Observations & Insight
This newsletter is about non-price-oriented risks. Back when it started, the largest risk to the financial markets, including futures, options and securities trading, was the advent of electronic trading. Electronic trading was the runaway train that was going to run over everything and everyone in its way. It was a risk to everyone’s job, especially the people standing on trading floors conducting commerce the same way it had been for over 100 years.
Open outcry trading is largely gone. Remnants exist in niche sectors, but most everything trades electronically these days, proving my original thesis for this newsletter correct. But there were other risks that went along with the move away from open outcry trading, risks involving new regulations, new technologies, new products, new competition, globalization of trade, algorithmic trading, high-frequency trading, co-location and more non-price-oriented risks.
In recent years the rise of bitcoin and cryptocurrency trading presented new risks to the markets and to established players and all the people employed by them. JLN has covered that story from the beginning as Bitcoin attracted attention on Wall Street to today’s regulatory crackdown on major crypto players. We launched CryptoMarketsWiki.com as a separate wiki when crypto was too toxic for established players to touch, then combined that content into MarketsWiki and decommissioned CryptoMarketsWiki.com as crypto went mainstream. Crypto and tokenization remain large non-price-oriented risks to the larger markets and financial markets industry.
The ultimate destructive risk to the markets is war, which is why JLN follows the Ukraine-Russia war and the Israeli-Hamas conflict so prominently. Nothing can corrupt markets or the reallocation of resources like a war.
But there is a new risk that I believe tops crypto as a risk and that is artificial intelligence, or AI as it is called. I believe AI has the same potential risk to change everything in the financial markets and the financial markets industry as did electronic trading. AI is a powerpack that can be loaded into many different aspects of trading, clearing and settlement.
I believe AI will influence nearly every job in the industry in some way, it is just a question of how and when.
The coverage in JLN of the big kerfuffle in Silicon Valley over Sam Altman being fired by the board of OpenAI and then returning and the board being replaced was not just because it was interesting. It was also important. Discussions about the future of AI are taking place and it is important who has a seat at the table. We should all be informed about the debate and the issues and that is why JLN is covering this important topic.
The goal of JLN is to make the world a better place by supporting market-based solutions and providing clarity for participants and stakeholders about non-price-oriented market risks. AI has become a non-price-oriented risk that JLN will continue to follow, as it impacts us all. ~JJL
Stock-market ‘fear gauge’ tumbles to nearly 4-year low. That makes some traders extremely nervous.
Joseph Adinolfi – MarketWatch
Wall Street’s favorite “fear gauge” has hit its most subdued level since before the pandemic after investors threw caution to the wind and bid up stocks at the fastest pace in years.
Stocks stall after VIX hits pre-COVID low
A look at the day ahead in U.S. and global markets from Mike Dolan
Global markets took a sharp intake of breath on Monday after seeing Wall St’s ‘fear gauge’ hit its lowest since before the pandemic hit late last week and as China major stock indexes continue to wane.
As U.S. markets return in earnest from the long Thanksgiving weekend, Friday’s shortened session threw up a remarkable milestone.
Nasdaq bets on boom in ‘zero day’ options with new contracts; US exchange lists new options tracking gold, oil and Treasury ETFs
Nicholas Megaw – Financial Times
Trading in a controversial type of derivative known as “zero-day” options is spreading to Treasury and commodity markets, as Nasdaq and other exchange groups try to replicate a boom that has transformed trading in US stock indices. Nasdaq this week listed a series of new options contracts tracking some of the most popular exchange traded funds investing in gold, silver, natural gas, oil and long-term Treasuries.
Short sellers are misunderstood; Bans on the stock investment strategy are often misguided and harmful
The editorial board – Financial Times
Short selling has always had an image problem. The investment strategy – which involves selling a borrowed asset expecting its price to fall, then buying and returning it – is often associated with callous bankers gaining from others’ misfortune. The 2015 Hollywood film, The Big Short, which documents the billions some traders amassed by betting against the US housing market in the run-up to the global financial crisis, brought the practice to wider consciousness. Alongside the moral qualms, critics claim “shorting” stokes panic, crashes stock prices and punishes the public. The authorities have frequently responded by clamping down on the practice – the latest attempt comes from South Korea.
