US Listed Options’ Summer Starts in May as Volume Slumps
US listed options trading activity slowed last month as both the stock and options markets began their coast into the summer. In May, traders exchanged 311.2 million options contracts, a 2.3% increase over May 2015’s totals, but a 6.2% drop from April 2016’s volume.
VIX Shows Traders Are Worried About A Lot More Than ‘Brexit’
Chris Dieterich – Barron’s
It’s easy for traders to focus merely on “Brexit” — Thursday’s vote in the U.K. that could see Britons opt to exit the European Union. To Nicholas Colas, chief market strategist at brokerage Convergex, recent swings in the CBOE Volatility Index (VIX) are a reminder that there are other big issues out there even should voters repulse the brexiteers.
S&P 500 Options Looking Like a Steal Before Referendum on Brexit
Joseph Ciolli and Hema Parmar – Bloomberg
30-day implied volatility on index lower than 1-year average
VIX has declined 12 percent since reaching four-month high
The U.S. options market is underpricing the risk of British secession from the European Union, according to a New York-based firm that arranges volatility trades. Implied volatility for S&P 500 Index at-the-money contracts expiring in 30 days sits at 15.1 percent, a price that is actually below the average level of the past year, according to data compiled by Bloomberg. Placidity can also be seen in the benchmark index’s fear gauge, the options-derived benchmark which has fallen 12 percent in the last week after reaching a four-month high.
Hedge Funds’ Net Long Positions Fell for the Fourth Straight Week
The CFTC (U.S. Commodity Futures Trading Commission) released its weekly “Commitments of Traders” report on June 17, 2016. The report highlighted that hedge funds reduced their net long positions on WTI (West Texas Intermediate) crude oil futures and options contracts for the fourth consecutive week for the week ending June 14, 2016. Net long positions fell by 41,980 contracts to 191,489 contracts for the week ending June 14, 2016—compared to the previous week. They hit their highest level since May 12, 2015, at 249,123 in the week ending April 26, 2016.
****SD: From ValueWalk, Risk Appetite Remains Weak Among Investors Amid Brexit, China Fears
Traders bet on US stock tumult long after Brexit vote
US equity investors have braced themselves for a “prolonged period of higher volatility”, Deutsche Bank said this week, suggesting market jitters stem from more than just this week’s Brexit referendum.
Hedge Funds Sense Profit in Europe Shock Waves After Brexit
Hedge-fund managers are sensing opportunity. After enduring the worst first-quarter returns since the start of the financial crisis, the prospect of Britain voting to leave the European Union is creating the market turmoil that can make them money.
What We As Traders Can Learn From Donald Trump’s Campaign
Ari Pine – Trade Talk Blog, Trading Technologies
This is not a political commentary. I’ll spare you my thoughts on the U.S. election content. Instead, I’d like to point out something that many already have: Trump has unexpectedly led the Republican field. In fact, it is not just Trump and Republicans. Bernie Sanders has been able to hang on far longer than expected in the Democratic primary despite going up against what can reasonably be described as a Clinton machine.
TRADING UP: Credit Suisse Vet Patel Joins BoAML; Kalafatis Departs CIBC
Pankil Patel has joined Bank of America Merrill Lynch as head of electronic trading services for equities, options and futures in the Americas, according to several traders. Patel is on so-called garden leave until July 5.
Hong Kong’s HKEX Explores Cross-Listing Derivatives with Korea’s KRX
A non-binding letter of intent (LOI) was signed this Tuesday in Asia by Hong Kong Exchanges and Clearing (HKEX) and Korea Exchange (KRX), as they are set to explore the cross-listing of equity derivatives in each other’s markets, as per an official statement.
****SD: Press release, HKEX And KRX Sign Non-Binding Letter Of Intent
Euronext chief eyes assets as exchange industry consolidates
Stéphane Boujnah, chief executive of pan-European exchange Euronext, refuses to be left out of the consolidation that is shaking up his industry. In the middle of a proposed $30bn mega-merger between London Stock Exchange Group and Deutsche Börse to create a European exchange group to rival those in the US and Asia, he has his own card to play.
Deutsche Börse Establishes A Corporate Venture Capital Platform
As an important additional element of its growth strategy “Accelerate”, Deutsche Börse Group today announced the launch of a dedicated corporate venture capital (CVC) platform – DB1 Ventures. The DB1 Ventures team will be primarily based in Frankfurt and will undertake new investments as well as actively manage Deutsche Börse’s existing minority shareholdings. While Deutsche Börse has already made several strategic investments in early stage and mature companies, the new approach allows the Group to actively manage its existing and new portfolio to realize the full potential of these strategic shareholdings.
****SD: From the Financial Times, Deutsche Börse to create dedicated fintech venture fund
High flyer: STOXX Europe 600 Index Derivatives
Our STOXX Europe 600 Index Derivatives provide many opportunities. The index represents large, mid and small capitalization companies across 18 countries of the European region. It is therefore a broad, investable index, making it useful as a benchmark for the entire European stock market. Our derivatives on the STOXX Europe 600 Index enjoy a successful development in the first half of 2016.
