Never in the History of the Euro Has Volatility Been This Low; Hong Kong Stock’s 78% Tumble Adds to Wave of Sudden Crashes

Nov 27, 2019

Observations & Insight

EDITOR’S NOTE: JLN Options will not be published Thursday or Friday. Have a great Thanksgiving holiday (if you are in the US)!

Tony Saliba – Open Outcry Traders History Project

Tony Saliba was interviewed by John Lothian News for the MarketsWiki Education Open Outcry Traders History Project.

Saliba is a trader, exchange member and financial industry technology and education executive who is the founder of Saliba Venture Management, LLC. Saliba has traded on the CBOE, CBOT, CME and was the only options trader profiled in Jack Schwager’s book “Market Wizards,” about unusually profitable traders. He had a storied career as a trader on the floor of the CBOE and became a serial entrepreneur in the trading technology and education sectors of derivatives trading.

Watch the video »

Lead Stories

Never in the History of the Euro Has Volatility Been This Low
Vassilis Karamanis – Bloomberg
It has never been this calm in the euro-dollar options market and it’s starting to look like a structural shift toward persistent low volatility.
There were record lows for one- and three-month volatility in the common currency Wednesday, following similar moves in longer tenors at previous sessions. While the expected calm of Christmas holidays may explain the move over the one-month horizon, the trend runs further out and may be becoming the new norm.

Hong Kong Stock’s 78% Tumble Adds to Wave of Sudden Crashes
Bloomberg News
A third Hong Kong stock in less than a week lost most of its value in a sudden one-day plunge, underscoring concern that the $5.2 trillion market has become a breeding ground for wild volatility.
China First Capital Group, an investment company that focuses on financial and education services, plunged as much as 78% on Wednesday before trading was suspended. Virscend Education Co., which is partly owned by First Capital, also lost as much as 78% before paring its decline to close 33% lower. The moves wiped out a combined $1.2 billion in shareholder value.

Liquidity in ESG derivatives: Q&A with Susquehanna
With the introduction of the STOXX Europe 600 ESG-X options, Eurex further extended its ESG derivatives suite and is the first exchange to offer sustainable futures and options on leading European benchmarks. Susquehanna, a global quantitative trading firm, has been providing liquidity since the launch of the ESG futures and will now offer liquidity in the STOXX Europe 600 ESG-X Index Options (OSEG) as well. Eurex spoke with Daniel Mannion, Derivatives Sales Trader at Susquehanna International Group, on the role of providing liquidity in the ESG futures & options market.

Inside Volatility Trading: November 26, 2019
Kevin Davitt – Cboe blog
Arguably the finest American holiday is upon us. Our Day of Thanksgiving traces its roots to the earliest Puritan settlers in the New World. The religious separatists who sailed across the Atlantic in the autumn of 1620 were greeted by an especially cruel winter during which half the colonists perished. In the Spring of 1621, Squanto, a member of the Pawtuxet tribe, is said to have taught the struggling settlers how to grow corn, catch native fish, drain sap from the nearby maple trees, and establish a reciprocal relationship with the natives.

Q3 Volatility Spike Propels Futures Toward Eighth Consecutive Record Year
Russell Rhoads – TABB Forum
A spike in US market volatility in the third quarter of 2019 pushed futures volumes higher compared to the second quarter, putting the industry on track for an eighth consecutive record year. TABB Group head of derivatives research Russell Rhoads takes a quick look at the Q3 futures and options-on-futures trading activity and TABB’s revised annual projections.

Goldman Sees U.S. Election Concerns Flash in Options Market
Joanna Ossinger – Bloomberg
The U.S. options market is showing increasing investor concern about a stock-market sell-off next year, driven at least partially by the looming presidential election, according to Goldman Sachs Group Inc. “As investors consider the outcome of the election, the distribution of S&P 500 levels implied by the options market at year-end is wide,” strategists including David Kostin wrote in a note Monday. While options pricing currently implies a 22% probability the S&P 500 ends next year above 3,400 — an 8% gain — it also shows a 28% chance the index finishes below 2,600, a 17% slump, they said.

Exchanges and Clearing

OCC: Moving Clearing, Data, and Risk Applications to the Cloud
David Hoag – OCC
In January, OCC announced the launch of our Renaissance Initiative, a multi-year, $100 million-plus initiative to comprehensively redevelop and modernize our technology infrastructure, including risk management, clearing and data systems. When this work is completed, OCC will achieve enhanced resiliency, an improved security and compliance posture, and more effective and efficient operations. It also will allow OCC to function as a more nimble organization, delivering business capabilities to better serve the users of the U.S. equity derivatives market.

Regulation & Enforcement

MSCI pressures Chinese regulators over market access reforms
Financial Times
Index provider MSCI increased its pressure on Chinese regulators to push through sensitive market access reforms on Wednesday, stating it will not include more Chinese stocks until its concerns over hedging and other problems are addressed.
The inclusion of so-called A shares into MSCI’s flagship emerging markets index in 2018 was expected to bring in more than $100bn in foreign investments this year. MSCI has gradually increased their weighting throughout 2019.

Notice Of Disciplinary Action: Goldman Sachs & Co. LLC
CME Group
Pursuant to an offer of settlement in which Goldman Sachs & Co. LLC (“Goldman”) neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on November 25, 2019, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that on July 9, 2018, Goldman executed an Exchange for Related Position (“EFRP”) package in the Ten -Year Treasury Note futures and options markets where the related position components of the Exchange for Risk (“EFR”) transaction did not have a reasonable degree of price correlation and did not have opposing market bias to the Exchange component.


tastytrade Shows We Were Thankful For in 2019
We may be hard at work planning some exciting new programming for 2020 (and beyond!), but that doesn’t mean we can’t stop and take the time to reflect on the exciting new shows we launched this year!
Where do I start?: Untrainables
Teamwork makes the dream work! Tom and Lindsay both consider themselves “untrainable,” so they will work together to share their knowledge and help each other out. Tune in as Tom teaches Lindsay how to trade, and Lindsay teaches Tom basic life skills.

Beware stock-market ‘FOMO’ as Wall Street churns out records, says long-term bull
William Watts – MarketWatch
With the U.S. stock market churning out a string of record highs, it would be no surprise for investors with some money on the sidelines might start feeling what people nowadays call “FOMO” — or fear of missing out.
But now is probably not the right time to get tactically aggressive, said one analyst who called earlier this month for a market pullback but also happens to be bullish on the long-term outlook for equities.

Risk Awards 2020: The winners Staff
Life is getting a little harder for global investment banks. In a market prepped for the end of the economic cycle, spreads are thin and trading perilous. To boost revenues, dealers must innovate and carve out new markets. This year’s Risk Awards offer plentiful examples of firms doing just that. Goldman Sachs – our interest rate derivatives house of the year – established itself as the go-to dealer for swaps linked to the US dollar Libor replacement, the secured overnight financing rate, or SOFR.

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