Takeaways From Recent Options Volume Surge; Update on Short Vol Poster Child; VIX seen as incomplete measure

Mar 8, 2018

Observations & Insight

An Array of Recommended Tangents for International Women’s Day
Spencer Doar – JLN

The “Fearless Girl” statue on Wall Street turned one year old today. Let’s dedicate today’s newsletter to the embodiment of her ideals, shall we?

To kick it off, here’s the WaPo with The Fearless Girl statue turns one today. Here’s what she’s inspired.

The “failing” NY Times (hah – NYT brought in $1 billion of subscription revenue in 2017) has an all-encompassing outlook – International Women’s Day 2018: Pride, Protests and Pressure.

Women in Spain are on strike (link to BBC story).

This human interest story from BBC was worth the read – Anne Boden, the steelworker’s daughter who started her own bank. Covers all the bases – gender in the workforce, financial crisis fallout, fintech’s assault on the banking industry and a dash of growing up in Wales for good measure. One more shoutout to the BBC, this time for a cool photo gallery – Iconic images of women protesters.

In the “not great at all (but at least they’re honest?)” category is Deloitte. See Bloomberg’s Deloitte Pays U.K. Women 43% Less Than Men.

In the “ummm, okay” category is USA Today with KFC replaces iconic Colonel Sanders with his wife to honor International Women’s Day in Malaysia.

In the “need an explanation?” category is Mashable’s A beginner’s guide to International Women’s Day.

For an oldie but a goodie with an options industry angle, see Craig Donohue’s Gender and Pay Equality – We can and must do more blog from 2016.

I’ve heard good things about Bombshell: The Hedy Lamarr Story and it’s now on my watchlist. While famous for her acting career (and to a different generation for being lampooned in “Blazing Saddles”), she was also a genius inventor whose innovations helped spur the development of technologies like Bluetooth and early Wi-Fi protocols. Hopefully next time you connect your wireless headphones you remember to appreciate the heck out of that woman’s crazy life.

Also, take a moment to explore today’s Google Doodle.

If you’re in New England, chances are you aren’t outside much today as the weather is still causing chaos.

All for now. Have a good day everyone!

Lead Stories

What’s the Takeaway From the Recent Options Volume Surge? You Still Have to Do Your Homework!
Joseph Cusick – OCC
For the first two months of 2018, OCC, the world’s largest equity derivatives clearing organization, has seen the number of contracts it has cleared increase markedly compared with a year ago. In January, total cleared options and futures volume rose 41.8 percent to almost 480 million contracts, while in February, total cleared volume was up 43.2 percent to nearly 478 million contracts.

The former Target manager who made millions in a trade that just blew up wants you to know he’s doing just fine
Joe Ciolli – Business Insider Premier (SUBSCRIPTION)
Seth Golden rose to fame in financial circles following reports that he’d made millions shorting volatility. When the stock market went haywire in early February, sending the Cboe Volatility Index (VIX) surging, many Business Insider readers wondered how Golden had fared. He wants to let everyone know that he emerged from the market blow-up largely unscathed, and he’s provided an explanation of how that’s possible.

****SD: This is great. He truly did become a random poster child for the short vol trade. Anecdotal evidence of how much the tale stuck in people’s heads – I had an elevator conversation with two strangers about Golden (I didn’t bring up the subject) around the time of the vol spike.

VIX ‘fear gauge’ seen as incomplete measure of U.S. equities risk
Saqib Iqbal Ahmed – Reuters
The Cboe Volatility Index .VIX, Wall Street’s so-called “fear gauge,” does not give the full picture of investor sentiment and other measures should be taken into account, speakers at a major derivatives conference said this week.
A record spike in the index recently after years of muted activity has put the VIX back in focus as investors try to gauge the prospect of more wild U.S. stock market swings.

US Options Volumes Continue Strong Run in February
US Options volumes continued their strong run in 2018, with February recording 465 million cleared contracts, missing the record set in January 2018 by just 3 million contracts despite two fewer trading days. The volatility increase during the first two months of 2018 helped drive a 43% increase in options volume year-to-date compared to the same period in 2017.

Global regulators set out proposals to stop ‘flash crashes’
Huw Jones – Reuters
Stock exchanges should talk to each other and have safeguards in place to mitigate bouts of extreme market volatility that can undermine investor confidence, global securities regulators proposed on Wednesday.

