Observations & Insight
The Spread – A SPIKE in Volume
MIAX’s SPIKES options offering saw renewed activity this week. In this week’s episode of “The Spread” we look into that as well as bad big bank trading, $100,000 strike bitcoin options and the strange legal case of former CBOE director Alvin Wilkinson.
Watch the video »
Hot or Not? Corn Traders Get Whipsawed Trying to Predict Weather
Michael Hirtzer – Bloomberg
Late-planted U.S. crop is now vulnerable to heat, dryness
A spring deluge that delayed U.S. planting sparked a big run higher in the corn market this year. Now traders are trying to determine how the crop might be affected by more wild weather.
****SD: From the Associated Press – Earth sizzles with hottest June on record, July may follow.
Market braces for Mexico’s annual oil hedge, trading surges
Devika Krishna Kumar and Stefanie Eschenbacher – Reuters
Trading in crude oil options and futures surged last week as market participants prepared for Mexico’s annual oil hedging program, in which the country buys as much as $1 billion in contracts to protect its oil revenues.
Investors Trading to Prep for the Big One Should’ve Stayed Still
Sarah Ponczek, Bloomberg via Yahoo Finance
Dump all of your equities and load up on derivatives. Hide out in short-term government bonds until the coming storm recedes. Toss your position altogether, yet be prepared to jump back into risk-parity quant strategies if the market keeps grinding higher. Advice like this has been blaring forth for months from Wall Street strategists, positioning clients for the Big One — a comeuppance for bulls following the best first-half rally in two decades. But despite all the intellectual firepower spent in the name of hedging, here’s what actually worked: sitting still.
Hedge funds buy oil as price risks shift to the upside
John Kemp – Reuters
Hedge funds purchased oil last week at the fastest rate for almost a year, as escalating tensions in the Middle East and hopes for a cut in U.S. interest rates outweighed concerns about flagging global growth. Hedge funds and other money managers bought the equivalent of 84 million barrels in the six most important petroleum futures and options contracts in the week to July 16, the largest weekly increase since August 2018.
Sterling dives as markets ramp up bets on no-deal Brexit
Olga Cotaga – Reuters
Sterling fell nearly half a percent on Monday with the outlook turning bleak as traders increased their bets on a no-deal Brexit before the result of the Conservative party’s leadership election.
China’s futures market posts robust growth in H1
China’s futures market reported robust growth in the first half of this year, industrial data showed. The total transaction of the futures markets across the country reached 128.6 trillion yuan (about 18.69 trillion U.S. dollars) during the Jan.-June period, up 33.79 percent year on year, data from the China Futures Association showed.
****SD: “The country’s options market also launched several new varieties including natural rubber, cotton and corn options in H1.”
Louisville financial services firm gaining national attention for BlackSwan strategy
Boris Ladwig – Insider Louisville
A Louisville-based financial services firm is gaining national attention for developing a BlackSwan strategy that helps protect investors from steep losses when markets crash. The strategy places 90% of funds in safe U.S. Treasury bonds and 10% in high-risk, high-reward S&P 500 call options. It was developed by Dan Cupkovic, director of investments at Louisville-based ARGI (an acronym pronounced ar-ghee.)
****SD: I’m a bit confused why this is called a black swan fund when the “home run” longshot reward component is to the upside.
The Future of Liquidity: Risk Transformation
Larry Tabb – TABB Group
The future won’t look like today. Regulation, technology, and process innovation are reshaping the market landscape. Who is Wall Street? Think Goldman Sachs, JP Morgan and Morgan Stanley drive today’s equity markets? Fuhgeddaboudit. Today’s largest trading firms are Citadel Securities, GTS, HRT, IMC, Susquehanna/G1X, and Virtu.
TradeStation Expands its Suite of Advanced Trading Offerings with FuturesPlus
TradeStation, a Monex Group company and award-winning online broker-dealer and futures commission merchant, has unveiled TradeStation FuturesPlus, powered by Trading Technologies International, Inc. (TT). The new trading platform provides traders access to premium options-on-futures tools and robust visualization and analysis capabilities, as well as the fast and reliable execution to which TradeStation’s traders have become accustomed.
Equinix Opens Eleventh Data Center in Tokyo – Its Largest to Date in Japan
PRNewswire via Yahoo
Equinix, Inc. (EQIX), the global interconnection and data center company, today announced the opening of its eleventh International Business Exchange (IBX) data center in Tokyo, Japan, named TY11, as part of the company’s ongoing commitment to expanding its global footprint. The $70 million first phase of TY11 provides a capacity of 950 cabinets and colocation space of approximately 39,800 square feet (approximately 3,700 square meters). Upon completion of the planned future phases, the facility is expected to provide a total capacity of more than 3,500 cabinets and colocation space of more than 153,800 square feet (approximately 14,300 square meters), becoming the largest IBX data center to date in Japan.
