US options exchanges set to slam trading reforms
Luke Jeffs – Futures & Options World
The chief exec of US options giant the International Securities Exchange will tell the US government on Thursday its plan to change US trading rules will have a “very unfortunate outcome” if it is not amended to include options.
Gary Katz, speaking on behalf of the many US options exchanges, will tell the US Department of Labour in an open hearing in Washington its plan to exempt options from a new definition of the assets that can be traded by pension-holders will hurt investors.
Here’s the advantage high-frequency trading firms have over everyone else
Francine McKenna – MarketWatch
Eric Hunsader, founder of Nanex LLC, the U.S. financial markets consultancy, did a quote and trade time-stamp analysis recently, and what he found is worse than even he, a frequent markets structure commentator, suspected.
High-frequency trading firms have a 500-microsecond second advantage for Nasdaq quote data over any firm that doesn’t use a direct feed from the exchanges to quote prices, he says.
Biggest Bearish Bias in 3 Years, Options Data Suggests
Andrea Kramer – Schaeffer’s Research
Although U.S. stocks performed an about-face yesterday, the major market indexes are still in the red for August, and the Dow Jones Industrial Average (DJIA) and Russell 2000 Index (RUT) just underwent “death crosses.” China’s surprise yuan devaluations triggered the latest rough patch for the global equities market, with European benchmarks suffering their worst day of 2015 on Wednesday. Against this backdrop, and amid caution ahead of the Fed’s expected rate hike, bearish bets in the options pits have soared to their highest level in years.
So How Are All Those Yuan Structured Products Doing?
Tracy Alloway, Joe Weisenthal and Peter Jeffrey – Bloomberg
It’s worth wondering now, days after the People’s Bank of China sprang a surprise devaluation of the yuan on markets, just how all those FX Target Redemption Forwards (Tarfs) are doing. With Tarfs predicated on the USD/CNH rate moving within a predictable range, this week’s events are unlikely to produce good news for companies, like Generic China, that snapped up the products and still have contracts outstanding.
Devaluation Hints at China’s Rising Distress Over Economy
Neil Gough – NY Times
Whenever China’s economy swooned in recent downturns, its currency never buckled. It held steady, or strengthened, even as China’s neighbors or trading partners scrambled to cut the value of their own currencies to deal with the fallout.
With the Chinese renminbi now taking its biggest plunge in decades, the worry is that the country’s already slowing economy is even worse off than reported and that the government is panicking. On Thursday, China allowed the renminbi to weaken significantly for a third consecutive day.
Utilities ETF hedging dwindles as U.S. rate-hike timing remains unclear
Saqib Iqbal Ahmed – Reuters
A Fed “lift-off” later this year is a worry for the rate-sensitive utilities but the sector’s underperformance this year and continued uncertainty about likely timing of the hike has led to a dramatic drop in hedging activity in the sector.
The S&P 500 index of utilities, used as a bond proxy by investors in a low-rate environment, fell about 14 percent over the five months ending June. The sector has logged a 5 percent decline for the year, compared with a gain of about 1 percent for the S&P 500.
Low-Vol Calendars Plus Weekly Options On VIX
The Chicago Board Options Exchange (CBOE) on October 8 will launch weekly options on the CBOE Volatility Index (VIX). It’s a new spin on an old product (WeeklysSM Options from CBOE) that will, quite literally, offer a lot more options for traders who are looking for exposure to volatility in the U.S. equities market.
Crude Falls Near Six-Year Low Amid Supply Glut, Dollar Rebound
Mark Shenk and Grant Smith – Bloomberg
Oil fell, approaching a six-year low in New York, as a global glut and a rising dollar curbed investor demand for commodities.
CME’s global business head O’Connell departs
Alice Attwood – Futures & Options World
Derivatives marketplace CME Group has parted ways with its global business development head, after the exchange group commits to further restructure the business, confirming the latest in a wave of job cuts.
Chicago-based Michael O’Connell, managing director and global business development for CME Group, has left the business.
JSE Delivers Strong Performance In First Half Of 2015
Press Release – Mondovisione
The Johannesburg Stock Exchange (JSE), the continent’s largest stock exchange, delivered a strong performance in the six months ended 30 June 2015 with robust growth across all product lines within the business. Group earnings after tax for 2015 increased by 29% to R430 million (2014: R333 million), with operating revenue growing by 16% to R1 billion (2014: R869 million).
Regulation & Enforcement
Top finance regulator’s in-house courts probably illegal, judge rules
Bob Van Voris – Boston Globe
A second federal judge slapped down the Securities and Exchange Commission, ruling its method for appointing in-house judges was probably illegal.
The decision Wednesday by US District Judge Richard Berman in Manhattan rejected the agency’s method of selecting administrative law judges, to whom it directs hundreds of cases a year. Berman said the SEC’s process is “likely unconstitutional.”
Key Suspect in Insider Trading Hack Ordered Back to Jail
Chris Dolmetsch – Bloomberg
A key suspect in the global insider trading scheme revealed by U.S. prosecutors Tuesday was ordered back to jail in a rare fight between federal judges about whether he can remain free.
A judge in Philadelphia Tuesday said Vitaly Korchevsky could be released on $100,000 bond after being indicted in Brooklyn, New York. He is charged with helping orchestrate a conspiracy regulators said netted $100 million.
