Traders embracing Nifty weekly options; NYSE sues SEC; Market maker perceptions

Feb 15, 2019

Observations & Insight

T.G.I.F. Notes
Spencer Doar – JLN

Check this out, via MLex: “The US Commodity Futures Trading Commission would get a 7.6 percent funding increase [up to $268 million], its first in four years, under a bipartisan bill passed by the Senate today and expected to be signed by President Donald Trump.” Giancarlo asked for $281.5 million.

Illinois Governor J.B. Pritzker formed two task forces to tackle the states pension problems, the Pension Consolidation Feasibility Taskforce and the Pension Asset Value and Transfer Taskforce. The former CEO of the CBOE, William Brodsky, is co-chairing the first task force alongside Pat Devaney, president of the Associated Fire Fighters of Illinois, and former Illinois Senate Minority Leader Christine Radogno.

Monday is a holiday in the U.S., but there will be an abbreviated options newsletter anyway. Get the relevant details regarding the holiday from MarketWatch.

Lead Stories

First Expiry Shows Speculative Traders Embracing Nifty Weekly Options
BloombergQuint Research
Nifty 50 weekly options ended with more than 3.15 times the volumes of the monthly options in the inaugural four-day week as speculative trading shifted to shorter-duration contracts. Volumes in call options expiring on Feb. 14 was 3.4 times the volume of similar contracts for Feb. 28 expiry, according to data available on the National Stock Exchange website. Volumes of the weekly put contracts were 2.85 times the monthly options.

We’re Suing the SEC to Protect the Stock Market
Stacey Cunningham – WSJ (SUBSCRIPTION)
The S&P 500 swung up and down more than 1% on nine different days in December, a gyrating month dominated by uncertainty over the Federal Reserve and a looming government shutdown. On Dec. 18, Treasury Secretary Steven Mnuchin met with reporters to assess the damage. “In my opinion,” he said, “market structure has led to a lot more volatility.” And it wasn’t yet Christmas Eve when the Dow Jones Industrial Average plunged another 653 points.

****SD: What are the hourly rates for attorneys on stuff like this?

Market Makers and Their Perceptions of U.S. Listed Options Markets
Andy Nybo, Burton-Taylor International Consulting – TABB Forum
With 15 options exchanges fighting for order flow, market makers are forced to spend considerable resources to manage operations, ultimately eroding their profitability. Some of the largest market making firms spend more than $50 million annually to maintain an edge over rivals, and these costs are only expected to continue their meteoric rise.

****SD: I missed Andy’s recap of the study from earlier in the week! Apologies.

Valentine’s Day end to divorce drama: Pat Arbor ‘delighted to be out’ of jail
Ex-CBOT chief Patrick Arbor released from jail after reaching divorce settlement with ex-wife
Mark Brown – Chicago Sun Times
Call it the Valentine’s Day Peace Treaty.
Former Chicago Board of Trade Chairman Patrick Arbor was released Thursday morning from Cook County Jail after reaching a financial settlement with his ex-wife in their epic divorce battle.
The 82-year-old Arbor had spent the past nine months in jail on a civil contempt of court charge stemming from his decision to flee to Europe in 2012 rather than comply with court orders requiring him to make payments to ex-wife Antoinette Vigilante.

****SD: What a tabloid saga. Also see Crain’s Chicago Business.

Billionaire Stanley Druckenmiller placed bet against Tesla during Q4
Kate Duguid – Reuters
Billionaire investor Stanley Druckenmiller bet against electric carmaker Tesla Inc during the fourth quarter, wagering that its share price will fall, according to quarterly filings released on Thursday.
Druckenmiller’s family fund, which shares the name of the hedge fund Duquesne Capital that he founded in 1981, bought put options on Tesla shares worth $99.8 million, a Security and Exchange Commission filing revealed.

****SD: It’s 13F season.

CAT’s Tale: How Thesys, the SROs and the SEC Mishandled the Consolidated Audit Trail
James Rundle and Anthony Malakian – WatersTechnology (SUBSCRIPTION)
The removal of the technology company building an ambitious database to track all equity and options trades in the US sent shockwaves through Wall Street at the end of January, providing a dramatic end to the first act of an already-theatrical story.

Exchanges and Clearing

Japan Exchange Group, TOCOM to merge this year: sources
Japan Exchange Group Inc (JPX), owner of Tokyo Stock Exchange, and the Tokyo Commodity Exchange Inc have decided to merge, two sources with direct knowledge of the talks said, as Japan pushes to create an all-in-one bourse.

