JLN Options: Worried About a U.S. Recession? You Shouldn’t Be; Options Opportunities Amid Stocks’ Sharp Declines; Cattlemen lock horns with futures exchange over market volatility

Jan 25, 2016

Observations & Insight

NextGen Market Training
By Doug Ashburn and Jim Kharouf – JLN

The long-standing tradition of bringing young students into the industry to learn all of the ins and outs of the business continued last Friday at Trading Technologies. TT hosted Campus Connect Algo Showcase, as students from four universities presented their trading ideas and algo trading systems to the audience.

Students from the University of Illinois, Loyola University, DePaul University and Illinois Institute of Technology (See more on IIT becoming Illinois Tech below), showed everything from how they coded a trading program to how they used TT’s Algo Design Lab to test out trading ideas. Some projects made money, some did not. But as many of the best traders have said time and again, you learn more from the trades that don’t work than from those that are successful.

As we are keen to remind people during our MarketsWiki Education events, bringing the next generation of participants into our markets is not the same structure, with summer runners on the floor, as it used to be. The old pipeline has been replaced by a new one involving technology, technology and more technology. But “setting the hook” is not as easy nowadays. It is programs like TT Campus Connect, led by Leo Murphy, that are bridging the gap.

What we saw (and what we learned from talking to the participants at a reception down in TT’s Tech Tap) is that, though all the tools are there, the students still need parts of the old pipeline in order to land that first job out of college. One answer, of course, is to get really good at writing code. There is an acute need for developers to help implement the trading strategies of the last generation. The other is simply understanding how to develop and execute a trading strategy using the tools that are available.

Opportunities are there; they are just harder to find, and the competition is fierce. We close with a look at one of those opportunities, from last summer’s MarketsWiki Education series.


Joseph Niciforo, HC Technologies – Profiles in Risk: Vision and Discipline

“If you don’t have disciplined risk management, you’re not going to be in the game.”

After earning a law degree in 1988, Joe Niciforo turned down a six-figure offer to join a big law firm, opting instead for a salary at 30 percent of that number, to work as a trader for the legendary Paul Tudor Jones II. He would eventually become a partner and managing director at Tudor Investment Corp, but his trading career almost got cut short once when he violated his own risk parameters and ended up taking a big loss. The next day, he received a phone call from Jones, who said, “If you ever lose more than $15,000 for me, we’ll always be friends; we’ll never do business.”

His latest venture with Tudor, LaunchPad Trading, seeks out and grooms young portfolio managers, who, hopefully, won’t make the same mistakes he did when he was a young, cocky trader.

Watch the video at MarketsWikiEducation.com »

Lead Stories

Worried About a U.S. Recession? You Shouldn’t Be
It wouldn’t take much to look at the performance of markets these days and draw the conclusion that investors deem a U.S. recession as all but inevitable. A deeper dive finds a more benign scenario.

Options Opportunities Amid Stocks’ Sharp Declines
Steven M. Sears – Barron’s
Last week, scientists discovered what appears to be a new planet on the edge of our solar system. Planet Nine, as it is now called, is larger than Earth and apparently covered in ice, which has a certain appeal after several fiery weeks in the financial markets.
Our terrestrial markets are an amalgamation of purgatory and hell. Stock prices are volatile. Investors are often torn between confusion and nonchalance. Panic, which would mark the end of the decline, is hard to detect. The CBOE Volatility Index, the stock market’s fear gauge, is relatively muted even as strategists sound their tocsins about the Standard & Poor’s 500 index.

Cattlemen lock horns with futures exchange over market volatility
Gregory Meyer – Financial Times
Savage swings in cattle futures markets have lashed participants from ranchers to big food companies and sparked suspicions against automated traders on the Chicago Mercantile Exchange.
Last year, CME’s live cattle market was locked 31 times at its daily price limit, up from nine in 2014 and one in 2013, exchange data show. Three of the first 14 trading sessions of 2016 have closed at limits, too.

VOLATILITY EXPERT: Get ready for more extreme days in the market
Business Insider
The start to 2016 has been a wild ride for investors in the markets and it might be a sign of what’s to come.
According to Todd Hawthorne, the lead portfolio manager at Boston Partners, the swings and volatility in the stock market of the past few days is going to be the new normal for 2016.

Weekly Market Outlook – Reasons To Be Optimistic Here
Moby Waller – CBOE Options Hub
After a scary start to the shortened trading week, Wednesday’s intraday turnaround followed-through quite nicely all the way to the end of Friday’s trading. By the time the closing bell rang that day, the S&P 500 (SPX) (SPY) had gained 1.4% after being down as much as 3.6% at one point on Wednesday.
Better still, there’s room for the market to keep rising. It’s still too soon to say this is the beginning of what will be a prolonged rally; there remains an entanglement of resistance lines all around SPX 2020. Nevertheless, this reversal presents an opportunity for the bulls.

