Observations & Insight

EDITOR’S NOTE: JLN Options is happy to have Henry Schwartz, President of Trade Alert, as a guest editor this week.
Henry Schwartz

Building Blocks
Henry Schwartz – Trade Alert

The flip side of smart-routed sweeps we discussed yesterday is high-touch institutional block trading. While fragmentation and automation are primary features of our market at the exchange level, hedge funds and pension managers care very little about maker-taker fee models and rebates – they simply want efficient executions and a smooth trading experience.

(Click for larger image)

Today’s chart breaks total single-stock option volume by order size. The top line is 10 lots and smaller, while the bold grey line is the largest block, above 5000 contracts. The spike in large-blocks in late 2015 is related to synthetics trading ahead of the GE spinoff of Synchrony Financial. Overall the data suggests a surprisingly stable level of large-block flow over the past two years, which is good news for the community of trading desks and brokers who service this segment of the business.

Lead Stories

Multi-Asset Trading Now in Vogue for the Buy Side?
Ivy Schmerken – Traders News
Demand for multi-asset trading on the buy-side has “renewed” the importance of the execution management system’s role on buy-side trading desks in the battle for screen-based real estate. However, listed derivatives centric trading platforms may no longer be the solution that clients are seeking, according to a recent Aite Group’s report, “Buy-Side Trading Technology: Multi-Asset EMSs’ Listed Derivatives Functionalities.”

***HS: I agree the days of siloed experience are nearly done.

Exploring the Rare Action in the S&P 500 Put / Call Ratio
Russell Rhoads – CBOE Options Hub
Yesterday, astute market observer and Options Institute Instructor Kevin Davitt pointed out that the SPX Put Call Ratio had closed under 1.00 three days this month (Dec 7th, Dec 8th, and Dec 13th). I knew this was a rarity, but didn’t realized how rare it was for this ratio to close below 1.00. In fact, it has only happened sixteen times since July 2010 (which is how far back the data goes back on CBOE’s website). Five of those sixteen occurrences happened in 2016 – twice in July and the recent three occurrences.

***HS: Extraordinarily bullish sentiment in terms of flat skew, record call volume, and P/C ratio has some traders wondering if this is contrarian opportunity.

Bets surge on WTI playing catch-up with Brent price
Gregory Meyer in New York – Financial Times
Big bets on the convergence of two leading crude benchmarks this week have left oil traders scrambling to decipher the meaning, breathing life into an otherwise tiny corner of energy derivatives markets. Volumes have surged in options that will pay out if the price of West Texas Intermediate crude, the US benchmark, catches up with international counterpart Brent crude two years from now. Industry executives contacted by the Financial Times did not know who had bought the options but guessed that the impetus was a possible change in US tax policy.

S&P 500 Overbought, Not Overwhelmed as Bulls Shrug Off Charts
Joseph Ciolli – Bloomberg
Spread between S&P 500 and 200-DMA widest since July 2014; Multiple measures of market worry stay low relative to history
The S&P 500 Index hasn’t been this overextended in 2 1/2 years, according to one technical measure, yet investors are showing few signs of worry. Hedging costs are near the lowest since July 2014, the options market has seen record call volume, and short interest sits below its one-year average.

Exchanges and Clearing

ASX Says Options-Trading Issue Won’t Be Fixed Until Friday
Vivek Shankar – Bloomberg
Disruption on Australian exchange follows outage in September; Trading halted amid U.S. Federal Reserve rate decision
Australia’s ASX Ltd., which had its biggest disruption since 2011 in September, said some single-session options can’t be traded because of a manual error. Trading, first set to resume Thursday evening, won’t be possible until 5:10 p.m. Friday, the Sydney-based exchange said on its website. Overnight and intra-day options on ASX 3-year and 10-year Treasury bond futures can’t change hands for the Dec. 15 and Dec. 16 trade dates.

Miami International Holdings Receives Approval from SEC to Launch MIAX PEARL; Targets February 6, 2017 Launch
Press Release
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options Exchange (MIAX Options), today announced that it has received approval from the Securities and Exchange Commission (SEC) to launch its second options exchange, MIAX PEARL. MIH is targeting a launch date of Monday, February 6, 2017 for MIAX PEARL.

***HS: MIAX currently captures about 6% of the average daily single-stock option volume and has an impressive focus on technology which tends to attract the high-level participants.

Euro clearing may move from London but only after Brexit: source
Francesco Guarascio – Reuters
The European Union is considering legislative measures to move London’s euro-denominated clearing business to the euro zone, but the changes would apply only after Britain leaves the bloc, an EU official told Reuters on Thursday.