Terry Duffy Talks Q4 Earnings and Markets (VIDEO)
CME Group
CME Group Chairman and CEO Terry Duffy discusses fourth quarter earnings and markets on Yahoo! Finance and Bloomberg TV.

Regulation & Enforcement

BSE illiquid stock options: Sebi slaps Rs 10 lakh fine on a firm for fraudulent trade
Business Standard News
Markets regulator Sebi Friday slapped a penalty of Rs 10 lakh on Poonam Drums and Containers Pvt Ltd for fraudulent and manipulative trading in illiquid stock options on the BSE.


An Energy Options Strategy to Turn Fear Into Profit
Steven M. Sears – Barron’s
Inflation, which has barely registered for the past decade, is starting to spread through the economy. Major companies, including ‘s (ticker: AMZN) Whole Foods, Clorox (CLX), and Procter & Gamble (PG) are raising prices, and people are starting to pay more for food, diapers, soap, and other necessities. Pimco, a top bond manager, expects inflation to run 2% to 2.5% this year. If prices increase too much, the Federal Reserve would normally be expected to tame inflation with higher interest rates.

How to Play the Fed’s Coming Rate Cut
Randall W. Forsyth – Barron’s
The betting in the financial markets has shifted from further interest-rate hikes by the Federal Reserve to a possible cut by early 2020. That’s the message from the futures and options markets for short-term interest rates, where wagers on lower rates have increased recently. The monetary authorities’ pivot, initially articulated in early January by Fed Chairman Jerome Powell and confirmed after the Jan. 29-30 meeting of the Federal Open Market Committee, touched off a steep rebound in stocks and other risky assets. The S&P 500 was up 9.68% for the year through Wednesday, the eighth-best start to a year in the big-cap benchmark’s history and the best since a 10.68% spurt in the first 30 trading sessions of 1991, according to Bespoke Investment Group.

Don’t Like Buybacks? It’s Harder to Bet on the Flip Side
Stephen Gandel – Bloomberg (SUBSCRIPTION)
Senator Marco Rubio has joined the buybacks-are-bad-for-America bandwagon, calling for a new tax that would neutralize the advantage repurchases have over dividends. The perceived advantage that buybacks have for investors might have gone away a while ago, but it turns out it’s harder to bet that way.
Earlier this week, Bloomberg Intelligence compared the stock performance of companies that have devoted more of their earnings to share buybacks with those that use their profits to invest back into their businesses through increased capital expenditures. The surprise was that even as buybacks have surged in the past few years, companies that have done the most repurchases have generally performed worse than those that have increased capital spending.

Hedge Funds in Tug-of-War With Most Volatile Major Currency
Ruth Carson and Adam Haigh – Bloomberg (SUBSCRIPTION)
Hedge funds are ratcheting up wagers on the Australian dollar — in both directions — after it became the most-volatile Group-of-10 currencies in the past month.
“It’s one of the best times to trade,” said Nader Naeimi, who has short positions on the currency at the dynamic market fund he manages at AMP Capital Investors Ltd. “A lot of the good news is priced in the Aussie now so there’s room for disappointment. That said, it’s still so influenced by risk-on, risk-off sentiment so it gives you room to trade.”

How MWS Capital’s Shapiro Is Taking Advantage of the Canada Goose Pullback (VIDEO)
On this edition of “Options Insight,” MWS Capital Consultants President Matt Shapiro discusses the performance of U.S. stocks and his options strategy with Bloomberg’s Abigail Doolittle on “Bloomberg Markets: The Close.”

****SD: In Chicago, Canada Goose was in the news because people wearing those jackets were targeted by robbers in mid January.


JPMorgan Has a Coin Now; Also mistaken identity, buybacks, insider trading and rap videos. Matt Levine – Bloomberg (SUBSCRIPTION)
Stablecoin! If you have U.S. dollars in a bank account at JPMorgan Chase & Co., and I have U.S. dollars in a bank account at JPMorgan Chase & Co., and I want to send you 100 of my dollars, what we do is I tell JPMorgan to subtract 100 from the number of dollars in my bank account and add 100 to the number of dollars in your bank account. This gets dressed up in a lot of procedures, because it would be bad if JPMorgan got the math wrong or if it moved money from one account to another without getting the proper authorizations, but as a matter of, like, computer science, it is dead easy. JPMorgan keeps a list of people and how many dollars they have, and you and I both trust JPMorgan to keep that list (that’s what it means that we bank there!), and so we just tell JPMorgan to update the list to reflect the transaction between us.

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