An Obscure Oil Bet Takes Off; The VIX Is at a Two-Year Low, But Volatility Trading Is Surging; A volatile calm – the paradox of 2016 financial markets

Dec 22, 2016

Observations & Insight

JLN Options Publishing Schedule
In light of the upcoming holiday, JLN Options will not be publishing Friday, December 23, and Monday, December 26.

Have a safe and joyous weekend everyone!

Best wishes,
The JLN Team

Lead Stories

An Obscure Oil Bet Takes Off
Gunjan Banerji and Alison Sider – WSJ
Traders often turn to plain-vanilla options on oil futures to wager on crude prices, which recently have been whipsawed by oil producers’ efforts to curtail global output.
But a less-popular approach is attracting attention.
These options allow traders to bet on the price gap itself. On Wednesday, that gap was $1.97. The benchmark U.S. oil contract closed at $52.49 a barrel, while Brent crude, the global benchmark, finished at $54.46.

The VIX Is at a Two-Year Low, But Volatility Trading Is Surging
The VIX is trading near depths last seen in 2014, but that doesn’t mean the equity-volatility market is laying low.

A volatile calm – the paradox of 2016 financial markets
Jamie McGeever and Vikram Subhedar – Reuters
Traditional measures of volatility at historic lows and Wall Street stocks at new record highs went hand-in-hand in 2016 with traders fretting about bouts of wild stock-price swings and currency flash-crashes. The past year has been nothing if not paradoxical for financial markets – a landscape that will probably persist in 2017.

U.S. consumer spending slows; business investment perking up
Lucia Mutikani – Reuters
U.S. consumer spending increased modestly in November as household incomes failed to rise for the first time in nine months, suggesting the economy slowed in the fourth quarter after growing briskly in the prior period.
But the economy remains on solid footing, with other data on Thursday showing new orders for U.S.-manufactured capital goods rising last month amid demand for machinery and primary metals, indicating that some of the oil-related drag on business spending was fading.

VIX tumbles below 11 for first time since August 2015
The VIX, Wall Street’s so-called fear gauge, crashed to a 16-month low on Wednesday, with the Dow remaining within striking distance of the psychologically important milestone of 20,000 mark in light pre-holiday trade.

The decline in global forex trading
Peter Guy -South China Morning Post
Few surveys chart financial history and the changing structure and activities in financial markets as well as the Bank for International Settlements’ Triennial Central Bank Survey of foreign exchange and over-the-counter derivatives.
The 2016 Triennial survey covers the period 1997 to 2016. More than 1,200 financial institutions in 52 countries were polled and interviewed.
According to the survey, global forex trading fell for the first time since 2001.


BXRD Index Is Up 9% since Nov. 8 Election, as CBOE Benchmark Indexes Hit All-time Highs
Matt Moran – CBOE Options Hub
More than fifteen CBOE strategy benchmark indexes (including BXD, BXM, BXMC, BXMD, BXMW, BXR, BXRC, BXRD, BXY, CLL, CLLR, CLLZ, CMBO, PUT, PUTR, RXM, VPD, VPN, and WPUT) hit all-time daily closing highs on December 20.

Deutsche Börse Announces Key Appointments To Eurex Product Development
Press Release
Deutsche Börse’s award-winning Eurex derivatives business has announced the appointment of Lee Bartholomew and Zubin Ramdarshan to key product development roles. Both join the company in the middle of an industry transformation that challenges market infrastructure providers to constantly drive innovation and foster technical excellence in order to best serve the market’s needs.

Regulation & Enforcement

Billionaire Carl Icahn To Be Trump’s Adviser On Regulatory Overhaul
Carl Icahn, the billionaire investor who has been laying siege to corporate boards for decades, will be named special adviser to Donald Trump on overhauling regulations, according to a person familiar with the matter.

Finra slaps 12 firms with $14.4 million fine for cybersecurity issues
Greg Iacurci – Investment News
Finra handed down $14.4 million in fines to a dozen firms on Wednesday for breaches related to the retention of broker-dealers’ and customers’ electronic records, which the brokerage industry watchdog claims made the firms vulnerable to cybersecurity threats.

N.Y. Pay-to-Play Plot Fueled by Bribes, U.S. Says
Bob Van Voris and Chris Dolmetsch – Bloomberg
When Navnoor Kang interviewed for a job to manage fixed-income investments for New York state’s pension fund, he lied about why he was fired by his former employer — failing to disclose that he accepted concert tickets and other gifts from clients, authorities said.

Goldman Sachs pays $120 million to settle CFTC case on alleged ISDAFIX rigging
Sarah N. Lynch – Reuters
Goldman Sachs will pay a $120 million (GBP97 million) penalty to resolve civil charges that it attempted to manipulate a global benchmark for interest rate products known on Wall Street as “ISDAFIX,” U.S. derivatives regulators said Wednesday.


Product Review: Tradologic’s Binary Options Exchange BinarEx
Victor Golovtchenko – Finance Magnates
The evolution of binary options into exchange trading is gathering speed. With regulatory pressure piling up, companies need to find adequate ways to address the challenges for the industry.
Tradologic is one of the first technology providers to move trading onto an exchange model with its product BinarEx. The step is big and bold, however the transition to a whole new product will hinge on end-users understanding it. In order to make the transition smooth for existing clients, brokers who are offering the product will need to commit enough resources for education.


What Does Wall Street’s “Fear Index” Tell Investors About 2017?
Johanna Bennett – Barron’s
Wall Street’s fear index shows that investors are feeling comfortable right now. But will volatility return as the calendar turns to 2017?
The CBOE Volatility Index (VIX) fell to its lowest intraday level in more than a year yesterday morning, hitting 10.93, a sign that investors aren’t pricing much risk into the market. Apparently, the index’s recent leg down indicates a lack of market moving events on the horizon.

Holiday Volumes as DJIA Tests 20K
Jon “DRJ” Najarian – CBOE Options Hub
Both equities and options volumes are down dramatically as we head into year end.
The S&P 500 volumes traded were down 26% Monday, 30% Tuesday and 38% Wednesday versus the prior 10 day average.
Options volumes have also been hit, but not as hard.
Total options traded and cleared Monday were down 16% from the prior 10 days. Volumes were down 18% Tuesday and 28% yesterday.

Oil and metals outlook emboldens commodity bulls
Gregory Meyer and Henry Sanderson – Financial Times
After five grinding years of losses, commodities are set to end higher in 2016 and investors are staking out increasingly bold calls for the coming year.
This reflects signs that the prolonged decline in markets such as oil and metals is finally having an effect. Cuts in capital spending by producers have begun to choke off supplies as global demand creeps higher.

OTCX expands derivative trading options
Electronic derivatives trading service OTCX will expand its derivatives trading services for Australian markets after being granted a market licence exemption.

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