Options Signaling Momentum to Drive Stocks Higher
Gunjan Banerji – WSJ
Options that allow investors to wager on the S&P 500 are suggesting that the benchmark could keep setting fresh records. A post-election rally sent the Dow Jones Industrial Average above the 19,000-level this morning for the first time ever, as the S&P 500 breached the 2,200 threshold. Four major equity benchmarks hit all-time highs yesterday.
****SD: TD Ameritrade’s Ticker Tape has the skinny on recent market action – Record Run Continues, Driven By Oil Ahead of Possible Output Cut
Options Say Italian Referendum Won’t Jolt Stocks Across Europe
Chris Dieterich – WSJ
Market-watchers have shifted attention to Italy as a potential source of politics-driven market volatility, yet options traders aren’t positioned for ripples to spread beyond Rome and Milan. Italians head to the polls on Dec. 4 for a referendum on whether to overhaul the government’s constitution, a measure backed by Prime Minister Matteo Renzi. Mr. Renzi has pledged to resign if “no” wins the day, so this referendum has effectively become a vote of confidence in the prime minister and his government’s attempts to bolster the Italian economy.
****SD: Also see Forbes’ take on Italy – This Is The Next Big Volatility Move
Guess What Day It Is! It’s FOMC Day!
Ari Pine, President, TradeCo Global – Trading Technologies Blog
Here we are again. Just when we all thought we had it figured out, the election whizzed on the electric fence. Now it is time for the long awaited December FOMC meeting. I’ve written before about positive expected value and a process focused trading discipline. Focusing on the process, i.e., the positive expected value, rather than the outcome enables one to take on asymmetric payoffs with positive expectation even when the payoff is unlikely. Right now, we are heading into this meeting, and the market is pricing the likelihood of a tightening at near certainty. Count me in on expecting a rate hike, but if you have learned anything this year, it should be to expect the unexpected.
****SD: Anybody else take a while to get why a camel picture was used as accompaniment? Remember Geico’s ad history? For more on the definitely-going-to-hike upcoming Fed meeting see Reuters’ Money Markets: Traders see U.S. rate hike as a sure thing in December and WSJ’s Wall Street Is Betting $2.1 Trillion That U.S. Rates Will Rise
New Hedging Regime with Higher Levels for CBOE SKEW Index the Past 3 Years
Matt Moran – CBOE Options Hub
When the CBOE Volatility Index (VIX) drops below 14 (as it did in recent days), we sometimes hear questions such as – Is there still strong interest in portfolio hedging with index options? One metric that shows relative demand for out-of-the-money S&P 500 (SPX) put options is the CBOE SKEW Index (SKEW), with a daily price history that begins in 1990. Prior to 2014, the highest average daily closing value in a year for the SKEW Index was 122.5, but in each of the years 2014, 2015 and 2016 (through Nov. 17) the average daily closing level for the SKEW Index was 127.5 or higher.
Post-Election Risk Trending Up in Treasuries and the Euro, Down in U.S. Stocks
VIX and More
You can always tell when the crowd gets long the VIX and ends up on the wrong side of the trade. “The VIX is broken!” becomes an oft-repeated refrain, as does “The markets are rigged!” and the usual list of exhortations from those who are in denial. The current line of thinking is that the world must be much more dangerous, risky and uncertain as a result of a Trump victory, yet the VIX is actually down 31.4% since the election – ipso facto the VIX is broken.
BGC Brokers’ Capitalab Extends its Portfolio Compression Service to FX Derivatives and Interest Rate Caps and Floors; Reaches $3.5 trillion in Interest Rate Swaptions
BGC Brokers L.P.’s Capitalab, an entity within BGC Partners, Inc. group , today announced that it has successfully launched its multilateral portfolio compression service for FX Options as well as for Interest Rate Caps and Floors.
****SD: FT’s Philip Stafford looks at the trend embodied by BGC in today’s piece Derivatives regulation generates boom for some
Mexico Set to Receive a $2.9 Billion Windfall From Oil Hedges, IMF Says
Javier Blas and Eric Martin – Bloomberg
Mexico is set to earn about $2.9 billion from its oil hedges for 2016, the second straight year where the insurance has reaped a windfall, according to the International Monetary Fund.
****SD: Trump is thinking, “Hmm, that’s enough for a downpayment on my wall…”
Exchanges and Clearing
A Regulatory Solution to Canada’s Market Data Problem
Aequitas Innovations Inc. and its subsidiary Aequitas NEO Exchange Inc. (“NEO” or “NEO Exchange”) are disappointed that the Competition Bureau of Canada has decided not to continue its investigation into the TMX Group at this stage. The Competition Bureau opened up an investigation after NEO filed a formal complaint requesting a federal investigation into certain anti-competitive practices of the TMX Group in December 2015. NEO believed, and continues to believe, that the TMX Group is using its dominant market position to maintain control over the pricing of market data in the Canadian capital markets. The main victims of the lack of consolidated market data outside of trading desks and proprietary trading firms in Canada are the retail investors, their investment advisors and public listed companies.
****SD: This plays into another issue faced by TMX: Is TMX’s speed-bump exchange facilitating high-frequency trading? All is not well in Canadian markets.
