JLN Options: VIX Call Buying Explodes; Northern Trust enhances global options trading capabilities

Jul 25, 2019

Observations & Insight

Failures are Often Opportunities + Thoughts on Digital Asset Regulation
MarketsWiki Education
It can be difficult to predict what will be the catalyst to propel someone down their eventual career path. For CMT Digital CEO Colleen Sullivan that early catalyst just so happened to be learning about the ’80s junk bond czar Mike Milken. As for how that eventually led to Sullivan’s career in digital assets, you’ll just have to watch the video.
Watch the video »
****SD: Sullivan has a background in options as well, which she talks about in this presentation.


FIA Releases Half-Year Data On Futures And Options Volume Trends: Total Volume Up 19.7% Over First Half Of 2018
Washington, D.C.— FIA today released its half-year 2019 report on trading activity in the global exchange-traded derivatives market.
The total number of futures and options traded worldwide in the first half of the year reached 16.6 billion contracts, up 11% compared to the first half of 2018. Futures volume reached 9.3 billion contracts in the first half of the year, up 9% from the first half of 2018. Options volume reached 7.3 billion contracts, up 13%.

****SD: The National Stock Exchange of India surpassed CME Group as the biggest derivatives exchange by volume. Now this comes with huge caveats – the notional size of NSE’s contracts is not on the same level as CME’s and open interest at NSE is 8.3 million contracts compared to CME’s 141 million contracts. But, NSE’s 67% increase in volume is nothing to sneeze at.

Lead Stories

VIX Call Buying Explodes in Wave Evoking Memories of `50 Cent’
Luke Kawa – Bloomberg (SUBSCRIPTION)
A big buyer is accumulating protection against a major sell-off in U.S. stocks over the next month.
More than 570,000 call options tied to the Cboe Volatility Index — known as the market’s “fear gauge” — have traded as of 2:25 p.m. on Wednesday in New York, compared to less than 50,000 put options. That would leave the put/call ratio at its lowest in more than four years, prior to China’s shock devaluation of the yuan.

Northern Trust enhances global options trading capabilities
Securities Lending Times
Northern Trust has enhanced its global options trading capabilities by establishing a dedicated options trading desk within its institutional brokerages business.
The Chicago-based options desk provides institutional clients globally with options trading and streamlined reporting for prime brokerage.

An Unusual State Of Affairs For Oil Markets
Editorial Department – OilPrice.com (SUBSCRIPTION)
…In the options market, the NYMEX/CBOE WTI volatility has similarly strengthened in recent trading but its current mark near 33.85 is still significantly lower than its run in the mid 40’s back in early June. Lastly, in time spread markets the prompt Brent 1-month spread traded near 22 cents backwardation this week which was lower by nearly 50 cents over the last two months.
So yes, there has been a modest uptick in prices due to Iran’s growing conflict with the West and particularly the US, but it looks to us like weak fundamentals are still what’s driving oil markets. The modest upward move in prices has been enabled by dovish communications from Iranian, US and British leadership pointing to a desire to ‘talk’ out the current dispute rather than elevate and further disrupt tankers. Moreover, a recent IEA note suggests that member supplies are more than adequate to cover global crude demand even in the event of a heightened conflict in the oil market’s most important shipping lane.

Inside Volatility Trading
Cboe Blog
By most (short-dated) measures, SPX historical volatility is quite low. The SPX 10- and 30-day historical vol measures are 6% and 7.4%, respectively. The only other recent corollaries in terms of market calm are May 2, 2019 (SPX 30-day 7.4%) and October 9, 2018 (SPX 30-day 6.1%).

Earnings Miracle Failing to Take Hold for S&P 500 in Second Half
Vildana Hajric and Sarah Ponczek – Bloomberg (SUBSCRIPTION)
Third and fourth-quarter estimates are swiftly deteriorating; Projections for the year are still ‘too high’: Morgan Stanley
Behind the scenes of another middling earnings season is evidence that analysts are deceiving themselves when they predict things will be much better by Christmas.

Warren Buffett The Options Trader
Rupert Hargreaves – GuruFocus.com
Remembering the time Warren Buffett traded Coke options

Ranking Strategy Speed for Top Quants, Market Makers
Paul Rowady – Alphacution Research Conservatory
It’s one thing to build models and share insights about specific players in the trading and asset management universe; it’s an entirely different thing to perform comparative analysis of specific modeling to develop various rankings of a community of players. This latter point is precisely where the accumulation of Alphacution’s modeling and research is now taking us, and that new level of insight is, frankly, a bit mindblowing.

Exchanges and Clearing

Clearing members face $1.5 million in OCC replenishment plan
James Thursfield – Global Investor Group (SUBSCRIPTION)
Clearing members face a one-off $1.5 million fee if the OCC’s capital is significantly depleted under the proposed plan

Regulation & Enforcement

Recent CFTC Enforcement Action Against Non-U.S. Fund Manager For Violation Of U.S. Position Limits Highlights Traps For Unwary
On July 2, 2019, the United States Commodity Futures Trading Commission (“CFTC”) issued an order (the “Order”) filing and simultaneously settling charges against Elephas Investment Management Limited (“Elephas”), a hedge fund manager located in Hong Kong that is not registered with the CFTC, for violating speculative position limits on wheat futures. A simultaneous action was brought and settled by the Chicago Board of Trade (“CBOT”). The Order found that Elephas carried into the spot month a futures equivalent net long position of 1,680 December 2017 CBOT soft red winter wheat futures contracts, which exceeded the CFTC and CBOT spot month limit by over 1,000 contracts (180%). Elephas reduced its position below the limit the next day. As a result of the violation, Elephas was ordered to pay a civil monetary penalty to the CFTC of $160,000, a fine of $50,000 to the CBOT and a disgorgement of the $165,590 benefit it received in reduced losses.1

****SD: Relevant for any options on futures traders, too.


How to Bet on U.S. Stocks Ahead of the Fed Meeting
Steven M. Sears – Barron’s (SUBSCRIPTION)
Reflation Nation. Don’t Fight the Fed. Momentum Is Your Friend, Fear of Missing Out, and There Is No Alternative—or MOMO, FOMO, and TINA, to translate them into Wall Street speak.


Jane Street Defends ETFs From Claims They Cause Market Stress
Rachel Evans – Bloomberg (SUBSCRIPTION)
These funds don’t pose systemic risks, writes market maker; In fact, they could discourage panic selling amid volatility
Investors looking for potential causes of volatility in the debt markets have nothing to fear from exchange-traded funds, according to one of the industry’s largest market makers.

****SD: The ETF liquidity debate has really reared its head in recent weeks.

Innovator Preps to Expand Defined Outcome Suite with August Series of S&P 500 Buffer ETFs
Accesswire via Yahoo Finance
Innovator Capital Management, LLC (Innovator) announced today plans to expand the category creating Defined Outcome Buffer ETFsm suite with the August Series of Innovator S&P 500 Buffer ETFs, anticipated to list on the Cboe, August 1, 2019.

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