Observations & Insight
Slippery Slope: Let’s Let Markets Decide On New Contracts
Jim Kharouf – JLN
Do exchanges need further regulation on the contracts they launch? That is the question the Commodity Futures Trading Commission is addressing now with the so-called self-certification process for new contracts.
Exchanges have not faced this type of scrutiny over the launch of a new product in recent history until Bitcoin. Several new contract ideas have been squashed by legislation or regulation, including movie futures and onion futures way back when. But for the most part, exchanges are allowed to introduce new contracts as they wish and ultimately let the markets decide on whether or not they offer enough value to trade them, offer them to clients or clear them.
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OCC plans cash management fee from March 1
Jack Ball – Global Investor Group (SUBSCRIPTION)
The Options Clearing Corporation (OCC) has proposed introducing a cash management fee from next month to cover the costs associated with maintaining and administering its clearing fund.
The US clearing giant filed with US derivatives regulator the Commodity Futures Trading Commission (CFTC) on Wednesday to introduce a cash management fee from March 1 this year which would “cover the administrative and other operational expenses incurred by OCC in connection to maintaining cash deposits held in account established by OCC at a Federal Reserve Bank and passing through to clearing members the interest earned on such deposits”.
Meet the physicists selling time to traders
Philip Stafford – Financial Times (SUBSCRIPTION)
Twenty-first century trading is conducted across continents at speeds incomprehensible to humans.
Banks and high-frequency traders often brag about executing orders in milliseconds — or thousandths of a second.
The Short-Volatility Trade Got Crushed in January
Gunjan Banerji – WSJ (SUBSCRIPTION)
One of last year’s most-loved trades is off to a rough start in 2018.
Strategies that minted money by betting against stock-market turbulence have gotten crushed in January, as volatility finally made an appearance.
Options traders see outsized stock moves on U.S. tech results
Saqib Iqbal Ahmed – Reuters
Options market traders expect shares of the biggest U.S. technology companies, including Apple Inc and Facebook Inc, to react more strongly to quarterly results than they have on average over the past two years, data showed on Wednesday.
****SD: MarketWatch has Here’s what options traders expect from Apple, Amazon and Alphabet earnings and Bloomberg has Bearish Amazon Options Sell at Discount Prices Before Earnings
Downside Protection – At What Cost?
AllianceBernstein via Seeking Alpha
Investors worried about an equity correction might see low volatility as a sign that buying options is a cheap way to protect a multi-asset portfolio. But the cost today is higher than it seems.
Implied volatility is indeed very low, with the VIX ranging from 10 to 12 lately. But there’s more to determining how cost-effective it is to “buy volatility” as downside protection. We look at three key components to make the determination.
2018 Outlook: Beware of Low Vol… Long Live Low Vol!
What is to come for Managed Futures in 2018? Hot off the keyword-presses, we have published our annual Managed Futures / Global Macro Outlook (download here). But before we get to 2018, we must look at that conditions that have paved the way to where we are now. 2017 will go down as one of the least volatile years in the futures markets in recent history, with just two of the 47 markets we track experiencing volatility expansion year over year: The Euro Schatz and a small expansion from Platinum. There are lots of ways to look at volatility, but suffice to say it wasn’t just the VIX at record lows – it was a contagion (or golden opportunity) across asset classes.
Exchanges and Clearing
CME Group Inc. Reports Fourth-Quarter And Full-Year 2017 Financial Results
CME Group Inc. (NASDAQ: CME) today reported revenue of $900 million and operating income of $537 million for the fourth quarter of 2017. Fourth-quarter 2017 net income included a $2.6 billion net income tax benefit due to recognition of a reduction in deferred tax liabilities as a result of the Tax Cut and Jobs Act of 2017. Resulting net income was $2.9 billion and diluted earnings per share were $8.63. On an adjusted basis, net income was $383 million and diluted earnings per share were $1.12. Financial results presented on an adjusted basis for the fourth quarters of 2017 and 2016 exclude the net income tax benefit noted above and certain other items, which are detailed in the reconciliation of non-GAAP results.
CME Rebuffs Smaller Bitcoin Fans While Cboe Leads in Crypto-Futures
Brian Louis – Bloomberg
CME Group Inc. might be the world’s biggest exchange, but it lags behind a rival Chicago exchange in the nascent Bitcoin futures business. That’s partly a design decision.
Japan Exchange Group Trading Overview In January 2018
…In January 2018, total derivatives trading volume was 27,793,260 contracts.
