Observations & Insight
The Spread: All is Vanity
Short vol trades, CME’s response to the notorious Vanity Fair article, bitcoin options competition, and Cboe decommissions its legacy physical port connectivity for Cboe Futures and Cboe Options.
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These Are the Charts That Scare Wall Street
Luke Kawa – Bloomberg
Halloween’s around the corner, with investors treated to fresh all-time highs in U.S. stocks and nary a trick in sight. But as any scary movie aficionado will tell you, the most formidable frights begin when you’re the most complacent.
This year’s compilation of Wall Street’s chilling charts highlights concern about a debt-laden Corporate America, eerie developments in volatility markets and the ills in industrial sectors of the economy. Here are the ghoulies that petrify the professionals.
New stock-market volatility measure shows ‘rough years are getting tougher,’ and ‘quiet years’ are more rare
William Watts – MarketWatch
It isn’t just you. The stock market is getting more volatile, according to a new method for measuring its gyrations, and that’s making life more of a challenge for investors as they attempt to navigate the ups and downs.
In a Tuesday note, DataTrek Research co-founder Nicholas Colas highlighted a volatility measure that starts with daily returns on the S&P 500 SPX, +0.11% for any given year and adds them up, but turns the negative days into a positive sign.
Kolanovic Says Risk Appetite Is Back in Stocks, Get Used to It
Lu Wang – Bloomberg
It’s time to embrace the nascent rally in the riskier part of the stock market, according to JPMorgan Chase & Co.’s strategist Marko Kolanovic, who says the economy is about to pick up and threats to the rally are overstated.
With central banks easing in sync, the firm’s macro indicators point to emerging signs of an economic recovery, particularly in Asia. For professional investors who have cut net equity exposure to extreme lows while boosting defensive holdings like low-volatility shares to record highs, it’s time to consider buying cyclical sectors such as energy, Kolanovic said.
Get ready for a jolly holiday season, and maybe a stock-market rally, Ned Davis Research says
Andrea Riquier – MarketWatch
Financial markets have been relatively placid over the past few weeks, making it easy to forget last December. Uncertainty surged, stocks tanked, and $134 billion flowed out of U.S. exchange-traded and mutual funds.
But there’s reason to hope that this year’s fourth quarter won’t be quite as tumultuous. And according to an analysis by Ned Davis Research, markets will not only do better than last year, but may even ring in the holidays with a rally.
Hedge funds looking for the low in the oil market: Kemp
John Kemp – Reuters
Hedge funds showed signs of trying to pick the bottom in the oil market last week, with small-scale purchases emerging after the wave of heavy selling at the end of September and early October.
Hedge funds and other money managers were net buyers of 22 million barrels of petroleum futures and options in the week to Oct. 22, after selling 206 million barrels in the three weeks between Sept. 17 and Oct. 8.
Sterling holds the line as forex markets try to price UK election risks
Saikat Chatterjee and Olga Cotaga – Reuters
The British pound wobbled briefly on Tuesday as Britain looked set for a snap December election but its recent surge on hopes of a smooth Brexit look capped by the outside risks that the various election outcomes could bring to that scenario.
Sterling has gained more than 5 percent over the last three weeks against the greenback and stocks rallied as fears of Britain crashing out of the European Union faded after European policymakers agreed on a third extension until end-January.
Former Goldman Trading Head Cautions on Interest Rate Volatility
Nathaniel Baker – Forbes
Nancy Davis, a former head of credit, OTC, and derivatives trading at Goldman Sachs’ proprietary trading group, is concerned that markets are overlooking the risk volatility in interest rate markets. Davis, currently the chief investment officer at Quadratic Capital Management, says gauges of interest rate volatility are at historic lows as a result of misplaced confidence in the world’s central banks. We are in a very confident state, for most investors, that central banks have control and that they’re going to be able to soften any sort of crisis or risk event that happens,” she says on the Contrarian Investor Podcast.
What is seen more often – all-time highs or drawdowns
RCM Alternatives (blog)
CNBC and the financial press LOVE all time highs. What else would you put on the front page on a day that all is well in the world and the US stock market is at all time highs. The story writes itself when the market arbitrarily prints a few points above some prior arbitrary print.
