Observations & Insight

Hurdling Options Obstacles: OptionsPlay Finds Advisors Need as Much Help as Retail Investors
Spencer Doar – JLN

When trading options, the options chain is both an advertisement and entry point for the retail investor. But for an options novice, a chart of prices for puts and calls is not the most clear or engaging means of joining the fray.

Founded in 2012, OptionsPlay has some 70,000 users and aims to remove the clutter and noise from trading options with straightforward explanations, strategy visualizations, strategy recommendations and technical data and analysis.

What founder Mark Engelhardt and crew didn’t realize when they started the firm was that it’s not only retail traders who need an assist— financial advisors are desperate for tools to help adopt and implement options trading, too. In its nascent stages, OptionsPlay focused on licensing its product to discount brokerages and the like (Merrill Edge, eOption and SogoTrade use OptionsPlay). Over the course of growing the business the firm realized the different, sizable market right on their doorstep.

Read the rest here.


Lead Stories

Who trades options the most? Millennial investors
Ryan Vlastelica – MarketWatch
Millennials are frequently criticized by market experts for the way they invest—or, more accurately, the way they’re not investing—but recent research indicates that at least some young traders are going about things in a more sophisticated way than they’re typically given credit for.

****SD: I wrote about this down at OIC a few weeks ago – Millennials and Options: A Perfect Match? (The answer to the title is “Yes.”)

EU’s Market Rules Revamp May Be Slower Than Traders Fear
Silla Brush, Alexander Weber and Frances Schwartzkopff – Bloomberg
With Jan. 3 start date looming, industry sees more phase-ins; Firms may get extra time for stock, swaps and commodity rules
The “big bang” the financial industry feared when the European Union’s overhaul of financial-trading rules takes effect in January may turn out to be more of a soft launch.

****SD: Doesn’t get much slower than this…

Suspicion of VIX manipulation
Stephen Alpher – Seeking Alpha
According to a paper from two University of Texas researchers, a quirk leaves the volatility market vulnerable to a sophisticated trade involving pushing around the prices of underlying S&P 500 options in order to manipulate the value of VIX derivatives as they settle.

****SD: More on the topic that Bloomberg’s Matt Levine delved into in yesterday’s top story. Link to the referenced WSJ story here. I love the CBOE’s response — the work is based on “fundamental misunderstandings.” The paper was written by a University of Texas finance professor and a PhD student at the school, so insert your favorite Lone Star State joke here.

Traders see less upside for the S&P 500 than ever before
Alex Rosenberg – CNBC
Are stocks more likely to rise by 5 percent over the next three months, or fall by 5 percent? According to the options market, it is resoundingly more likely that stocks will fall. In fact, put options that would have value in the case of a 5 percent S&P 500 drop cost more than six times as much as call options that would have value in the case of a 5 percent S&P 500 rise.

****SD: Greatest skew since 1990 according to Susquehanna strategist Stacey Gilbert — “If you wanted to buy … that 3-month 5% out of the money put, you would have to sell 6.2 times as many calls to finance that to be at zero cost. This ratio is much closer to two and change over the last, call it, seven years or so.” Ugh.

Wall Street’s workforce is slowly and relentlessly shrinking
Matt Turner – Business Insider
It’s relentless. Every year, the number of bankers and traders employed by the largest banks on Wall Street shrinks a little.

Exchanges and Clearing

China mulls launching more futures, options
Zhang Ye – Global Times
China is considering launching more types of futures and options to attract domestic commercial banks and foreign investors, China Securities Regulatory Commission (CSRC) Vice Chairman Fang Xinghai said Thursday.

****SD: Apple futures!

MIAX Options: Obvious Errors In Complex Orders
MIAX Options recently filed with the Securities and Exchange Commission a new harmonized rule, MIAX Options Rule 521, Interpretations and Policies .03, relating to Obvious Errors in complex orders in coordination with the other U.S. options exchanges.