CBOE FX Trading Volumes Surpass $930B in January to Post a New Record
Victor Golovtchenko – Finance Magnates
Trading volumes at the FX subsidiary of the CBOE have rebounded to a new record in January 2018. The first month of the year appears to be marked with a sharp rebound in FX volatility driven by comments from the US Treasury Secretary Mnuchin and the ECB’s President Draghi.
Coking coal options trade increases on underlying price volatility
Coking coal options trading volume on the Singapore Exchange grew further in January, with some participants increasingly seeking to manage large spot price volatility seen recently in the commodity.
SGX Welcomes Macquarie Futures As Derivatives Trading And Clearing Member
Singapore Exchange (SGX) today welcomed Macquarie Futures (Singapore) Pte Limited as a Trading and Clearing Member of its derivatives market.
Steady Start For MGEX’s 2018 Year
…Total options volume reports at 3,643 contracts. Electronically, MGEX numbers have reached a total volume of 127,329 contracts traded.
Regulation & Enforcement
U.S. derivatives regulator tightens review for virtual currencies; defends ‘self-certification’ rules
Henry Engler – Reuters
The top U.S. derivatives regulator last week announced stricter protocols for how virtual-currency derivatives come to market while also defending the ability for major exchanges to introduce new products through their own “self-certification” process.
Margin Requirements; Vertical Spread Options Trading Strategy
T.J. Neil, Sr. Trading Specialist, TradeWise – The Ticker Tape
Let’s say you have been selling naked puts, and the market has made an extended move higher in your favor. Chances are, you’re getting a little nervous. Will the rally continue? Is there a way to protect your current position without giving up too much of your potential profit? These are some of the most asked questions concerning short naked options. By turning a naked option position into a risk-defined position, you may be gaining some option buying power while taking some of the risk off of the table.
Managing Early vs. Shorter Duration
Sage Anderson – tastytrade blog
Not too long ago, we published a piece on the blog that examined some of the key differences between LEAPS and options with with maturities closer to 45 days-to-expiration.
LEAPS, or Long-Term Equity Anticipation Securities, are options with expiration dates greater than one year from the day of trade initiation.
Margin Trading & Buying on Margin: Benefits and Risks
Brian Lund – The Ticker Tape
Although it’s been available in the brokerage industry for decades, buying stocks on margin ranks up there with short selling as one of the things many investors are most wary about trying. But once you learn the basics of margin—and understand its inherent risks—you might find it to be a valuable addition to add to your trading toolbox.
What’s Curbing the Bitcoin Short
Michelle Celarier – Institutional Investor
Bitcoin’s wild price swings have investors wondering how to short the digital currency, as there would be a lot of money to be made in the latest craze in investing.
There’s only one problem. “It’s very difficult to short Bitcoin,” says Ihor Dusaniwsky, managing director of predictive analysis at S3 Partners, a financial analytics firm.
Decades-Old Freight Index Gets Revamp
Alaric Nightingale – Bloomberg
The Baltic Dry Index, a decades-old measure of shipping costs viewed by some investors as a leading economic indicator, is getting a makeover.
The measure will now get its heaviest weighting from giant Capesize ships that haul iron ore and coal, while the smallest Handysize carriers are removed altogether. The alterations follow interest from exchange traded funds and family offices about the creation of a global freight benchmark in which they could invest, said Stefan Albertijn, Chair of the Baltic Index Council.
Bored With Banking, This Former Citi Trader Went Full Crypto
Edward Robinson and Viren Vaghela – Bloomberg
In 2013, Arthur Hayes was biding his time as an equities trader for Citigroup Inc. in Hong Kong. His energy—he’s a fitness fanatic and an early riser—was better suited to another era in finance. Six years earlier, as a recent arrival in the former British colony, he’d gotten a taste of what the golden age in banking felt like when he worked in the “snake pit,” the equity derivatives sales desk, at Deutsche Bank AG’s office. The markets were on fire. Traders were taking helicopter trips to the casinos of Macau to celebrate their triumphs.
WisdomTree Launches CBOE Russell 2000 PutWrite Strategy Fund (RPUT)
WisdomTree (NASDAQ:WETF), an exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor and asset manager, today announced the launch of the WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (RPUT) on the Cboe BZX U.S. Equities Exchange. RPUT seeks to track the price and yield performance, before fees and expenses, of the Cboe Russell 2000 PutWrite Index (PUTR) and has a net expense ratio of 0.43%1.