CME Year 2016 In Review: Impressive Year Despite Industry-wide Decline In Trading Volumes
CME Group has done reasonably well this year so far. Its revenues grew nearly 14% in the first 3 quarters of 2016 and the stock price has surged 35% since the beginning of the year. This can be attributed to the company’s continued efforts in expanding its global footprint and its diverse product line to suit the investors’ demand. In spite of an industry-wide decline in trading volumes, due to unfavorable macro-conditions and investors looking for safer investment options, the company has managed to grow its trading volumes by 8% year to date till October, due to its multiple avenues of investment.

LSE and Deutsche Boerse merger edges closer as EC’s concerns ‘narrow’
Hayley McDowell – The Trade
The European Commission’s objections over the proposed merger of the London Stock Exchange (LSE) and Deutsche Boerse have narrowed, according to a statement from both exchange groups.

ICE Clear U.S. Recognized as Third-Country Central Counterparty Under EMIR
Intercontinental Exchange
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that ICE Clear U.S. was recognized by the European Securities and Markets Authority (ESMA) as a third-country central counterparty in accordance with the European Markets Infrastructure Regulation (EMIR).


Data Debate: Speed, Quality, Fairness, and Cost
John D’Antona Jr. – Traders News
It’s all about data. Since Julius Reuter’s pigeons first flew stock prices between Aachen and Brussels in 1850 until today’s near light-speed transmission, the issues of data quality, speed, fairness, and cost have been at the forefront of trading. We all need it. We all want more of it. And it comes at us lighting fast – sometimes in nanosecond bursts – 24 hours a day, 7 days a week and 365 days a year.

Embracing the Machines: Semi-Automation Gains Traction on Buy Side
RJ Weiss, ITG – TABB Forum
As the buy side does more with less, more routine order flow is being delegated to automated channels—freeing traders to focus on more complicated transactions. Now that the “machines” have proven their worth, they are being assigned more complex trading tasks. The remaining challenge for the buy side is finding a balance between trade ideas that require expert human intervention and orders that can be outsourced to trading systems for execution.

5 Key Questions to Ask When Upgrading Your Valuation and Risk System
Rob Garfield, FINCAD – TABB Forum
In this low interest-rate environment, many buy-side firms are looking to improve investment returns with more sophisticated trading strategies that call for modern valuation and risk systems. But, with numerous options in the marketplace, how do you know which system is best for your firm?

OptionsCity Spreads Holiday Cheer
We all know how stressful the holiday season can be but having a loved one in the hospital can make it that much more draining. To help these families in need, we at OptionsCity decided to give back to the community this year by holding an office wide Holiday Gift Drive for the Ann & Robert H. Lurie Children’s Hospital.

TORA Launches Charting Solution Powered by ChartIQ
TORA, provider of the industry’s most advanced investment management platform, today announced the launch of a sophisticated new multi-asset charting technology powered by ChartIQ.

Calypso Brings in Olivier Vinciguerra as its Managing Director of Sales
Finance Magnates
Calypso Technology Inc., a provider of capital markets and investment management software, has announced its newest senior hire, adding Olivier Vinciguerra as its Managing Director of Sales in Northern Europe, according to a company statement.

Regulation & Enforcement

EU publishes non-cleared margin technical standards
Julie Aelbrecht – Futures & Options World
The new margin regime risks increasing collateral failures, experts have argued
The European Union published on Thursday the long-awaited technical standards on margin rules for uncleared derivatives in the Official Journal. With the publication, the rules will now come into force on January 4 2017 which means both initial margin and variation margin will apply to transactions between large “phase one” financial players from February 4.

Democrats to U.S. commodities regulator: finish Dodd-Frank rules
Lisa Lambert – Reuters
Influential Senate Democrats on Wednesday blasted the U.S. Commodity Futures Trading Commission for putting off a final rule to limit positions that traders can hold in commodity markets and pressed its outgoing chairman to finish up post-financial crisis reforms.

CCP recovery role for MEP Swinburne
Paul Walsh – The Trade
The economic and monetary affairs committee of the European Parliament (ECON) has confirmed Kay Swinburne MEP as co-rapporteur for CCP (central counterparty) recovery and resolution.


OptionsLab webinar: Regularly identifying opportunities — #SaxoStrats
Join Georgio Stoev, Futures and Listed Options product manager at Saxo Markets, and guest Nick Howard, Bantix CEO and former CME floor trader, for this latest edition. In this webinar, they introduce the QuikMarket Dashboard and show how to identify opportunities among different products.


Chicago aldermen and corruption cases: Hall of shame
Chicago Tribune
This week’s indictment of South Side Ald. Willie Cochran adds a new name to a long list: Chicago politicians charged with crimes. Cochran was charged with 15 counts of wire fraud, federal program bribery and extortion. Chicago aldermen have been frequent law-enforcement targets, with dozens convicted since 1972.

****SD: Absolutely no relation to options. But Chicago is a hedging hub — this is indicative of our fine city’s political track record. Heckuva rogue’s gallery. Keep in mind this list is just convictions since 1972.

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