Advantages of a traditional portfolio allocating to a volatility index
For decades, investors frequently perceived a traditional portfolio allocation in the range of 60 percent equities and 40 percent bonds for proper diversification. Since 2000 investors, both large and small, have experienced several moments of negative returns to their portfolios. This experience has enlightened many investors to seek wider portfolio diversification in attempts to reduce their correlation risk, tail risk and negative volatility.
Should You Be Shorting the Dow and S&P 500?
Grant Willey – TheStreet
Volatility in the markets has been amazing this Summer: the Greek debt drama; Puerto Rico loan default issues; the apparent bursting of the Chinese stock market “bubble”; general market participant fears of the U.S. Federal Reserve increasing interest rates; and the continued worldwide geopolitical tensions. Several days this week, in the U.S., we’ve woken multiple days to find European markets selling off and triple digit losses showing on the Dow Jones Index futures.
So, is there a way to capitalize off of the market volatility and still remain tilted towards the dividend growth investor style of investing? If you don’t trade options or other derivatives, what alternatives are there for you to consider taking advantage of to potentially make money off of this market volatility and trend of the Dow’s descent?
Analysts Ponder Falling 10 Yr Interest Rates Ahead of Potential Hike
Mark Melin – ValueWalk
As the U.S. Federal Reserve begins to consider tightening interest rates potentially in September, where will longer dated interest rates go in the short term?
After heavy trading in ten year note call options, Credit Suisse Group AG Research Analyst William Marshall uses his Option Sentiment Indicator to conclude a sell signal has been reached.
Strategy: Skip Strike Butterfly Spread
Dan Keegan – CBOE Options Hub
Let’s look at SPX, IBM and FB to determine which one is the best candidate for a skip strike butterfly. SPX is trading at 2083.56, IBM at 156.32and FB at 95.12. A normal long call butterfly combines a 90-95 bull vertical call spread with a 100-95 bear vertical call spread. Each spread has an equal amount of contracts. The strike price differential is the same for both vertical spreads. A skip strike butterfly combines a 90-95 bull vertical call spread with a 105-95 bear vertical call spread. The vertical spread that you are selling is twice the width of the one that you are buying. A gap move to the upside would be disastrous for the holder of this spread.
Fund managers profiting from China’s currency cuts
David Sandham and Jonathan Yarker – Citywire
China stunned the markets this week by implementing the most significant devaluation of its currency in 20 years.
The country’s shock 1.9% devaluation of its currency on Tuesday, followed by 1.6% and 1.1% cuts yesterday and today, sent shockwaves through global markets. It sparked a 2.4% fall in the FTSE 100 in two days, although the UK blue-chip index is up today as investors take heart from China’s reassurances that the yuan is not set for sustained devaluation.
But some fund managers are reaping profits from the move. James Clunie manages the Jupiter Absolute Return fund, which aims to generate a positive return for investors over three-year periods regardless of market conditions.
In June he bought three separate ‘put’ options on the yuan, giving him the right to sell the Chinese currency at a fixed price for a certain period. The options expire between June and December next year.
This may be the only smart way to bet on China
Alex Rosenberg – CNBC
The decline in Chinese stocks continued Wednesday, leading the Deutsche China A-Shares ETF to lose nearly 8 percent in two sessions. That may inspire some to play for a Chinese bounce. But due to an interesting market dynamic, there might be a far better way to do just that than simply buying the ETF.
As Chinese equities have fallen, and more and more investors seek to get exposure to the downside for speculation or hedging purposes, the shares have gotten increasingly difficult to short. According to the most recent data available to Susquehanna, the A-Shares ETF had a total short interest position of 7.1 million shares, with only 15.4 million outstanding. That means that finding the shares to short has become difficult and expensive.
As an alternative, traders can get downside exposure by buying puts in the options market. These derivatives, which give their owner the right to sell a given stock at a specific time and price, have consequently risen in value.
Harness Biotech Volatility with an Options Strategy: Theta Strategy Capitals Eden Rahim
George S. Mack – The Life Science Report
Volatility is the nature of the biotech beast, and it must be tamed or utilized to advantage. That’s the philosophy of Eden Rahim, portfolio manager and option strategist at Theta Strategies Capital. Can you grow a portfolio if some of your more successful names are called away by option buyers before the stock goes into the stratosphere? The answer is yes, and in this interview with The Life Sciences Report, Rahim describes his technique and leaves readers with six names that he fully expects to reap very large gains.
ETF Stats For July 2015; Currency Hedging Jumps The Shark
Ron Rowland – ETF Daily News
Thirty-seven new ETFs and ETNs were launched in July and fifteen closed. The changes leave the listed count at 1,764, consisting of 1,570 ETFs and 194 ETNs. With sixteen new currency-hedged ETFs coming to market, including three half-hedged funds, it would be easy to conclude that a bubble in currency-hedged ETFs exists.
Bitcoin Binary options are a simplified version of traditional options
Bitcoin Binary options are a simplified version of traditional options. Instead of estimating multiple details at once, binary options streamline the estimation process and allow an investor to make one decision: will an asset increase in price by a given date? Binary options limit loss potential, and are a great place to start for options beginners. They can be traded on FOREX, NADEX, and CBOE (Chicago Board Options Exchange). Investors can purchase options that expire several hours in the future, weeks, or months. Different than previous binary option offerings, the new service which is called Up Down processes payments and payouts in Bitcoin only.