Oil’s Plunge Below $50 Sends Options Trading Into a Frenzy; Volatility — how low can it go?; Snap Inc. Options Start Trading

Mar 10, 2017

Observations & Insight

My Picks for CFTC and SEC Commissioners
By John J. Lothian

Despite repeated inquiries to knowledgeable industry players, there is little buzz about prospective new CFTC and SEC Commissioners outside of the chairmen. So if there is no buzz, then let’s create some of our own in time for the FIA Boca Raton International Conference.

I am going to give you my top ten potential candidates for each commission in alphabetical order. That they are on the list does not mean they would be willing to serve, but it does mean I believe they are eminently qualified to serve.

I am also going to share with you honorable mentions. These are others I could also see in these positions. While my list is long, it is not exhaustive. I am sure you can come up with some more suggestions just like that. And I am sure I will hear about it in Boca.

For the rest of the commentary, including the lists, go here.


Lead Stories

Oil’s Plunge Below $50 Sends Options Trading Into a Frenzy
Alex Longley – Bloomberg
Oil’s plunge through $50 a barrel set the options market on fire. A record number of options contracts — equivalent to more than 800 million barrels of crude oil — changed hands on Thursday, according to exchange data compiled by Bloomberg. The tally includes trading for Brent and West Texas Intermediate crude in London and New York and shows a surge in bets that the former will reach $70 a barrel by September.

****SD: The record number of contracts represents 800 million barrels, which is the equivalent of some 3 months worth of US production. Also see Oil Traders Are Having Some Fun Again as Price Bubble Bursts

Volatility — how low can it go?
Robin Wigglesworth – Financial Times
Volatility is once again dancing the limbo, and seeing just how low it can go. The Vix index of expected US stock market turbulence has averaged just 11.6 points this year, compared to nearly 16 last year and the long-term average of almost 20. The equivalent volatility gauges for Treasuries and currencies are also becalmed.

****SD: Did you know that the limbo originated as a solemn ritual performed at such gatherings as funerals?

Snap Inc: Options Start Trading Today
ETF Daily News
With practically all but the IPO-allocated insiders still under-water, Snap shareholders will be anxiously awaiting today’s unleashing of options of the money-burning, user-shrinking ‘camera’ company.

****SD: It sure isn’t going to be like day one for FB options.

Options Trading Pioneer Blames Retreat on Fast-Trading ‘Sharpshooters’
Alexander Osipovich – WSJ
Thomas Peterffy was one of the pioneers of electronic trading in the 1980s. Now, he is pulling the plug on the business he created four decades ago, saying it has been outgunned by a new generation of ultrafast, data-driven traders. Mr. Peterffy, the billionaire chairman and chief executive of Interactive Brokers Group Inc., announced the “painful” decision to exit the company’s options market-making activities in a Wednesday press release.

Wall Street’s Volatility Pioneer Searches for Latest Fear Trade
Ben Eisen – WSJ
Investors these days are puzzling over the lack of volatility on Wall Street. Menachem Brenner hopes they’ll soon be buzzing about a new indicator: the heightened level of ambiguity.

Exchanges and Clearing

CME to introduce Monday expiring weekly options
The new weekly option series will be introduced from April 3 onto the CME exchange, with the first expiry date on April 17. The series will be introduced with both the S&P 500 futures and the e-mini S&P 500 futures as underlyings.

MIAX Regulatory: Consolidated Audit Trail (“CAT”) Clock Synchronization Requirements
MIAX Options Regulatory Circular 2017-11 provides guidance on upcoming CAT compliance requirements and deadlines for Business Clock synchronization, including certifications, with which Members must comply on or before March 15, 2017. Please refer to the Regulatory Circular for further details.

Was Kenneth Griffin Right? Was IEX A Mistake?
Kurt Dew – Seeking Alpha
I supported the SEC approval of IEX’s exchange designation with all my might and main in the spring of last year. IEX’s rival exchanges “encouraged” a cast of academic thugs to produce “end of days” forecasts of the disastrous effects of IEX’s existence. But, at the time, one opponent of IEX was a man I cannot dismiss. Kenneth Griffin.

****SD: Larger picture market structure story – not just about IEX.


Bonfire of Wall St analysts burns some big names; Active fund managers are seeking to reduce costs, cutting sell-side research
Tom Braithwaite – Financial Times
“It sucks,” says Mike Mayo. One of the more visible Wall Street analysts, Mr Mayo lost his job last week when CLSA, the Chinese-owned broker which had employed him, abruptly shuttered its US research operations. At 4.15pm last Monday, as Mr Mayo tells it, he was summoned to an all-hands meeting. At 4.20pm he and 89 others were let go. He went to FedEx to buy nine boxes and by 9pm that evening he and his belongings left the building for good.