Despite 2015 Regulatory Progress, 2016 Brings Additional Concerns for the U.S. Equity Market, Finds TABB Group Research
Press Release via BusinessWire
Although the Securities and Exchange Commission (SEC) and Self-Regulatory Organizations (SROs) in 2015 sought deliberate, empirical reviews of the U.S. equity market structure, multiple rules remain in flux. TABB Group’s latest equities research, “2015 US Equity Market in Review: Objects May Be Further than They Appear,” explores the issues at hand in 2016, along with predictions for how each will unfold.

The Fed Passes the Buck: Blame Oil and China
There are a handful of themes out there on recent market action that are either totally wrong or otherwise highly misleading. For instance, regarding the recent calamity in the capital markets, one especially apparent dichotomy has presented itself as offering two choices as to what, exactly, is causing the painful turbulence.

Investors back hedge funds amid January market swings
Simon Jessop – Reuters
Investor demand to take money out of hedge funds more than halved in January compared with the previous month, data on Friday showed, suggesting that market volatility has made the asset class more attractive.

Yellen Losing Dollar Bet as Its Rise Slows Growth, Inflation
Rich Miller – Bloomberg
Federal Reserve Chair Janet Yellen and her colleagues have so far found themselves wrong-footed by the stronger dollar after they raised interest rates last month for the first time since 2006.

Volatility Update: VIX cools a tad but remains elevated
Georgio Stoev – TradingFloor
Finally a positive ending for equities although it was a tough roe to hoe. Most major indices staged a nice rally late last week, albeit on light volume. On Friday the Nikkei 225 moved up 5% and advanced nearly 3% for the week. European equities followed suit and reversed midweek to finished in the black 3.3%. The US benchmark S&P 500 also made a turnaround, although moderate, closing up 1.3% for the week.

U.S. IPO Market on Track for Slowest Month Since Recession
Alex Barinka – Bloomberg
Zero: That’s how many initial public offerings have started trading on U.S. exchanges so far in 2016. At this rate, January is on track for the slowest month for IPOs since December 2008, when no companies filed after the bankruptcy of Lehman Brothers Inc.
Compare that to January 2015, when 19 companies listed on American exchanges. The busiest month in the past eight years was July 2014, when 54 companies started trading.

FOMC Meeting, A Look Ahead – Dovish Tone Expected
Paul Rosenberg – EconomicCalendar
The two-day FOMC meeting this week is set to begin tomorrow, January 26th. The rate decision and statement release will be on Wednesday. The Fed is expected to keep rates at 0.50% following last month’s first rate increase since ending its last tightening cycle in 2006. They increased at the December meeting by 25 bps from 0.25%, also indicating they would take a very gradual trajectory during the current cycle.


CBOE Makes Majority Investment In Vest Financial
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) and The Vest Financial Group Inc. (Vest) announced today at the Inside ETFs Conference that CBOE has made a majority equity investment in Vest, an investment advisor that provides options-centric products. Previous investors in Vest, including Y Combinator, Payment Ventures, and First Round Capital, have exited.
Vest through its subsidiaries provides options-based investment advisory services through packaged products and develops technology solutions for options-based investments. Vest’s products are protection-oriented, allowing investors to maintain market exposure with a degree of protection against downturns.

Regulation & Enforcement

Deutsche Bank S Korea employee jailed for role in market plunge
Simon Mundy and Song Jung-a – Financial Times
A Seoul court has fined Deutsche Bank’s South Korean operation $1.3m and sentenced an employee to five years in prison, finding that the bank illegally profited from deliberately triggering a 2010 stock market plunge.
On November 11 2010, the Kospi 200 index fell 2.8 per cent in the final 10 minutes of trading — prompting alarm and embarrassment for South Korean authorities on the first day of a G20 summit in Seoul.

Japanese regulator adds more FX, binary options brokers to Warning List
Maria Nikolova – LeapRate
Japan’s Financial Services Agency (FSA) has earlier today updated the lists of online trading companies that target Japanese investors in the face of lacking the necessary authorization to do that.


Why the Current VIX is So Perplexing
Adam Warner – Schaeffer’s Investment Research
Remember those worries about the CBOE Volatility Index (VIX) underperforming in sell-offs last week? Multiply them by 10 after Friday’s action. The market recovered nicely, so we would expect to see some sort of negative action in VIX. But not an absolute tanking. Yet here we are.

Patience Will Pay Off
Bob Lang – CBOE Options Hub
Still trying to stab at that bottom? Not a game I like to play. Frankly, taking a grab at falling knives has proven more dangerous than fun. This market is proving there is very little reason to step in and buy for any length of time longer than few hours, maybe a full day. So many want to get in on this very oversold market. Why? Just look at last August and October, or October 2014 where deep oversold conditions existed. Utilizing patience will serve you well.

The Option Queen Newsletter
Option Queen Newsletter
Cu Rua, the ancient special turtle from Hanoi Vietnam, has died. Is this a bad omen for Wall and Broad? Confucius say be cautious!
Here in the USA there is talk of a possible “Battle of the Billionaires” this coming November. The current rumor is that Michael Bloomberg is considering running as an independent in the fall Presidential election. While Michael Bloomberg was Mayor of NYC he never moved into the city mayoral mansion and stayed in his very comfy NYC home. Got a question Mr. Bloomberg, will you opt out to stay in your home in NYC and not move into the White House?

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