Hemp market Seed CX sees approval for 2016 launch
Luke Jeffs – Futures & Options World
The Chicago-based firm was set up in mid-2015 by MIT grad Edward Woodford
The chief executive of the world’s first planned hemp derivatives market said he is confident of securing US approval in the coming weeks before moving ahead to launch before the end of the year. Chicago-based Seed CX filed its application with the Commodity Futures Trading
Regulation & Enforcement
Too Big to Pass: CFTC Reg AT
Tom Lehrkinder – TABB Forum
The CFTC hosted a second roundtable to discuss the proposed Regulation Automated Trading. Amid the debate, a ray of hope emerged – that the final version of Reg AT could be released in phases, with the more contentious requirements put off for another day.
SEC Overturns CBOE Determination That Individual Traders of Two Omnibus Accounts Were Customers Requiring Application of Customer Identification Rule
The Securities and Exchange Commission set aside a determination by the Chicago Board Options Exchange, Inc. that Electronic Transaction Clearing, Inc., and two of its principals, Kevin Murphy and Harvey Cloyd, Jr., failed to apply its customer identification program to individuals trading on behalf of two omnibus accounts; failed to apply margin rules to the same traders; and failed to implement adequate surveillance tools for identifying suspicious activities of its customers.
Strengthening Financial Market Resiliency through Technology
Luke Moranda – OCC
Regulated counterparties (CCPs) such as OCC have an excellent track record of performing extremely well during times of market stress. This demonstrated resiliency led global policy makers to mandate that more financial transactions be centrally cleared through CCPs following the 2008 financial crisis. OCC, and other Systemically Important Financial Market Utilities (SIFMUs), are even stronger today as a result of the improvements that regulators have made to the regulatory framework for CCPs. As an expert in managing the risks of others, we deeply understand the need to appropriately incentivize users to help safeguard our markets and contribute to maintaining equilibrium in a mutualized system. Without that balance, we run the risk of becoming less secure or diverting attention away from CCPs – in contravention of the goals established by domestic and international policy makers in dealing with the 2008 financial crisis.
ETF: Option Volume on the Rise Can Translate to More Opportunity
Chris Hausman – ETF Trends
On any given day, ETF trading volume is usually some of the heaviest in the world. Increased volume in the underlying ETF can directly lead to an increase in the corresponding option volume. The option markets can provide a way for investors to hedge their portfolios and/or the potential to produce portfolio yield enhancement through the use of “income” producing strategies. There has been a paradigm shift between trading stocks on individual equities to trading ETFs.
Earnings Announcements: Friend or Foe? Volatility and Hedging Risk
Brian Lund – The Ticker Tape
This may sound like the opening line from a bad TV special, but the fact is, trading results depends largely on choices. The strategy you use, the stocks you invest in, the amount of risk you take—these and countless other decisions you make can directly affect your profitability. And perhaps one of the most important choices traders have to make is whether to hold an investment over an earnings announcement.
What Do Quantum Mechanics and Option Pricing Have In Common?
Leon Reilich – The Market Mogul
The Black-Scholes formula is the most famous and well-known in finance. It changed fundamentally how the value of financial derivatives is determined in today’s quantitative finance environment.
****SD: Explaining options pricing through the lens of quantum mechanics is not a recipe for simplicity.
Goldman: How To Best Invest Around Bremain
The best method to invest around the upcoming Brexit vote is both an entertaining and important issue for professional asset managers. There are two components of such analysis: 1) Will the British actually vote to leave Europe? 2) If a Bremain or Brexit does or does not occur, what is the best method to hedge / trade the event? Goldman Sachs noted options researchers Krag Gregory and Aleksandar Timcenko take a look at the issue and include trade recommendations around what some think is the highest probability: Bremain.
Weekly Market Outlook – Will Support Hold?
CBOE Options Hub
The bulls did everything they could to get the rally back on track last week after the early breakdown. But, it just wasn’t meant to be. Once the S&P 500 (SPX) (SPY) fell under the 50-day moving average line on Wednesday, the index — despite trying — just couldn’t climb back above it. When all was said and done, the market lost 1.18% of its value last week.
Weekend Review – Volatility Indexes and ETPs – 6/19/2016
The VXST – VIX – VXV – VXMT curve moved from contango to an unusual shape this past week. Lots of things point to the markets being concerned about next week’s ‘should I stay or should I go’ vote in Britain. VXST represents short term SPX option volatility and the options that expire just after the vote are feeding that calculation. I’m going to say results in VXST finishing the week at such an elevated level last week have a little to do with Brexit.
National 4-H Council and CME Group Bring Commodity Carnival to 150 State and County Fairs in Fourth Year of Partnership
CME Group, the world’s leading futures exchange, and National 4-H Council are partnering for a fourth consecutive year to bring their popular and award-winning fair experience, Commodity Carnival, to a growing number of fairs during 2016. The interactive experience is scheduled to visit 150 state and county fairs across nine states this summer to teach fair-going families the fundamentals of risk management in agriculture, by way of bringing a hog to market. The game will also continue to be accessible beyond the fairgrounds this year via the mobile companion app, Risk Ranch.
****SD: So, there will be people learning about risk management right after devouring deep-fried Oreos and all manner of other unhealthy fairground “food”?