentally, the demand for risk management in our financial markets to service the real economy is not going to disappear. It may change on the margins and people are going to leave the business, but it is going to be here and innovating for a long time to come.”

Sometimes a MarketsWiki Education presentation is of the “buy one, get one free” variety. Walt Lukken, president and CEO of the Futures Industry Association, delivered just that – two interesting and thoughtful presentations – to a crowd of summer interns at the MarketsWiki Education World of Opportunity Chicago 2016.

In the first half, Lukken offers an introduction to the futures industry from the perspective of its representative trade organization. He looks at the state of regulation and politics in the U.S. and abroad and says, despite the many headwinds, the outlook for the derivatives industry is quite positive indeed.

He then offers up five important suggestions for improving one’s career path – ideas that hold true whether one is a freshly hired intern, an occupant of a corner office in the C-suite, or anywhere in between.

Watch the video »

Lead Stories

All three major US indexes hit fresh record highs; oil jumps 1.5 pct
Fred Imbert – CNBC
U.S. stocks traded higher on Monday, with the three major indexes hitting new records, as investors kept an eye on oil prices and on the Federal Reserve. The benchmark S&P 500 and the Nasdaq composite broke above previous intraday highs of 2,188.45 and 5,238.54, respectively, shortly after the open. The Dow Jones industrial average also posted a record high in early trade ET, rising past its previous high of 18,638.34. These records were all set last week, despite the indexes posted slight weekly gains.

Some Traders Betting Wall Street’s ‘Fear Gauge’ Will Double in a Month
Akane Otani – WSJ
Stock markets may get less boring very soon.
That’s the prediction options traders are making at the moment with bets on future moves in the CBOE Volatility Index, or VIX.

Hedge funds add bullish positions in oil as short-covering rally starts
John Kemp – Reuters
Hedge funds increased their bullish long positions in crude oil by the most for over two months in the week ending on Aug.9. Hedge funds and other money managers boosted net long positions in the three major Brent and WTI futures and options contracts by the equivalent of 48 million barrels

Morgan Stanley Says The Oil Squeeze Will End On August 17: Here’s Why
Zero Hedge
Following his bearish note last week, Morgan Stanley’s oil analyst Adam Longson is out with a new report, in which he accurately explains that the recent oil-price jump is driven by traders covering bearish bets, even as market fundamentals are seen remaining weak in coming months. According to Longson, a “sizeable” amount of Sept. WTI put positions at $40, $45 recently came into or near the money, leading to spike in hedging by traders to cover their exposure. However, the good news for oil bears is that the effect of this action will fade once option expires Aug. 17. As we have pointed out previously, the recent comments from OPEC, and IEA helped reverse bearishness and also unleash the recent short squeeze which led to the biggest weekly jump in oil in 4 months.

On The Fence Amid Presidential Cycle
Moby Waller – CBOE Options Hub
Though the market finished on a bullish foot two Friday’s ago, that tone didn’t help stocks one iota last week. When all was said and done, the S&P 500 (SPX) (SPY) pretty much ended last week where it started it, and still on the fence as it’s been for the better part of the past several weeks. Just for the record though, the uptrend is still the bulls’ to lose. The bears just haven’t been able to land any real damaging blows.

VIX Futures Record Open Interest of 543,192, as VIX Index Hits 2-Year Low
Kevin Davitt – CBOE Options Hub
On August 5 the CBOE Volatility Index (VIX) closed at 11.39 (its lowest daily close in more than two years) and the VIX futures established a new all-time record high open interest of 537,201. On August 9 the VIX Index closed at 11.66, and the VIX futures open interest hit a new all-time record of 543,192.

S&P 500 Dregs Stage Uprising in Bull Market That Now Makes Sense
Oliver Renick – Bloomberg
From last week’s confluence of record highs to rebounding growth stocks, there’s a lot to like in a market as hated as this one. No longer are low-volatility stocks the leaders. Nor are utilities, or companies that sell toothpaste and handsoap. Nary a defensive share is rallying as leadership in the S&P 500 Index switches from the dividend-paying bond surrogates that ruled 2015 to technology, banks and commodity firms that benefit from an expanding economy.

Call Buyers See a Market Plunge
Steven M. Sears – Barron’s
Even paranoids have enemies. The Dow Jones industrials, Standard & Poor’s 500 index, and Nasdaq Composite all closed Thursday at record highs, but it might be too much of a good thing. Some investors have started buying CBOE Volatility Index calls, betting that the stock market will suffer an extraordinary decline by late September’s expiration.


CBOE Launches First in Series of Social Media-Based Strategy Benchmark Indexes
Press Release – CBOE
Chicago Board Options Exchange (CBOE) announced today that it has launched the CBOE-SMA Large Cap Index (SMLC Index), the first of a series of sentiment-based strategy benchmark indexes that measure short-term market momentum based on Social Market Analytics’ (SMA) social media metrics.

