Lead Stories

New China options to pave way for open commodities trading
Lucy Hornby – Financial Times
As China prepares to introduce its first options contracts for commodities trading, the head of one of the country’s leading bourses for raw materials has shrugged off fears that the move will add to the extreme volatility in commodities seen in 2016. “We [in China] are behind international markets because we have too few tools, too few products,” says Li Zhengqiang, chairman of the Dalian Commodity Exchange, adding that introducing more products and new instruments like options will help hedge risk, not add to it.

****SD: India and China opening up commodity options will be a volatile process unto itself. Indian exchanges and SEBI are already facing some hiccups in figuring out the best way to configure contract specs (among other logistical hurdles). More on that in our exchanges section. Article from China Economic Net – China’s first exchange-traded agricultural product option due to launch

Amsterdamtrader stops
Maarten Mosselman – Amsterdamtrader
I’ve decided to stop with Amsterdamtrader. After exactly eight years and 405 posts, I’m calling it a day. It was a hell of a ride, but I’m getting out on the high. Reporting on the earnings of trading outfits, football tournaments, DeGiro and other returning events – it is time to move on.

****SD: Well, this is sad. It was a fun blog. That being said, the same part of me that likes occasional TMZ content loves a secret identity reveal. FOW has a take on the closing of the blog here.

“Open outcry” is in retreat but futures and options trading-volumes surge
The Economist
Aa a new trading year began this week in the art-deco tower that houses the Chicago Board of Trade, big men were clustered around pits dealing in futures and options tied to various commodities. Their approach dates back to the building’s opening in 1930, and was once familiar in cities throughout America. But after decades of attrition, on December 30th the CME Group (named after the Chicago Mercantile Exchange) closed the “open outcry” trading pits that it operated in New York. In America, Chicago’s hue and cry has become unique.

VIX and Stocks Rise Together
Gunjan Banerji – WSJ
The historical relationship between Wall Street’s “fear gauge” and U.S. equities faltered last month, in a sign that investors are demanding protection against wild swings in stocks as the market flirts with all-time highs. The CBOE Volatility Index, or VIX, is derived from the prices of S&P 500 index options and is a barometer of expectations for stock-market turbulence. The correlation between the VIX and the benchmark S&P 500 typically is negative, meaning when stocks slide, the VIX tends to rise and vice versa.

Euro options hint at cooling of French election worries
Patrick Graham – Reuters
If you believe the past fortnight’s shift in the pricing of currency market derivatives, bankers’ concerns that Marine Le Pen may win French presidential elections in May and send another political shockwave through the euro zone may be easing.

Five Volatility Market Lessons from 2016
Russell Rhoads – S&P VIX Views
To be successful in any field we all need to keep learning. My job involves staying on top of all things index and volatility related which means I am always gaining new insights about the markets. Looking back at 2016, VIX settled into lower levels after starting the year hitting the mid-20’s as the stock market sold off. Despite the relatively tame behavior from VIX, there were some lessons to be learned last year.

Investors all ears as Trump set to break silence
Hugh Lawson – Reuters
U.S. and Chinese data and an expected news conference by U.S. President-elect Donald Trump in the coming week may shed some light on the state of the world’s two biggest economies – and the outlook for relations between them. Trump, who takes office on Jan. 20, has said he will hold a news conference on Wednesday. It will be his first since winning the November election, although he has been outspoken on Twitter.

Alternative asset managers have been beaten down, their time is now: Goldman
Mark Melin – ValueWalk
In looking at 2017 stocks, a Goldman Sachs report says bet on market volatility and those who profit off it. In a research report out January 4, the investment bank’s equity research team likes exchange stocks, even with those issues at historically high valuations, and likes alternative investment firms, at low price earnings multiples, based in part on the same core investment thesis.

****SD: I love how you can trade options on an options exchange’s stock on that options exchange. And people call “Fight Club” meta. Pfft. Among other tidbits from the article: “‘Most names in the space (CME, CBOE, BATS, and VIRT) generate almost 100% of earnings in the United States and as 35%+ effective tax payers, could benefit the most in our coverage from a potential reduction in corporate tax rates,’ they note.”

Wall Street Is Starting to Get Nervous About All the Money Pouring Into U.S. Stocks
Julie Verhage and Sid Verma – Bloomberg
Everything changed in November. After President-elect Donald Trump won the election, markets began a decisive shift in essentially all asset classes. Suddenly, everything from bank stocks to emerging-market bonds staged decisive price swings, driven by a stronger dollar, an increase in U.S. growth expectations, worries over the prospect of a more protectionist Trump-led administration and a steeper U.S. yield curve.

Exchanges and Clearing

Commodity exchanges seek clearances for agri-commodity options
Commodity bourses in India, Multi Commodity Exchange (MCX) and National Commodity Exchange (NCDEX) are looking forward for more clarity on options regulation from SEBI, before the budget announcement.

CBOE’s Historical Data Subscription Service Migrating to Livevol
Chicago Board Options Exchange (CBOE) announced that its historical market data service formerly operated by Market Data Express (MDX) will migrate to CBOE Livevol Data Shop today, January 6.

Increased Volatility In Derivatives Market Propels Trading Volumes For CME In December And 2016
Trefis via Nasdaq
CME Group (CME) has seen massive growth in trading volumes across most of its asset lines through the year. The daily trading volumes for December, the fourth quarter and full year grew year on year by 15%, 24% and 12%, respectively. The company’s revenues grew nearly 14% in the first 3 quarters of 2016 and the stock price has surged 35% since the beginning of 2016. Increased volatility in derivatives market across multiple asset classes (including oil, metal and interest rates) have continued to attract investors’ attention, thereby promoting the trading commissions for the exchange.

