Traders Buy Hedges ‘Like World Is About to End’
Luke Kawa – Bloomberg
U.S. stocks have barely budged this week, but the calm in equities contrasts with a frenzied bout of hedging in options markets. Faced with a loaded event calendar that will bring central-bank decisions, trade deadlines, a U.K. election and possibly an impeachment vote, traders are piling into protection “like the world is about to end,” quipped IPS Strategic Capital head trader Patrick Hennessy on Twitter. Meanwhile, the S&P 500 drifted for a second straight day in thin volume.
Investors Are Terrified of the 2020 Election
Connor Smith – Barron’s
Investors across the political spectrum are “petrified” of the 2020 election and the effect it will have on stocks, according to a new report from analyst firm BTIG. The options market tells the story, Julian Emanuel and Michael Chu, strategists at the brokerage firm BTIG, wrote in a note on Sunday. The analysts noted that the S&P 500 skew over the election date—the price difference between puts and calls of the same outcome—has hit historically high levels. That’s usually a sign of bearish sentiment to come.
Even as pound rallies, traders wary of post-election downside, options show
Hellenic Shipping News
Expectations of a Conservative Party victory in Thursday’s UK election have sent the pound rocketing – but some investors are hedging themselves against a surprise outcome that could deal the currency a mighty blow. Since early November, sterling has rallied 2% against the dollar, hitting a seven-month high of $1.3180, while against the euro it reached a 2-1/2-year high of 83.94 pence, up 2.7% in the past month.
(Video) Russell Rhoads’ Derivatives Look Forward: 2020 Options Market Predictions
Russell Rhoads – TABB Forum
2018 was a record year for US options, and 2019 is coming in as a close second. In a special edition of the Derivatives Look Forward, TABB Group head of derivatives research Russell Rhoads reviews the US listed options markets in 2019 and looks forward to 2020.
Inside Volatility Trading: December 10, 2019
Kevin Davitt – Cboe blog
It’s (supposedly) the most wonderful time of the year With the S&P 500 up about 25% (YTD as of 12/6/2019) And Trudeau caught on hot mics It’s the most wonderful time of the year It’s the hap-happiest season of all With those holiday greetings (you’re not spending 2%) and the happy (Doral>Camp David) meetings When G7/NATO “friends” may come to call It’s the hap-happiest season of all
Barclays to Sell Automated Options Trading Business to GTS
Nick Baker – Bloomberg
Electronic market maker GTS agreed to buy Barclays Plc’s automated U.S. options trading division. About 40 Barclays employees will join GTS as part of the deal, according to a statement Wednesday. They include Kirill Gelman, who will continue to run a business that quotes prices for more than 735,000 securities and handles about 2% of exchange-listed U.S. equity options volume.
How a Chat With Chuck Schwab Inspired an S&P 500 Call for 3,950
Sarah Ponczek – Bloomberg
In a recent surprise encounter, BTIG’s Julian Emanuel met Charles Schwab. It took just 20 minutes of chatting for the finance legend to spur a bold call from the Wall Street strategist: A 25% gain for stocks in 2020. It’s not his base case, but BTIG’s chief equity and derivatives strategist says it’s possible that the S&P 500 Index surges to 3,950 next year, driven in part by the fee war that’s swept the asset management industry. It was just after Charles Schwab Corp. cut commissions to zero when Emanuel and the brokerage’s founder met.
Swaps data: third-quarter clearing volumes increase across all asset classes
Amir Khwaja – Risk.net
The third quarter of 2019 has delivered growth in cleared over-the-counter derivatives volumes across all asset classes. Interest rate swaps in dollars and euros were the standout performers, with cleared volume jumping 60% compared with the same quarter a year earlier. Credit default swaps followed in a distant second place, with cleared volume for dollar-denominated instruments up by a third. There’s also an encouraging trend in foreign exchange options clearing, adding to growth seen during second quarter. Forex options are now on track to become the first OTC options product to clear in material amounts relative to the bilateral market.
Ken Griffin Has Another Money Machine to Rival His Hedge Fund
Tom Maloney – Bloomberg
Citadel Securities generated $3.5 billion of revenue in 2018; It handles more than 1 of 5 shares traded in U.S. each year Citadel Securities is sometimes dismissively referred to as “Citadel’s trading arm” — seen as a forgotten backwater of Ken Griffin’s hedge fund empire, where quants toil on complex algorithms to arbitrage tiny differences in stock prices or calculate bid-ask spreads for Treasuries.
Exchanges and Clearing
Cboe confirms acquisition of equities clearing house EuroCCP
Hayley McDowell – The Trade
Cboe Global Markets has confirmed it will acquire equities clearing house EuroCCP, in a move that would open doors for the exchange group to pursue clearing and equity derivatives trading in Europe. In a statement, Cboe said it has entered into a definitive agreement to acquire the pan-European clearing house and the deal is expected to close during the first half of next year, subject to regulatory approvals and clearances.
A Smarter Way to Get Options Data
John D’Antona – Traders Magazine
Trading options isn’t easy. The equity derivatives market trades to the beat of a different drum with investors not just having to choose whether to simply buy or sell, but decide whether the options contract is either a put or call, what strike price to execute the option at and the expiration date of said contract, just to name a few. Getting this information quickly, accurately and specifically can be a daunting task for the professional trader, let alone the retail one.
Itiviti voted best technology firm by proprietary traders
London, December 11, 2019 – Itiviti, a leading technology and service provider to financial institutions worldwide, has been recognized at the 2019 FOW International Awards, presented last night in London by the Global Investor Group.
A Fresh Option For An Aging Bull Market
Nick Griebenow – Financial Advisor
After so many years of rising stock prices, it’s only normal for investors to be apprehensive about the future of their stock portfolios. Virtually every equity benchmark is at or around a record high in this, the 11th year of the longest ever bull market, and valuations have become measurably inflated. At the same time, yields on fixed income securities have declined to levels less attractive than a standard savings account. So, where do investors turn when they see headwinds in the stock market and unattractive choices every traditional direction? We suggest turning to the options market.
Hedging rate exotics, Bergomi-style
Mauro Cesa – Risk.net
Banks typically hedge their positions in exotic rate derivatives, such as Bermudan swaptions, using vanilla interest rate swaps. By doing so, they hedge their portfolio imperfectly. They can delta-hedge the first-order profit and loss risks, using swaps to mimic the exposure to movements in rates or volatility. But second-order P&L risks from gamma and theta – the exposure to the rate of change of the underlying, and exposure to time decay of an option, respectively – can be more difficult to manage. Inefficient hedging and unwanted exposure are problems banks have so far lived with, as a satisfactory solution has not yet been proposed.
Outsourced Trading, Part 2: Outsourced Traders’ Perspective
Michael Mollemans – TABB Forum
Outsourced trading started from humble beginnings over twenty years ago as an option for start-up hedge funds that could not afford their own in-house trading team. Today, there is no one-model of outsourced trading. We are seeing traditional sell-side brokers, prime brokers, clearing & custody banks, boutiques, technology firms, etc. entering the outsourced trading service space with their own unique brand of outsourced trading service offerings.