Nasdaq Tries to Appeal to Investors Lured by New Rival IEX
Dave Michaels – WSJ
In the latest sign that American stock exchanges are inching away from a decade long arms race toward ever greater speed, Nasdaq Inc. plans a new option for investors who complain they can’t keep up with rapid-fire trading.

Isda rethinks CCP recovery and resolution
Julie Aelbrecht – Futures & Options World
CCP recovery and resolution have been the focus of several regulatory bodies
The CEO of trade body the International Swaps and Derivatives Association has said the evolving nature of the boundaries between central counterparty recovery and resolution is raising crucial questions for market participants. “The thinking is continually evolving, particularly on the issue of resolution. An important recent consideration has been when and how recovery becomes resolution – in other words, at what point should resolution authorities step in, and what tools will be available to them?” said Scott O’Malia, the International Swaps and Derivatives Association’s chief executive officer.

Door still open to LBMA to get involved with new LME contracts – sources
Ian Walker – Fast Markets
The door is still open to the London Bullion Market Association (LBMA) to join the World Gold Council and the London Metal Exchange in its new venture, due to be launched at the beginning of next year, sources told FastMarkets on the sidelines of the IIGC conference here in Agra. With support from five banks and one proprietary trading house, the LME and the WGC announced on Monday their plans to launch new spot, futures and options contracts for gold and silver in the first half of 2017.

True innovation?
Christian Voigt – Futures & Options World
The recent slew of exchange announcements introducing new dark trading facilities in response to Mifid II would appear to suggest that the regulation has triggered a whole raft of innovations. But is that what’s really happening here?

Regulation & Enforcement

OCC weighs in on the leverage ratio and its impact on listed options industry
FTSE Global Markets
In its role as an advocate for the US listed options industry, OCC focuses on ensuring confidence in the financial markets and the broader economy by promoting stability and market integrity through effective and efficient clearance, settlement and risk management. John Fennell, OCC executive vice president of financial risk management writes that one place where OCC works to help the options industry is in the area of international regulatory standards. The OCC recently signed on to a letter along with 30 other exchanges and trading firms regarding the leverage ratio framework as proposed by the Basel Committee on Banking Supervision (BCBS).

****SD: Recap coverage of Fennell’s column from last week.


Nasdaq Quote Feed to Replace DTI Interface as ISE Migrates to Inet Tech
Max Bowie – WatersTechnology
The International Securities Exchange will utilize Nasdaq’s Specialized Quote Feed for options market making and order entry as part of migrating its trading platforms to Nasdaq’s Inet technology. The exchange will migrate its ISE Gemini market on March 1 next year, followed by the main ISE market on June 1 and ISE Mercury on Aug. 1. ISE will migrate each market on a symbol-by-symbol basis, which is expected to take up to four weeks for each market.

The Regulation of Automated Trading and the Slippery Slope for Fintech
Milken Institute – TABB Forum
How and in what way(s) should federal regulators have access to proprietary information? That is the key question being debated by algorithmic trading firms and the Commodity Futures Trading Commission. How the debate plays out, and whether the CFTC will finalize rules providing officials with largely unfettered access to source code, may have profound implications not only for automated trading firms, but the larger fintech community as well.

Redline adds support for India’s BSE
Redline Trading Solutions announced today that BSE, Ltd. (formerly Bombay Stock Exchange Ltd.) is now supported by Redline’s market data and order execution gateway solutions, enabling firms trading on this exchange to receive and act upon real-time price and order book information faster than ever before.


Gold Losing Appeal for Investors Retreating From Rally Bet
Joe Deaux – Bloomberg
Investors are growing more skeptical of gold’s lasting luster. Hedge funds and other speculators cut their wagers on a bullion rally for the fourth time in five weeks. As traders tire, the metal’s 30-day historical volatility has dropped to the lowest since November. Open interest is also on the decline.

Speculators Short As Pound Keeps Slumping
Bullish bets on the British pound are now among the loneliest positions in global markets. Since the Brexit vote and the Bank of England’s recent decision to cut interest rates, the currency has depreciated sharply, and most see the selloff going further.


Rate of Change Can Predict Future Momentum
Bob Lang – CBOE Options Hub
The rate of change is defined as the speed for which a variable changes in a specified period of time. We look for a change in trend or just an inflection point key in on the rate of change to help determine where momentum may take place and perhaps estimate the trajectory. While it is often difficult to predict a top or bottom with any consistency, from a mathematical perspective we can use the rate of change to identify probable turning points. It is at these moments where significant gains can be had by riding the momentum.

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