Hong Kong beats rivals for December trading volumes
Merle Crichton – FOW
Hong Kong exchange said its equity derivatives segment rose significantly
Hong Kong Exchanges and Clearing said strong equity derivatives trading drove its December volume up a fifth, making the Asian exchange the top performing international market last month. HKEx said it traded last month an average daily volume (ADV) of 728,000 futures and options contracts, up nearly 20% on the 611,000 lots handled in December 2015.

Montreal Exchange Celebrates Record Year in 2016
Activity on Canada’s derivatives exchange hits new highs at year-end. TMX Group today announced that Montreal Exchange (MX) set a new total volume record in 2016 with 91.9 million contracts traded, smashing the previous record of 76.7 million contracts established in 2015. A surge in activity in several key MX products contributed to the 20% gain in volume year over year.

Margin Rules to Boost Futures Volumes
Shanny Basar – Markets Media
Eurex, Deutsche Börse’s derivatives exchange, said there has been significant interest in the total return futures launched last month as new margin regulations are likely to shift trading from the over-the-counter market onto exchanges.

Regulation & Enforcement

Firm founded by a Trump nominee violated trading rules
Leah McGrath Goodman – Newsweek
Virtu Financial, the giant Wall Street high-frequency trading firm run by President-elect Donald Trump’s nominee for secretary of the Army, Vincent Viola, has a record of violating the rules of the U.S. Securities Exchange Act, the Nasdaq Stock Market, the New York Stock Exchange and other exchanges that extends back nearly as long as the firm has been in business, according to U.S. market regulatory filings reviewed by Newsweek.

FINRA details 2017 examination priorities
Joe Mont – Compliance Week
The Financial Industry Regulatory Authority has released its annual “Regulatory and Examination Priorities Letter,” a rundown of areas it plans to review in 2017 exams.


Lack of blockchain talent hindering implementation for 40% of firms
Hayley McDowell – The Trade
A major hindrance to blockchain’s application across businesses is a lack of talent capable of implementing it, according to a recent survey.


Amid Raucous Retail Rout Stocks Stylishly Saunter
Steven M. Sears – Barron’s
An extraordinarily unusual divergence occurred in early Thursday trading in the stock market. The retail sector, which tends to be a market leader, was getting slammed, suggesting that stock prices should be sharply lower. Yet, that wasn’t happening.

****SD: This isn’t really an options-heavy recap piece from Mr. Sears, but I really wanted to applaud the alliterative awesomeness of his title.

Golden Crosses and Death Crosses as Technical Indicators
Celeste Taylor – Schaeffer’s Research
Investors are constantly hunting trends, signs, and signals that could help predict a stock or index’s future movement. “Golden crosses” and “death crosses” are just two of the technical indicators utilized by traders seeking an edge.

Follow the Bouncing…Arrow
Meredith Kelley Zidek – CBOE Options Hub
Yesterday, January 4th, in order to start out the new year with some degree of nail-biting (figuratively) drama, I hatched a little plan involving some short shares of UVXY. The first thing I did was to buy to close 400 shares, reducing the 1,800 I had opened the previous day to 1,400 in quantity. My plan was to re-short those 400 shares later in the day or on some upcoming day, along with 200 more which I envisioned as a day trade.

Earnings Next Week 1/9 – 1/13
CBOE Options Hub

****SD: It’s JPM, BAC and WFC.


Winning With Options Volatility
Zacks via Nasdaq
There’s been a lot of talk about volatility in stocks lately. But today, I want to focus on options volatility and what it means for the options investor. So let’s start off with a definition:


Will OPEC Deliver Its Output Cut Deal? Here’s How We’ll Know
Grant Smith and Mark Shenk – Bloomberg
The promise of production cuts from OPEC and its partners sent oil rallying in 2016. Now traders want proof they’re delivering on those vows. It won’t come easy. The challenge: Building a coherent picture from the morass of data that emerges at each step along the process, from the wellheads where the oil is produced, to the tankers that carry it, and the depots that store it.

Millennials Think the Trump Economy Is Going to Implode
Polly Mosendz – Bloomberg
Ah, 2017. Sweet relief from the turbulent 365 days prior, which was marked by a contentious election, a surprise European Union departure and countless celebrity deaths. Or not. While the new year marks a fresh start for many, millennials aren’t so optimistic. In fact, this generation is the only one to say they’re feeling worse, financially, about 2017 than 2016.

As Trump targets Toyota over Mexico, Nissan faces bigger risk
Naomi Tajitsu – Reuters
U.S. President-elect Donald Trump has threatened Toyota Motor Corp (7203.T) over its Mexican-built cars, but the biggest risk from a punitive tariff would be for its compatriot Nissan Motor Co (7201.T), the largest automaker operating in the country.

****SD: I follow the news avidly, obviously, and yet I’m already struggling to keep track of all of Donald Trump’s beefs with people and institutions. I watched a documentary about him from the ’90s the other day – that only muddled the picture more as it added in a whole cast of the characters from the era of his first two marriages. Anybody remember/know how he sued a Pulitzer-prize winning architect critic for the Chicago Tribune, Paul Gapp, over a bad review in 1984? (For $500 million no less.) And Bloomberg has this – Gross Says Trump Targeting Companies Reminiscent of Mussolini

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