Derivatives: Asset managers catch on to risk premia strategies
Costas Mourselas – GlobalCapital
Risk premia strategy, a form of passive investing, is gaining ground among asset managers as they turn to the product for a steady source of yield and a tool for hedging uncertain macroeconomic conditions.
This type of investing relies on ideas — many of which are derived from academic papers — that have consistently delivered returns, and are expected to do so into the future.
*****SD: Just catching on, eh? Where ya been?
SKEW Index Continues To Diverge From VIX Index
Sean Emory – See It Market
The story of volatility has been very one-sided of late. There’s been low volatility despite various geopolitical headlines which in the past would have sparked a move lower for the stock market.
****SD: Brief reminder of why spot VIX should not be viewed in a vaccuum.
Intel CEO reportedly sold shares after the company already knew about massive security flaws
Saheli Roy Choudhury – CNBC
Intel CEO Brian Krzanich sold off a large chunk of his stake in the company after the chipmaker was made aware of serious security flaws, according to multiple reports
An SEC filing last November showed Krzanich sold off about 644,000 shares by exercising his options and another roughly 245,700 shares he already owned
****SD: If I’m reading this right, his options allowed him to buy between ~$13 and $27 when the stock was above $40. For more on the issue with the chips, see CNN’s Major chip flaws affect billions of devices. It’s bad.
Bitcoin options trading not far behind – S3 Partners
Andrew Neil – Global Investor Group (Subscription)
Bitcoin options trading is just around the corner and looks set to supplement futures contracts on the cryptocurrency, according to analysts at New York-based S3 Partners.
After the recent emergence of futures, swap and ETF bitcoin trading, Ihor Dusaniwsky, a managing director at the financial analytics firm, reckons options aren’t far behind.
“The ability to hedge out bitcoin exposure via daily traded marginable exchange based futures and ETFs will allow option writers to offer Bitcoin puts and calls,” Dusaniwsky wrote in a note to clients.
****SD: This echoes what Cboe CEO Ed Tilly said – give the futures a handful of smooth settlements and we’ll go from there.
Cryptocurrency Hedge Fund BlockTower Raises $140 Million
Michael McDonald – Bloomberg
BlockTower Capital, a digital currency hedge fund launched in August, raised $140 million and hired a former vice president at Goldman Sachs Group Inc., expanding its team to eight people, according to people familiar with the matter.
****SD: Recall that this is the firm behind the $1m bitcoin options bet.
Barclays announces the upcoming launch of iPath Series B S&P 500 VIX Short-Term Futures ETNs (Ticker:VXXB) and iPath Series B S&P 500 VIX Mid -Term Futures ETNs (Ticker:VXZB)
Barclays Bank PLC (“Barclays”) announced today the upcoming launch in early 2018 of the iPath Series B S&P 500 VIX Short-Term FuturesTM ETNs (Ticker: VXXB) and the iPath Series B S&P 500 VIX Mid-Term FuturesTM ETNs (Ticker: VXZB) (together, the “New ETNs”).
****SD: We now have the answer to how Barclays will deal with expiring ETNs. Keep in mind this is one of the idiosyncrasies of having an ETN rather than an ETF.
Ex-Millennium’s Johansen Opens Asia Quant Fund in Volatility Bet
Klaus Wille – Bloomberg
Disciplina Fund expected to start in January with $110 million; Adds to signs of hedge fund revival after slow start to year
Kennie Atle Johansen, a former manager with Izzy Englander’s Millennium Management, is launching a quant hedge fund trading Asia stocks in anticipation that market volatility will increase this year.
Regulation & Enforcement
Light needs to be shed on trade practices of ‘Flash Boys’
Kurt Schacht – TheHill
Three years ago, a book called “Flash Boys” by Michael Lewis hit the shelves with great fanfare. It was an expose on the world of high-frequency trading (HFT) and the Wall Street sharpies that had found yet another way to skim riskless profits from public markets.
The book prompted regulators and lawyers to scrutinize the HFT trade and whether the public exchanges themselves were facilitating what amounts to electronic front-running. High-frequency traders would get superior information about orders and trades allowing them to jump in front of other orders, execute trades and pocket the spread between bids and offers, almost risk free.
****SD: Recall the piece yesterday where Ken Griffin
City reprieve on Mifid rules more practical than farcical
Matthew Vincent – Financial Times
Sorry. I know this column was always due to be written on January 3 2018. And, yes, I realise I’ve had more than a year’s practice at it. I’m also aware of the money spent by you, and my company. But I’m not ready. I need a bit longer. Would you mind giving me another, say, 30 months? What if I wrote it by July 3 2020? I could email it to you, if that helps?.?.?.