****** Short sellers and speculators as a whole will never fully be understood. ~JJL
The stock market will ‘zig-zag’ 5% higher toward new record levels in December, Fundstrat says
Matthew Fox – Business Insider
The stock market is poised to “zig-zag” towards record highs in December, with the S&P 500 rising 5% to 4,800, according to a Monday note from Fundstrat’s Tom Lee.
Such a gain would put the S&P 500 within spitting distance of its January 2022 all-time intraday high of 4,818, and just above its record closing high of 4,796.
Bitcoin ETF Optimism Spurs Largest Asset Inflows Since Late 2021
David Pan – Bloomberg
Anticipation of an eventual US spot Bitcoin exchange-traded fund has helped to spur inflows into digital-asset investment products for a ninth consecutive week, the largest run since the crypto bull market in late 2021.
Macquarie Asset Management launches first Australian active ETFs
Sandra Heistruvers – Financial Times
Australia’s Macquarie Asset Management has rolled out its first actively managed exchange traded funds that will compete with a growing number of global managers that have also listed active ETFs in the market.
The Macquarie Dynamic Bond Active, Macquarie Income Opportunities Active and Macquarie Walter Scott Global Equity Active ETFs are listed on ASX.
CME Group Named to Computerworld’s 2024 Best Places to Work in IT for Sixth Consecutive Year
CME Group, the world’s leading derivatives marketplace, today announced that it has been recognized by Foundry’s Computerworld as one of the Best Places to Work in IT for the sixth consecutive year.
The Best Places to Work in IT is an annual ranking of work environments for technology professionals, recognizing the top organizations that challenge IT staff while providing great benefits and employee experiences. The list is compiled based on a comprehensive questionnaire regarding company offerings in categories such as benefits, career development, diversity and inclusion, future of work, training and retention. In addition, the rankings are reviewed and vetted by a panel of industry experts.
Billions Wiped Out as Stock-Safety Trade on Wall Street Misfires
Emily Graffeo – Bloomberg
Reeling from a bear market last year, beaten-up investors decided to send more than $60 billion to exchange-traded funds focusing on dividends.
Eleven months later, the trade is misfiring.
In #Vol411, Joel Hawthorne @louiswinthrop covers last week’s shortened holiday #trading activity, active $SPX strikes and notable events to look for in the week ahead (i.e. ISM, PCE).
What are zero-day options? Here’s how they’re taking over a key corner of the stock market and why they could pose a big risk.
Matthew Fox – Business insider
There’s a new options trading product that is taking over Wall Street, and it could ultimately pose a big risk for the stock market as it gains in scale. Zero-day options have quickly become a major force in the market, even as some observers have dismissed them as “just gambling” or the “fantasy football of option trading.”
Traders Want More Zero DTE Options So Check Out These New Listings
Mike Butler – tastylive
If you’re an options trader, you probably already know of these products that just got a lot more flexible. With new Wednesday expirations, traders and investors can get more granular with expiration choices,and options strategies that fit their plans to hedge or speculate.
Can SKEW Rank Compete with IVR? The Answer Might Surprise You
Kai Zeng – tastylive
The SKEW index measures the impact of distribution asymmetry as a proxy of tail risk, while the VIX assesses the impact of overall volatility risk
The SKEW index, akin to the VIX index, serves as a tool for investors to gauge market volatility and investor sentiment. A crucial distinction between the VIX (the Chicago Board Options Exchange’s CBOE volatility index) and SKEW index lies in their measurements. The SKEW index measures the impact of distribution asymmetry as a proxy of tail risk, while the VIX assesses the impact of overall volatility risk. Unlike the VIX, the SKEW index focuses on large market movements by examining farther out-of-the-money (OTM) options.
Citigroup and the ‘financial supermarket’ experiment
FT Film (Video)
The 1998 mega-merger between banking giant Citicorp and insurer Travelers Group created the world’s biggest financial services company. But Citi’s share price plummeted and the group has been hit by a series of scandals. The FT looks at what went wrong and how the bank can turn itself around.