Nasdaq’s New CEO Prepared Years for the Job. Then Trump Happened
Annie Massa – Bloomberg
Adena Friedman will take over exchange from Bob Greifeld; Becomes first female U.S. exchange CEO amid regulatory turmoil
Adena Friedman, the next chief executive officer of Nasdaq Inc., is a black belt in taekwondo. She’ll need all those fighting skills and more. Friedman, 47, has been groomed for years by outgoing CEO Bob Greifeld to inherit the stock exchange in an industry where the rules looked fairly stable. But Donald Trump’s surprise victory means the old playbook on financial regulation could soon be torn apart, just as she ascends to the exchange’s top job on Jan. 1.
****SD: Most if not all company leaders need/ed to adjust the gameplan for Trump. This isn’t exclusive to Friedman or Nasdaq whatsoever.
Euronext selects Strategic Insight’s LiquidMetrix for its best execution analytics platform
Euronext, the leading pan-European exchange in the Eurozone, today announced that it has selected Strategic Insight’s LiquidMetrix – the industry leading solution for best execution, transaction cost analysis (TCA) and surveillance services- as best execution analytics platform for its equity, ETF and derivatives products. Euronext will be using LiquidMetrix to help its clients demonstrate best executionand provide them with valuable insights for their multi-asset trading activity.
TOCOM and S&P Global Platts Sign Memorandum of Understanding
The Tokyo Commodity Exchange, Inc. (TOCOM) and S&P Global Platts (Platts), announced today that they have signed a Memorandum of Understanding (MOU), to cooperate in developing active markets and benchmark prices for Japanese domestic oil refined products and liquefied natural gas (LNG) in Asia
One of the most talented equity traders at SocGen has quit
Sarah Butcher – efinancialcareers
Maxime Kahn, one of the top equity traders at SocGen has left the French bank after twenty years. His destination is unclear, but we strongly suspect he’s joining a hedge fund.
Regulation & Enforcement
Oil Speculation Rule Gets Final CFTC Push Before Trump Takeover
Benjamin Bain and Silla Brush – Bloomberg
Timothy Massad, the top U.S. derivatives regulator, is trying to push ahead before President-elect Donald Trump takes office with controversial rules that clamp down on traders’ ability to speculate in oil and other commodities, according to people familiar with the matter.
FIA seeks additional time for implementation of IRS 871(m) and clarity on operational challenges
FIA submitted a letter to the Department of Treasury and IRS seeking a postponement of the 871(m) implementation date from January 1, 2017, to January 1, 2018, for exchange-traded futures and options on futures. The letter also requested clarity on the principal challenges members face in developing procedures and systems necessary to comply with the regulations.
Trading And Markets Director Stephen Luparello To Leave SEC
Chief Accountant James Schnurr To Leave SEC
SEC Names Wesley R. Bricker As Chief Accountant
Analysis: What is the Future of the Binary Options Industry Without Bonuses
Victor Golovtchenko – Finance Magnates
A couple of weeks ago, little expected, but not surprising news that the European Securities Markets Authority (ESMA) has outlined a specific question in its Q&A dedicated to the practice of handing bonuses to clients of financial services hit the wires. The bonus requirements designed to encourage clients to trade more, have been the target and it is now time to elaborate on the sustainability of the industry in this new environment.
TD Ameritrade’s thinkorswim Platform Now Offers State of the Art Earnings Analysis Tools to Retail Investors
TD Ameritrade clients can now create a more fully formed view of individual securities through new earnings analysis capabilities on the thinkorswim trading platform from TD Ameritrade, Inc.1 The new capabilities streamline research by combining historic data investors use to analyze a company poised to release earnings into a single visual, including consensus expectations from Estimize.2
Itiviti Presented With 2016 Technology Award By TMT News
Exchange News Direct
Itiviti, world-leading technology provider for the capital markets industry, has been recognized by the 2016 Technology Awards, where Itiviti was named Best Capital Markets Technology Provider.
Market Update: Thanksgiving Week (VIDEO)
OpenMarkets, CME Group
Although we have a shortened week ahead of us, Jack Bouroudjian reminds us to keep a few things in mind, such as data points that are coming Wednesday morning. These will factor into the Fed’s decision on rates next month.
Options Insight: How to Play the VIX (VIDEO)
Macro Risk Advisors Pravit Chintawongvanich discusses his options play for the VIX. He speaks with Julie Hyman on “Bloomberg Markets: Americas.”
Volatility Funds Attracting Inflows Despite Terrible Performance
ETF Daily News
Analyst Paul Weisbruch of Street One Financial brings us his daily fund flows update, which includes continued interest in volatility funds, despite horrendous performance.
Earnings Week of 11/21 – 11/25
CBOE Options Hub
How to Trade Four Stocks Feeling a Volatility Squeeze
Robert Moreno – TheStreet
The classic volatility squeeze is characterized by a period of narrow price compression and very low volatility that resolves itself by a period of high volatility. It can be a potentially profitable trading set-up for those alert enough to spot it, and nimble enough to take advantage of the opportunity.