****SD: Now that’s a good lede for ya.

Regulation & Enforcement

CAT Offers Chance for Reporting Review
Traders News
The clock is ticking for broker-dealers as well as equities and options exchange as they have until mid-May to synchronize their business clocks as the next phase of the Consolidated Audit Trail’s rollout.

****SD: Repurrting is what they meant I think.

Consolidated Audit Trail (“CAT”) Clock Synchronization Requirements
On November 15, 2016, the Securities and Exchange Commission (“SEC”) approved the National Market Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan” or the “Plan”).

Bank stocks slip as White House confirms intent to revisit Glass-Steagall
Jessica Dye and Adam Samson – Financial Times
Financials don’t seem too happy to hear that bringing back Glass-Steagall is still on President Donald Trump’s policy to-do list.

Standards Would Ease Market Data Pain, Spur Innovation
Dayle Scher – TABB Forum
The financial services industry has aspired to attain standard, unique financial securities instrument identification for decades. Similar to personal identification numbers (think: Social Security number), securities instrument IDs aim to uniquely identify financial instruments across asset classes.


Buy-side seek algos to measure info leakage
Hayley McDowell – The Trade
Buy-side traders are seeking more outcome-focused reporting algorithms with the ability to measure details on information leakage.

Pragma to Answer Demand for Algo Trading in Europe via London Data Center
Avi Mizrahi – Finance Magnates
Pragma, a multi-asset class provider of high performance algorithmic and analytical trading tools, has established a connectivity presence in Equinix’s LD6 data center in London to better service its European client base.


Ratio Back Call Spreads for Big Moves
Kevin Matras – Zacks via Yahoo
Ratio Back Call Spreads are a strategy I seldom hear anybody talk about. But they can be a great way to position yourself in a trade if you think something big could happen. And, if you’re right, you can use them to maximize your potential returns while at the same time lowering your cost of entry. In fact, you can even put these on as a credit – meaning you’d get paid to place this trade.


Why Choose Options Instead of Stocks?
Kirra Fedyszyn – Schaeffer’s Research
Stocks have been taking something of a pause this week, and the latest sentiment surveys and short interest data suggest traders are starting to grow cautious after the post-election rally. Against this backdrop, and considering the growing risk of a volatility pop, Schaeffer’s Senior V.P. of Research Todd Salamone has in recent weeks been emphasizing the value of using options rather than holding stock, in order to minimize risk without completely missing out on further gains. Today we’re going to take a step back and review the benefits of options in broader terms.


CBOE RMC Presentation: Cross Asset Volatility Trading
Russell Rhoads – CBOE Options Hub
Today at CBOE Risk Management Conference John-Mark Piampiano from Seaport Global Securities and David Rogal from Blackrock split duties in a session titled Cross-Asset Volatility Trading: Relationships Between Credit Spreads, Fixed Income Volatility, and Equity Volatility.

CBOE RMC Presentation: Options Out of This Country
CBOE Options Hub
The Options Out of This Country session at CBOE RMC today focused on international indexes, the economics of dollar denominated ETF options, and FX equity correlations. Rocky Fishman from Deutsche Bank, Ricardo Manrique from MSCI, and Yoav Sharon from Driehaus Capital Management split presentation duties for this discussion.

CBOE RMC Presentation: Panel on Sourcing Liquidity
CBOE Options Hub
Henry Schwartz, President of Trade Alert led a panel discussion on sourcing liquidity at today’s Risk Management Conference in Dana Point, CA. The panelists were William Bartlett from Parallex Volatility Advisors, Jean Cayla from Optiver, Michael Khouw of Optimize Advisors and Tradelegs, and Stephen Solaka from Belmont Capital Group.

CBOE RMC Presentation: Post Central Bank Volatility More Risk But More Alpha
Benjamin Bowler, Global Head of Equity Derivatives Research at Bank of America Merrill Lynch delivered a talk titled “Post-Central Bank Volatility: More Risk But More Alpha”. The discussion noted how central bank actions have us in a different bubble type environment and noted that stocks continue to move up with very little volatility. He also demonstrated that many markets have experienced high short term instability relative to recent price action and hedge fund performance has been very poor despite low market volatility.

CBOE RMC Presentation: Institutional Liabilities and How Options Strategies Can Help
CBOE Options Hub
The final session of the first day of CBOE RMC was a panel discussion titled “Real Money: Institutional Liabilities and How Options Strategies Can Help” moderated by Jon Havice from DGV Solutions. The panelists were Neil Rue from Pension Consulting Alliance LLC, Adam J. Smith, CFA, CAIA, from Mercy Health, and David Warn from The University of Chicago Office of Investments.


Hedge funds wolves who damage investors
Leslie Picker – CNBC
The question posed was, “Who Bleeds When the Wolves Bite?” It’s the title of an evocative paper written by Leo Strine, the chief justice of the Delaware Supreme Court. By wolves, he means hedge funds, and his answer, found within a 113-page paper set to be published next month in the Yale Law Review, is that average American investors are the ones getting bit by the existing corporate-governance system.

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