Observations & Insight
Big SPIKES Action
****SD: Given it is such a round number I’m assuming it was one entity behind the trade.
MarketsWiki Education World of Opportunity 2019 Concludes in Chicago Wednesday
Sarah Rudolph – John Lothian News
JLN’s two-day MarketsWiki Education World of Opportunity concluded on Wednesday as another 12 industry veterans took the stage to help industry interns prepare for a potential career in the financial field – or any field, really. There was some advice applicable to any profession, such as “know what your goals are,” “find something you’re passionate about and submerge yourself,” and “never stop learning,” as well as some information specific to trading options and futures.
Appropriate to an event held in Chicago, there was a lot of Chicago boosterism, as well as some Chicago history. John McPartland, a market executive with the quant firm Hidden Road Partners and a recent retiree from the Chicago Fed, started the day off speaking about the 1987 crash and how Chicago’s markets were the only major ones that stayed open, and thus were blamed for the crash. General Motors’ pension plan had sold S&P Futures all day that day, and Gordon Binns, the pension fund leader, later told a court, “We saved pensioners $330 million that day.” Eventually people realized that what he said was true and Chicago’s staying open had buffered the crash rather than caused it.
To read the rest of this report, go here.
David Wescott Obituary
David J. Wescott, age 62 of Barrington IL, passed away suddenly at home surrounded by his family July 16, 2019. David had been a member of Chicago Mercantile Exchange Holdings, Inc. for more than 30 years. He was a very highly respected person in the Futures/Trading community, and one of the longest serving Directors on the Board of the CME. Dave served as President of the Wescott Group Ltd since 1991 and Managing Partner of the Dowd/Wescott Group since 2006. He was a founder and partner of Nirvana Technology Solutions.
Options Clearing Corp readies plan to boost capital
Philip Stafford – Financial Times (SUBSCRIPTION)
The US’s Options Clearing Corp is putting the finishing touches on a long-awaited new plan to boost its capital, risking unhappiness among customers and shareholders as it tries to shore up its balance sheet.
The Chicago clearer expects to file a revised plan to the Securities and Exchange Commission, the US markets watchdog, by the end of the month, according to John Davidson, chief executive of the OCC. Key parts of the plan include cutting the annual dividend to shareholders and increasing daily fees for users.
****SD: Recall that the previous plan was not approved by the SEC this year after being in place since 2014. It was challenged in court by a number of other market participants including Virtu and MIAX.
One direction: Brexit-hit pound facing gravity of parity
Saikat Chatterjee – Reuters
Currency traders who were wary of positioning outright for a hard Brexit outcome may finally be throwing in the towel: heavy selling has hit sterling this month and metrics such as derivatives and positioning suggest no respite ahead.
****SD: “Options data indicates little support for the pound until it hits $1.20, a level where large “strikes” amounting to around $1 billion, have amassed. These strikes – essentially the price at which the option can be exercised – expire over the next two weeks. Until recently, sterling was supported by option holdings around $1.25; banks selling such structures on to clients bought the currency around that level, preventing sharper falls. But once that level gave way in early July, banks had to cut their positions. That would have accelerated the drop to $1.24.” Yahoo Finance has this Bloomberg story – Pound Jolted Out of Summer Slumber as No-Deal Brexit Din Grows.
The Legend of David E. Shaw: Hiding in Plain Sight
Paul Rowady – Alphacution Research Conservatory
…When we look at overall position counts by product type, the picture takes on a different look. Within the confines of 13F reporting, this is mainly an equities shop, with an average of 67.5% of all positions over the full range of reporting based in cash equities. The sum of (long) call and put options positions, together averaging 25.6% of all positions over the full range of reporting, are the second most utilized product class (which is fascinating to see because not all quant shops trade options).
