Observations and Insight

Bill Templer, Managing Director, Faventus Derivatives Consulting – Stretch Beyond Your Desk

“Whatever you do end up doing, find something in it that you can be the best at.”

Bill Templer, managing director for Faventus Derivatives Consulting, discusses the charitable side of his life and his work with Futures For Kids, an organization that raises money to support children living in poverty. Templer describes how Futures For Kids began with a group of individuals in the financial industry and how his work was able to lead him to new networking and job opportunities. Templer also discusses his career history and creates a list of advice he wished he knew when he was younger.

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Lead Stories

Volume Approaches Record Year as October Disrupts Calm
Lu Wang – BloombergBusinessweek
U.S. options trading is settling back into a calmer pace after last month’s burst of market volatility sent volume toward one of its strongest years.
The number of option contracts changing hands jumped 22 percent jump in October amid the biggest retreat in two years for the Standard & Poor’s 500 Index. (SPX) That brought year-to-date volume to 3.62 billion, a 4 percent gain, according to data compiled by Chicago-based Options Clearing Corp. Should that pace continue, volume would reach 4.3 billion by December, exceeding all but one year since OCC data began in 1973.
***DA: All we need is one or two scares per year, and we can have a sustained rally and higher volume.

Flash Boys Raise Volatility in Wild New Treasury Market
Susanne Walker and Lisa Abramowicz – Bloomberg
In a flash, the bond market went wild.
What began on Oct. 15 as another day in the U.S. Treasury market suddenly turned into the biggest yield fluctuations in a quarter century, leaving investors worrying there will be turbulence ahead.
The episode exposed a collision of forces — the rise of high-frequency trading and the decline of Wall Street dealers — that are reshaping the world’s biggest and most important bond market. Money managers say the $12.4 trillion Treasury market is becoming less liquid, meaning securities can no longer be traded as quickly and easily as they used to be, thanks in part to the Federal Reserve’s bond-buying program.
***DA: Are you watching, Bank of Japan? I shudder to think what will happen when that nation needs robust capital markets without central bank intervention.

ICAP Information Services launches ICAP Equity Derivatives premium pricing service – ICAP
Press Release – ICAP
ICAP Information Services (IIS), the information division of ICAP, announces today that it has launched ICAP Equity Derivatives, an end-of-day, premium data product. Content includes volatility surfaces, variance swap curves and forward curves for the top 13 global equity indices, with maturities from one month up to 10 years and strikes between 5% and 400% of spot.
In launching this new product, ICAP has partnered with industry specialists Prism Valuation, to deliver a market-leading, accurate pricing and volatility service.

Gauges for Portfolio Protection – VIX, SPX, SKEW, and Term Structure
Matthew Moran – LinkedIn
When I deliver presentations on portfolio risk management to groups of financial professionals, one of the most frequent questions is “What is a better hedge for a portfolio – VIX calls or SPX puts?” A 30-page paper by Morgan Stanley in June 2014 suggested that “VIX calls are best used to hedge large selloffs, while SPX puts outperform in moderate declines. …”
I recently received a call from an institutional investor who is using VIX products for tail risk management, but he requested an overview of available metrics to gain a better idea of how gauges related to volatility skew and term structure can impact costs related to risk management strategies.
***DA: My favorite hedge is total liquidation.

Is This Market TOO Quiet?
Anthony Mirhaydari – InvestorPlace
Stocks have seemingly gone into a holding pattern, barely moving as investors have apparently run out of reasons to buy or sell.
On Monday, the S&P 500 gained 0.07% as the market shrugged off steep overnight losses in the futures session on news Japan has fallen back into a technical recession in the aftermath of a steep sales tax hike. Some dovish chatter out of the European Central Bank and high-profile M&A activity turned the tide.
***DA: Great – the market is up on central bank intervention and financial engineering.