It would be ridiculous if this were true, wouldn’t it? But it is exactly what Europe’s biggest derivatives exchanges appear to have said to regulators about delivering the Mifid II market reforms.
****SD: Also from the FT – Mifid II risks drowning in its ambition
Diamonds are a scammer’s best friend
Pierre-Simon Assouline – The Times of Israel
Undeterred by the new binary options ban, Israel’s boiler rooms are doing brisk business. An ex-employee describes how his company shifted to hawking diamonds
Exchanges and Clearing
Cboe Global Markets Reports Trading Volume for December and Full Year 2017
Options ADV up 11%, Futures ADV up 23%, Global FX ADNV up 10% over 2016; Total Index Options, SPX Options, VIX Options and VIX Futures Set Annual Volume Records
Intercontinental Exchange Reports December and Full Year Statistics; 2017 Futures & Options ADV +10% y/y, OI +11% y/y
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported December 2017 trading volume and related revenue statistics.
****SD: For more detail, see Finance Magnates’ ICE’s December Volumes Mixed as Equities, FX See Rebound
Singapore SGX’s clears 14.9 mil mt coking coal derivatives in 2017
The Singapore Exchange cleared 14.9 million mt of coking coal swaps and options contracts in 2017, up 2,818% on the year, according to SGX data released Tuesday.
Developing Commodity Derivatives Market- an important way to protect farmers’ income
Business Standard News
After witnessing an exponential growth since its inception till FY 2011-12, the commodities Futures market has seen contraction due to various reasons such as suspension in trading of few commodities, enforcement of stock limits in certain commodities from time to time, introduction of Commodities Transaction Tax (CTT), etc.
VIX: Naked Longshots
Sage Anderson – tastytrade blog
As 2017 drew to a close, it almost seemed fitting that the VIX dipped back below 10 – close to the lows of the year (and of all time, for that matter).
Sitting at 9.44 before Christmas, the VIX slipped toward its all-time low of 8.56, which it hit on November 24th of this year.
While the winter holidays in the United States typically see lower levels of volatility, the most recent dip below 10 feels a bit like the punch that comes right before the knock-out in a heavyweight boxing match.
FX Options Market Update: January 4, 2018
Options Industry Conference – Amelia Island 2018
For 36 years, the Options Industry Conference has been the premier annual forum for top-level management and trading professionals to exchange ideas, strengthen relationships and forge new connections.
The 2018 conference will take place May 2-4 in Amelia Island, Florida, and focus on the most relevant topics facing our industry today, including the state of the U.S. listed options industry, trading issues, regulatory changes and new technology. Join us for three days of engaging speakers, thought-provoking panel discussions and exciting networking opportunities.
U.S. derivatives regulator announces meetings to review futures based on cryptocurrencies
The leading U.S. derivatives regulator announced Thursday it would be holding a pair of meetings to review the process for allowing futures based on cryptocurrencies to come to market.
SEC Seeks Comment on CBOE Bitcoin ETF Filings
Nikhilesh De – CoinDesk
The SEC is asking for public comment on two proposed rule changes that, if approved, would lead to the listing of the first-ever bitcoin-based exchange-traded funds.
Key Oil Market Indicator Shows Market Tightest in Three Years
Alex Longley – Bloomberg
WTI prompt most backwardated since 2014 as Cushing stocks drop; Not much inventory overhang left, according to Energy Aspects
One of the key gauges of oil market strength hasn’t looked this good for bulls since 2014.
****SD: In other oil news from Bloomberg – Trump Seeks to Open Most U.S. Coastal Waters to New Oil Drilling
Dollar’s Rout Poses Risk of 2018 Rally That Blindsides Markets
Lananh Nguyen and Luke Kawa – Bloomberg
Interest rates, tax cuts raise questions for bearish view; Greenback’s 9% slide in 2017 followed a post-election surge
****SD: From the article – “The bias toward a weaker dollar over the next six months is evident in the options market, where demand for euro calls exceeds the appetite for euro puts, as the chart below shows.”
Banks rake in record fees to beat trading blues
Jamie McGeever – Reuters
By one measure, 2017 was the most lucrative year in history for investment banks.
The fees they charged companies and other financial firms for advising on mergers and acquisitions, arranging loans, and underwriting sales of bonds and stocks reached $104 billion, according to Reuters data.