****SD: There’s always work to be done, but isn’t it kind of a slippery slope when you start trying to iron out all the “abnormalities” of the market? What even qualifies as too much or abnormal? What metric do you use? Is a regulator’s job to tamp volatility whenever it gets too extreme? (For that matter, is it a central bank’s?) Goldman is concerned about liquidity/flash crashes, too.

GTCR hands fintech firm Dash off to Flexpoint Ford
Lynne Marek – Crain’s Chicago Business
Private-equity firms don’t do business with each other very often, but today Chicago heavyweight GTCR is doing a fintech deal with a local peer, Flexpoint Ford.
GTCR said in a statement that it’s selling New York-based Dash Financial Technologies to that company’s co-founders, Peter Maragos and David Karat, who in turn partnered with Flexpoint to make the purchase. A Dash spokesman declined to say what size ownership stake Flexpoint is buying or how much it paid.

****Exciting times for Dash. Yesterday’s management buyout press release here.

Refiners, traders brace for fuel-market volatility ahead of sulfur caps
Liz Hampton, Devika Krishna Kumar – Reuters
Global executives and traders are bracing for higher volatility in fuel markets as they expect refiners to process more light crude oil in the lead-up to new rules aimed at slashing the use of dirty high-sulfur fuel oil in global shipping.

Exchanges and Clearing

Ed Tilly, Chairman and CEO of Cboe, Comments on Market Volatility and the Cboe Volatility Index
Ed Tilly, Chairman and CEO of Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today commented on recent market volatility and the utility of the Cboe Volatility Index (VIX) in his opening remarks at the 34th annual Cboe Risk Management Conference (RMC) in Bonita Springs, Florida.

Matching technology could lead to new products – Nasdaq
Louisa Chender Contact Author – Global Investor Group (SUBSCRIPTION)
Nasdaq is exploring the use of pool-based matching technology which could be applied to create new products in financial and non-financial markets, the exchange group has said.
According to the US exchange, it may be possible to use a pool-based model (or pari-mutuel technology) to deconstruct a trade event into thousands of outcomes and match orders against a pool.

****SD: My comment from this morning’s John Lothian Newsletter – “Nasdaq’s Fintech Trends 2018 report identifies seven areas key to capital markets moving forward: the cloud, machine intelligence, blockchain, cybersecurity, quantum computing, pari-mutuel technology and behavioral science. Did you know the Hong Kong Jockey Club (cited in the study) uses a pari-mutuel system to offer more types of bets? Did you know that Longitude is the distributor of that system? And that Tom Ascher was the CEO of that ISE company when it negotiated that partnership?”

Winklevoss Twins Say Crypto Exchange May Offer More Coins
Joanna Ossinger and Nick Baker – Bloomberg
The Winklevoss twins said their main 2018 goal for Gemini Exchange, the Bitcoin and Ethereum trading platform they run, is eyeing expansion to other tokens such as Bitcoin Cash and Litecoin.
Their comments have significance for Cboe Global Markets Inc., Gemini’s partner on Bitcoin futures. Cboe, a Chicago-based exchange, has signaled it wants to offer futures contracts on digital currencies besides Bitcoin, but it needs Gemini’s help.

Brazil Hedge Funds Take Stake in Argentina’s BYMA on Growth Bet
Paula Sambo, Carolina Millan and Ignacio Olivera Doll – Bloomberg
Brazilian hedge funds have amassed a 10 percent stake in the operator of Argentina’s stock exchange and are seeking to exert their influence.

Cboe Europe Approved as Benchmark Administrator under the EU Benchmarks Regulation
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced that Cboe Europe was registered on 5 March 2018 as a Benchmark Administrator under the EU Benchmarks Regulation (BMR). Cboe Europe’s suite of European indices are now BMR compliant.

****SD: When Cboe bought Bats, the talk was for the group to become a one stop vertical silo for the development and then trading of a gigantic suite of products. This plays into that theory.

SGX’s February daily average value highest since May 2013
Marissa Lee – The Straits Times
The daily average value of securities traded on the Singapore Exchange (SGX) in February was S$1.7 billion, up 22 per cent from the same period a year earlier and the highest since May 2013.
In its latest market statistics report out on Thursday (March 8), the SGX also noted “good underlying volumes across financial derivatives complex during a traditionally low activity Lunar New Year month”.