Tabb Group Says U.S. Equity Volume Up 29 Percent in October to 7.8B Shares
John D’Antona Jr. – Traders Magazine
October U.S. equity volumes continued to rise after a solid September performance.
Industry-wide equity volume increased 29 percent on a month-over-month basis to its highest average daily volume (ADV) rate since October 2011, Tabb Group reported in its most recent Equities LiquidityMatrix report.


OCC Announces Kimberly McGarry as New Chief Financial Officer
Press Release – OCC
OCC announced today that Kimberly McGarry has joined OCC as Senior Vice President and Chief Financial Officer.
Ms.McGarry joins OCC after serving as Senior Vice President, Chief Accounting Officer at First Midwest Bank. In that role, she restructured and led the finance and accounting team and was responsible for internal and external financial reporting including preparation of quarterly and annual earnings releases and reports to the SEC and Federal Reserve Bank. Prior to that she was Senior Manager in the Assurance Services practice of Ernst & Young LLP and Manager of the Audit and Business Advisory Services area for Andersen LLP. Ms.McGarry also has extensive experience in technical accounting and internal control programs.

Exchanges Gain as Equity Volumes Hit 3-Year High
Ivy Schmerken – Wall Street & Technology
US stock trading volume increased 29 percent month-over-month in October to reach the highest average daily volume since 2011, according to Tabb Equity Liquidity Matrix for October 2014 released this week.
For exchanges, average daily volume increased from 6.1 billion to 7.8 billion, capturing the highest average daily volume since October 2011. Volume peaked on Oct. 15 with 11.9 billion shares changing hands, partly driven by swings in the yield on the 10-year Treasury note, Tabb’s US Equity Liquidity Matrix notes.
Three exchanges gained the most share: NYSE Arca’s share gained 1.3 percent; BATS BZW also increased 1.3 percent; and Nasdaq rose by 1.1 percent.

Regulation and Enforcement

CFTC Commissioner Says Agency Has Authority Over Bitcoin Price Manipulation
Michael J. Casey – WSJ
A commissioner at the Commodity Futures Trading Commission said Monday that the agency was authorized to intervene with enforcement actions against price manipulation in bitcoin markets.
“It has not been tested, but I do believe we have the authority because if you think of any reasonable reading of our statute, bitcoin classifies as a commodity,” said CFTC Commissioner Mark P. Wetjen during a panel discussion at a seminar on the digital currency organized by Bloomberg in New York. “This gives us the authority to bring enforcement against any type of manipulation.” He added that the CFTC statute’s definition of a commodity is very broad.

Senate panel to grill Fed’s Tarullo, bankers over commodities
Emily Stephenson and Douwe Miedema – Reuters
A heavyweight list of bankers and regulators will appear before a U.S. Senate committee this week in a probe into Wall Street’s role in commodity markets and ahead of possible tougher rules from the Federal Reserve.
Markets will weigh every word from Federal Reserve Governor Daniel Tarullo, in charge of financial regulation at the central bank, which in January said it would come out with rules to rein in banks’ activities in the market.


High-Frequency Traders Literally Can’t Lose: New Study
Clayton Browne – ValueWalk
The publication of Michael Lewis’ Flash Boys in April, 2014, generated an intense wave of publicity surrounding high frequency trading (HFT) firms, much of it unfavorable. Earlier this year, the high-frequency trading firm Virtu Financial LLC published details about the firms long-term operations in an SEC filing. One remarkable fact stood out like a sore thumb in the company’s filing: The firm had suffered just  “one losing trading day” in over 1,238 days of trading. Let me write that again slowly — high-frequency traders Virtu Financial made profits with their high-frequency trading scheme on 1237 out of the last 1238 days over the last five plus years.
***SR: No lies or damn lies…just statistics.


A New VIX CycleThe Options Insider
Mark Sebastian – The Options Insider
The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high.  Clearly when the VIX was in the 10’s and 11’s the VIX was in a cyclically low level.  However, that appears to have changed (despite the sudden drop in realized volatility).  Even throwing out last months vol pop one should be able to see that the VIX pattern shifted

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