****SD: Also from Paul – Jane Street’s Twist on Stock Selection.
Rates Traders Camped on Either Side of Big Divide Over Fed Cuts
Emily Barrett and Edward Bolingbroke – Bloomberg (SUBSCRIPTION)
…The more moderate view still dominates, though the margin has narrowed. The latest action in eurodollar futures and options points to wagers both ways. On Wednesday, some traders staked out new short positions in December 2019 eurodollar contracts, suggesting a bet on less easing than is currently priced. Opposing positions are still in play, judging by open interest data and information from traders close to the action.
Fed Looms Larger Than Ever for Banks to Extend $30 Billion Haul
Michelle Davis and Elizabeth Rembert – Bloomberg (SUBSCRIPTION)
Five biggest U.S. lenders crack $30 billion in profit; Executives lower outlook for lending income as rates fall
It’s all about the Fed.That was the takeaway after the five biggest U.S. lenders reported second-quarter results, as lower interest rates weighed on banks’ outlooks for lending income while also helping to keep credit quality relatively pristine.
Steven Mnuchin says no change to US dollar policy ‘as of now’
Mamta Badkar, Colby Smith and Eva Szalay – Financial Times (SUBSCRIPTION)
US Treasury secretary Steven Mnuchin on Thursday said there was “no change” to Washington’s stance on the dollar “as of now”, amid mounting speculation over whether the Trump administration will act to weaken the dollar.
Mr Mnuchin said the US “could consider” a change to its dollar policy “in the future” but there was no change at present.
Negative Yields Tempt Fund Managers into Liquidity Trap
Mark Gilbert – Bloomberg (SUBSCRIPTION)
With almost $13 trillion of bonds in the global debt market yielding less than zero, fund managers are increasingly chasing returns in less liquid assets. The result could be a reduction in the transparency about what portfolios are really worth. Regulators are right to be paying heightened attention to any misadventures in illiquidity.
****SD: Not options but shouldn’t we all be concerned about illiquidity? These things can be contagious. And we just had another example with the Woodford Equity Income Fund. MSCI warned in the wake of the Woodford kerfuffle that plenty of other liquid alt funds are in fact not as liquid as they promise.
Exchanges and Clearing
Speed Bumps vs. Maker-Taker: The Lesser of Two Evils?
Larry Tabb – TABB Forum
While it is expensive to compete and it can be difficult for firms to aggregate liquidity in today’s price-time marketplace, investors in general have benefited from current market structure. But liquidity providers generally need an incentive to provide liquidity. If the SEC moves forward with the Transaction Fee Pilot and significantly alters the exchange rebate/fee scheme, we may need another way to incentivize liquidity providers – and the asymmetric speed bump may be the appropriate response. In a recent comment letter to the SEC, TABB Group founder and research chairman Larry Tabb looks at the pros and cons of Cboe’s proposed speed bump and maker-taker pricing and which mechanism may be better for the markets.
Cboe asymmetrical speed bump proposal gets mixed reviews
Hazel Bradford – Pensions & Investments
Cboe Global Markets’ proposal to introduce a speed bump in the U.S. equities market to allow for order updates ahead of opportunistic traders is hitting some speed bumps of its own.
The future’s bright for SGX’s rubber derivatives
Anita Gabriel – Business Times
There is an unmistakable bounce on the derivatives corner of the Singapore Exchange which has been outshining the bourse operator’s securities business – thanks to markedly higher volatility in financial markets.
Yet, the story of its Sicom rubber contracts has been rather overlooked in the bigger scheme of things.
****SD: “In late May this year, it launched the TSR 20 options contract, which marked a milestone as the futures contracts have been drawing sufficient liquidity; the rubber options is also the industry’s first.”