HFT ambassador steps down from electronic trader Quantlab
Samuel Agini – Financial News
The president of Quantlab, a high-frequency trading firm that has been at the forefront of efforts to improve the industry’s public image, is stepping down after 10 years with the firm.

Regulation & Enforcement

Basel III reforms package closer to being finalised
Caroline Binham – Financial Times
A long-awaited package of reforms designed to stop banks gaming post-crisis rules will be finalised “in the near future”, according to the head of the committee that sets global standards. But Bill Coen, Secretary General of the Basel Committee on Banking Supervision, said after a speech in London that the reforms package would have a lengthy implementation period, possibly running to 2025. He added that a thorny technical debate was now much more narrowly focused.

White House budget envisions massive savings from Dodd-Frank rollback
Pete Schroeder – Reuters
U.S. President Donald Trump’s proposed budget estimates that the federal government could save $35 billion over the next decade by rolling back regulations governing Wall Street.


Wolverine Execution Services Bridges The Gap Between Voice And Electronic Trading
Wolverine Execution Services (WEX), a leading provider of premier technology and execution services to Institutional clients, announced yesterday the launch of “Request For Quote” (RFQ). This new functionality, within the WEX Trading Platform (WTP), will provide a simple and fully electronic workflow, which will mirror the traditional high touch trading.


Dividend Risk: Understanding Early Assignment
Doug Ashburn – The Ticker Tape
So you’ve got an options strategy in a stock or exchange-traded fund (ETF)—say a covered call, a naked call option, or even a multiple-leg strategy like a call vertical spread—that’s humming along, and all of a sudden you receive notice that one leg, likely a short in-the-money call, has been assigned. Worse yet, it’s happened right before the ex-dividend date.

****SD: I’ve learned to listen to Doug.

Keep your eyes on the credit markets, not Washington
Russ Koesterich, CFA, BlackRock – Nasdaq
Following a market friendly outcome in the French election and less market friendly political rumblings at home, the locus of political anxiety has shifted from Europe to the United States. However, with the exception of a sharp but brief spike in volatility on May 17, investors are looking past the turmoil in Washington. Is this smart? Ultimately the answer has more to do with financial market conditions rather than machinations in Washington. In comparing political volatility with the market variety, it is useful to have a measure of the former. One increasingly popular measure is the Economic Policy Uncertainty Index , a joint collaboration by professors at Northwestern, Stanford and the University of Chicago.

****SD: Anything to take my eyes off of Washington.

Swim Lessons: A Primer on Option Probabilities
Kevin Hincks – The Ticker Tape
In our daily Swim Lessons program, co-host Scott Connor and I often refer to some trades and strategies as “high probability,” but what does that phrase really mean? Probability is generally defined as the likelihood of an event happening, within a certain time frame, expressed as a percentage. With option trades, the “event” may be the likelihood of an option being in-the-money (ITM), and the “time frame” might be the option’s expiration.

Hedge funds are betting billions that a stock loved by millennials will plummet
Business Insider
A battle is brewing over the best-performing stock since last year’s US election. The company in question is Nvidia, which has enjoyed a particularly charmed existence since November 8. The graphics-chip maker’s stock price has exploded 95% higher since then, the biggest gain in the S&P 500 by almost 30 percentage points.

****SD: I don’t include much single stock news, but NVDA truly has been special.


5 things you need to know about ‘VIX,’ the Volatility Index
Shen Lu – Northwestern University, Medill Reports Chicago
Unlike emotional volatility, volatility in the stock market can be tracked and measured. Here are five basics of the VIX that you need to know.

****SD: What are five things that I don’t need to know about the VIX?


How the Fed plans to unwind massive market stimulus
Sam Fleming and Joe Rennison – Financial Times
Federal Reserve policymakers are homing in on plans to unravel the huge stimulus implemented after the 2008 financial crisis to support bond markets. The US central bank has approximately $4.5tn of assets on its balance sheet — largely made up of government debt and mortgage-backed securities accumulated since the crisis. It has begun to outline how it will pare back these asset holdings.

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