Crosslake Fibre Selects BSO Networks As Exclusive Commercial Partner For Low Latency Services On New Lake Ontario Route
Crosslake Fibre, a developer of unique subsea and terrestrial fibre networks, is pleased to announce that they have chosen BSO Networks (BSO), an award-winning Ethernet network, cloud, and hosting provider, as its exclusive partner to deliver Crosslake’s Velocity – a new ultra-low latency network service between Toronto and New Jersey for the financial services market.
Regulation & Enforcement
CFTC provides guidance and no-action relief for FCM margin practices
Lene Powell, J.D. – Wolters Kluwer
The CFTC has issued time-limited no-action relief regarding margin for separate accounts by futures commission merchants (FCMs). The relief allows derivatives clearing organizations (DCOs) to allow FCMs to treat separate accounts for the same beneficial owner separately for margin purposes, including the withdrawal of excess margin, provided that specified risk management conditions are met. The relief was accompanied by an advisory confirming that FCMs must not limit recourse to recover shortfalls (CFTC Letter No. 19-17, July 10, 2019).
The next 100 days could set the market’s course for a year. One top Wall Street strategist says these trades can help you profit from the twists and turns.
Marley Jay – Business Insider Prime (SUBSCRIPTION)
Julian Emanuel, chief equity and derivatives strategist for BTIG, says a string of critical events in the next 100 days will set the course for stocks, interest rates, and currencies for the following year. With stocks high, volatility low, and so many important developments to come, he’s picked three options trades that could help investors profit no matter how events play out.
Emanuel says events including trade negotiations and debt ceiling talks could help boost the S&P 500 to a record 3,200 or knock it down to its 200-day moving average of 2,782.
****SD: His recommendations are buying December XLF $29 calls and September XLY $122 strike puts.
Credit Suisse Clients Anticipate Twin Drop in Stocks, Bonds
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
The top current talking point for Credit Suisse Group AG clients is the simultaneous rally in equities and bonds in recent months that suggests two potentially incompatible narratives, according to strategist Mandy Xu. In the stock market, optimism about Federal Reserve interest-rate cuts has sent prices higher. While in bonds, the narrative is one of concern about a lasting economic downturn, she said.
Bridgewater fund caught off-guard by market bounce
Ortenca Aliaj and Robin Wigglesworth – Financial Times (SUBSCRIPTION)
Bridgewater’s flagship fund suffered one of its worst first-half performances in two decades this year after being wrong-footed by rebounding markets.
The $150bn hedge fund group founded by Ray Dalio saw its Pure Alpha fund, which tries to surf macroeconomic trends, lose 4.9 per cent in the six months to June as global equity and bond markets bounced on hopes of looser monetary policy.
Deutsche Bank’s CEO fretted about ‘mercenary,’ ‘buccaneering’ traders ruining the brand before saying ‘The party is over!’
Yusuf Khan – Markets Insider
In a chronicle of Deutsche Bank’s demise, leading to an overhaul that will see more than 18,000 jobs gone, the Financial Times said CEO Christian Sewing felt that the bank had given away it’s “heritage” over the past two decades.
The bank became personified instead by risk-takers like Anshu Jain, who, the newspaper said. Those traders were more concerned with pay than with the bank’s long-term health or German roots.
Danger Lurks for Stock Managers Chained to Crowded Trades
Lu Wang – Bloomberg (SUBSCRIPTION)
BofA identifies three mantras that may pose danger for funds; Fund performance worsening as their ignored stocks rebound
It’s an old saw of professional money management that nobody gets fired for buying IBM. But in 2019, the perils of groupthink may be creating their own kind of career risk for stock investors. So says Bank of America, highlighting dangers created when droves of funds flock to the same stocks regardless of cost. In one extreme example tied to the vogue for momentum trading, shares with the fastest price appreciation over the past 12 months are trading at valuations that are almost 25% higher than normal, the bank’s data showed.
Citadel Puts Clout Behind Effort to Safeguard U.S. Treasuries
Liz McCormick – Bloomberg (SUBSCRIPTION)
Ken Griffin’s $32 billion hedge fund is backing efforts to make the Treasury market safer and sounder through the backstop of a central clearinghouse.
Citadel last month became the first firm to clear both a Treasury and repurchase agreement through a new Depository Trust & Clearing Corp. platform. In March, DTCC changed its rules so more companies like Citadel that aren’t members of its clearinghouse can get trades processed there by going through a member firm.