Regulation & Enforcement
With Friends Like These: The Insider Trading Risk Presented by Family Members, Friends, and Contractors
Matthew Graves, Jon Haray and Kara Thomas Beck, DLA Piper – Wolters Kluwer Securities Regulation Daily
A spate of recent, high-profile insider trading prosecutions and SEC actions remind that the threat that individuals will trade upon material, non-public information extends well beyond a company’s employees. In these enforcement actions, the company employee shared material non-public information with a third party who subsequently either traded on the information or shared information with another third party who traded on the information. On one level, it is easy to understand why these friends and family members want to use this information when they come into possession of it: the trading profits in some of these cases are in the hundreds of thousands of dollars (if not in excess of $1 million) and an erroneous belief exists that the authorities will never learn that they used non-public information because they are not insiders. http://bit.ly/2XVANZH
****SD: Careful what you say around the Thanksgiving table…
Chairman Tarbert Announces CFTC Executive Leadership Appointments
U.S. Commodity Futures Trading Commission Chairman Heath P. Tarbert announced the following appointments to key executive leadership positions at the CFTC
Chairman Tarbert Announces Key Office Appointments
U.S. Commodity Futures Trading Commission Chairman Heath P. Tarbert announced the following appointments to key positions in his Office
Infini Capital Management Selects TORA’s Cloud-based OEMS for Multi-Asset Pairs Trading
TORA, provider of the industry’s most advanced cloud-based order and execution management system (OEMS), has today announced Hong Kong-based multi-strategy hedge fund Infini Capital Management Ltd has selected TORA for its Pairs Trading solution.
R.J. O’Brien Appoints Simon Prangnell Head of New France Affiliate, Adds to Staff in Paris to Accommodate European Growth
London-based R.J. O’Brien Limited (RJO Limited) today announced the appointment of Simon Prangnell to head the firm’s new affiliate R.J. O’Brien France S.A.S. Prangnell, who has extensive experience in listed derivatives, institutional brokerage and leadership at major financial institutions, joined the firm this month as Managing Director, France.
****SD: Check out the video we did with RJO CEO Gerry Corcoran this year – Making an Independent FCM a Global Ag Powerhouse.
A $338 Billion Manager Says Now Is Time to Protect Stock Profits
Abhishek Vishnoi, Ruth Carson and Lilian Karunungan – Bloomberg (SUBSCRIPTION)
A $338 billion money manager says equity investors best quit while they’re ahead this year and move to safer holdings.
Deutsche Bank Wealth Management is continuing a shift from global stocks to high-grade debt and other lower-volatility assets, according to Global Chief Investment Officer Christian Nolting. The wealth manager has cut equities to about 40% of its portfolio from more than 50%, and it expects that trend to gather pace in the second half of the year.
Beyond Meat Stock Could Spike After Earnings. Here’s How to Play It.
Steven Sears – Barron’s
After rising so dramatically so quickly, Beyond Meat’s stock is so well done that investors might be forgiven for concluding there’s no juice left in the trade.
****SD: “‘Beyond Meat is the new Tesla [TSLA] and the market’s latest cult stock,’ Michael Schwartz, Oppenheimer & Co.’s chief options strategist, told Barron’s.” JPM’s recommendation is buying Aug 2nd $175 strike calls.
Companies have been buying back massive amounts of stock this year
Bob Pisani – CNBC
Buybacks so far in 2019 are strong but just below 2018’s record, according to a new report from J.P. Morgan.
****SD: The WSJ has Share Buybacks Surge in China.
Nasdaq-100 Stocks with High Options Volume Today
ORATS computes todays total options volume in all tickers with US equity options. The total options volume for each symbol is compared to its average volume for the past 20 days. The tickers with the highest ratio of options volume today to the 20 day average are presented below.
Carlos Slim has a $60 billion fortune and is the fifth richest person in the world – here are 18 of his most brilliant quotes
Chelsea Greenwood – Markets Insider
Mexican businessman Carlos Slim Helu is a multi-billionaire, Mexico’s wealthiest man, and was once the richest person in the world. And considering his $60 billion fortune was completely self-made, it’s safe to say the 79-year-old knows a thing or two about life and business.
****SD: “Shorter workweeks are a solution to civilization shifts.”