****SD: SGX volume/statistics press release here. Derivatives volume unchanged MoM but up 45 percent YoY.

JPX Monthly Headlines
JPX group companies undertake various initiatives and disseminate information with the aim of providing the most attractive markets to all users.

Regulation & Enforcement

U.S., Foreign Regulators Working Well Together To Combat Cryptocurrency Fraud, Says CFTC Chair
Ted Knutson – Forbes
The Commodity Futures Trading Commission, the Securities and Exchange Commission, U.S. bank regulators and foreign financial regulators are working well together to combat cryptocurrency fraud, CFTC Chair Christopher Giancarlo said today.


Net Element Appoints Jon ‘Dr. J’ Najarian to Board of Directors
Net Element, Inc., a global technology and value-added solutions group that supports electronic payments acceptance in a multi-channel environment including point-of-sale (POS), e-commerce and mobile devices, today announces that Mr. Jon Najarian has joined Net Element’s board of directors and will serve as a member of the Company’s Audit, Compensation, Nominating and Corporate Governance committees.


Feb Volatility Spike Not Confirmed By Yield Spread
Paban Pandey – Investing.com
There was non-confirmation between the spike in VIX a month ago and U.S. high-yield spreads. Depending on which one is sending the right signal will have consequences for whether or not 15-16 support on VIX holds.


Interpreting Volatility-Related Indicators and Determining Courses of Action at Cboe RMC
Russell Rhoads, CFA – Cboe Blog
Bill Speth from Cboe Global Markets teamed up with Mandy Xu, Chief Equity Derivatives Strategist Credit Suisse, for a session titled Interpreting Volatility-Related Indicators, and Determining Courses of Action.

Cboe Chairman and CEO Ed Tilly Kicks Off Day Two of Cboe RMC, Provides Thoughts on VIX, Volatility and Risk Management
Russell Rhoads, CFA – Cboe Blog
Day two of Cboe RMC U.S. 2018 kicked off with Ed Tilly, Chairman and Chief Executive Officer of Cboe Global Markets, welcoming approximately 300 attendees to this year’s event, the 34th annual Cboe Risk Management Conference.

Highlights from Fireside Chat with Cameron and Tyler Winklevoss at RMC
Russell Rhoads, CFA – Cboe Blog
Paul Stephens from Cboe conducted a fireside chat with Cameron and Tyler Winklevoss covering their insights into Bitcoin and Bitcoin XBT futures that were listed at the Cboe Futures Exchange in December 2017.

CBOE Mid-Day Update 4.21.15
Russell Rhoads, CFA – Cboe Blog
Louis-Vincent Gave from Gavekal in Hong Kong delivered a speech called Market Movers: The Structure and the Cycle in 2018. He starts out saying he’s often been depicted as a China perma-bull. He notes that when considering an investment, you need to look into people’s incentives.

AgCon2018 Agenda Announced Today
AgCon2018, the upcoming joint conference of the Commodity Futures Trading Commission (CFTC) and the Center for Risk Management Education and Research (CRMER) at Kansas State University (KSU), will explore a range of current questions and topics facing the agricultural futures markets.


Banks’ Trading Revenue Burst Comes With a Big Caveat
Stephen Gandel – Bloomberg
One of the big winners of the stock market’s 2018 market gyrations appears to be Wall Street. While the overall market has increased just more than 1 percent this year, the big banks are up much more. Shares of Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. have risen 3 percent, 6 percent, 7 percent and 8 percent, respectively. Citigroup Inc. is the only bank with a large Wall Street presence that is down this year.

‘TPP-11’ signees to send powerful signal against trade wars
Dave Sherwood and Felipe Iturrieta – Reuters
Eleven countries will sign a landmark Asia-Pacific trade agreement without the United States in Santiago on Thursday in what one minister called a powerful signal against protectionism and trade wars.

****SD: More Reuters trade stories – Europe has ‘arsenal of weapons’ to respond to Trump’s tariffs: EU’s Moscovici; Mexico slaps tariffs on Chinese steel pipe for ‘unfair’ pricing; Trump sticks to tariff level pledge even as he offers possible exemptions

Trend-Chasing Quants Post Worst Returns in 17 Years
Dani Burger – Bloomberg
February worst month for commodity trading advisors since 2001; Outlook for less-agile programs questioned amid turbulence
A decades-old $350 billion pocket of quantitative money management may have met its match in February’s choppy markets — and it could get worse from here.

****SD: Proof the tortoise beating the hare was baloney.

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