Calm Before the Storm
Marc Chandler – Nasdaq
The more prominent events this week still lie ahead, and the capital markets are trading accordingly. The rally that lifted the S&P 500 to new record highs yesterday carried over into Asia, where most equity markets rose, though China, Hong Kong, and South Korea were notable exceptions. European shares are struggling in the early going after the Dow Jones Stoxx 600 set new highs for the year yesterday. US equities are trading with a slightly softer bias in Europe.
Exchanges and Clearing
Euronext Growth becomes an EU ‘SME Growth Market’
Euronext (press release)
Euronext listed small and mid-caps to benefit from simplified market processes for raising capital or issuing bonds. Brussels, Dublin, Lisbon and Paris – 29 October 2019 – Euronext today announces that Euronext Growth – its pan-European MTF dedicated to small & mid-caps – has been officially registered as “SME Growth Market” for both shares and bonds by the competent authorities in Belgium, France, Ireland and Portugal. This status, introduced under MiFID II, has been designed to facilitate access to capital markets for European SMEs by further developing qualified markets to cater to the specific needs of small and medium-sized companies.
Regulation & Enforcement
US securities industry redoubles opposition to single record of trading prices
Patrick Temple-West and Robert Armstrong – Financial Times
Republican politicians and regulators, along with securities industry advocates, are making another push to derail the US Securities and Exchange Commission’s plan to create a single, real-time record of trade prices, arguing it will become a tool for government over-reach or a target for hackers.
The creation of the consolidated audit trail, or CAT, was mandated by the SEC seven years ago following the “flash crash” of 2010. It is meant to act as a central depository of data, containing detailed information on orders and trades for the US equity and options markets that would allow regulators to assess quickly the source of glitches or other problems.
Federal Reserve proposes easing post-crisis derivatives rules for banks
Pete Schroeder – Reuters
The U.S. Federal Reserve announced Monday it had proposed easier rules for when banks must set aside cash to safeguard derivatives trades between affiliates.
Macquarie is slashing 100 equity trading jobs in London and New York this week
Yusuf Khan – Markets Insider
Australian bank Macquarie is cutting 100 jobs in its equities and trading units in New York and London, a person familiar with the situation told Business Insider.
According to the source, the bank is looking to focus on its Asia Pacific research and trading units.
Man Group Grabs Chambers as Head of Quant Investment
John D’Antona Jr. – Traders Magazine
Man GLG, the discretionary investment management business of Man Group, grabbed Paul Chambers as Head of Quantitative Investment & Research, a newly-created role within the business. He will lead Man GLG’s efforts in using quant techniques and alternative data to supplement and enrich the fundamental research process, working alongside discretionary portfolio managers to enhance the opportunity to generate alpha. Chambers came from Balyasny where he was a quantitative equity Portfolio Manager over the past 18 months.
Driving Outperformance with Derivatives
Russell Rhoads – TABB Forum
The options market is often associated with hedging risk or speculating based on a particular outlook. But options also can be used to create defined risk-reward outcomes that consistently outperform traditional portfolio approaches. TABB Group head of derivatives research Russell Rhoads analyzes three structured approaches to gaining equity market exposure using options on E-Mini S&P 500 futures contracts. Download a complimentary copy of his latest research here.
Starbucks’ Earnings Will Make Its Stock Tumble — or Rally. How to Have It Both Ways.
Steven M. Sears – Barron’s
Starbucks and the stock market are about to collide. As the coffee giant prepares to report fourth-quarter earnings late Wednesday, investors have an opportunity to position around an extraordinary divergence that exists between Starbucks stock (ticker: SBUX) and the S&P 500.
Maximize Your Gains In A Bear Market With This Income Strategy
Street Authority – Nasdaq
The traditional covered call strategy is considered a neutral-to-bullish approach because profits are made when the underlying stock remains stable or trades higher. For this reason, most investors are more than willing to sell covered calls during periods when the market is generally rising, but the strategy often loses its popularity during bear markets.