Observations & Insight

Happy Fourth of July

Friendly neighborhood editor here: There will not be an edition of JLN Options on Monday, July 3 or Tuesday, July 4. We will be back in action on Wednesday. For everyone stateside, have a great holiday.

And for those of you who are into all things black powder, remember, safety first.


Lead Stories

TradeStream Analytics targets Equinix in antitrust litigation
Maria Nikolova – FinanceFeeds
Equinix is accused of violations of the Sherman act (Monopolies and Combinations in Restraint of Trade), as TradeStream says Equinix misused its alleged monopoly in low latency access and co-location to major trading destinations.

****SD: Whoa. Super intriguing. This could be a co-lo game changer. “The plaintiff claims that unless one uses Equinix’s services, there is no other low latency access available to the NASDAQ Exchange, Boston Stock Exchange, Philadelphia Stock Exchange, International Securities Exchange Holdings, Inc., BATS Trading, EDGA Exchange and EDGX Exchange, the Chicago Board Options Exchange or the Miami Stock Exchange for stocks and options.”

Volatility Might Be Awakening From a Coma, But It’s Still Groggy
Garfield Clinton Reynolds – Bloomberg
Volatility is picking up again in markets after a prolonged period in the doldrums. The S&P 500 Index tumbled the most in six weeks on Thursday and Treasuries are heading for their worst four-day slump since March.
Investors responded with a rush to the hedges — driving up options prices that are tracked by fear gauges and feeding concern this year’s relentless stock rally is teetering on the brink of a serious reversal.

****SD: Whatever vol does, I will say I haven’t had as much fun chart watching as I did yesterday in quite some time.

VIX corralled once again
Reuters via Times of India
In midst of S&P 500’s near 1.5 pct plunge Thurs, VIX surged > 5 pts, hit 6-week high

****SD: Brief of yesterday’s options-related action with more here. They’ve got a 2-year chart comparing SPX to VIX that’s kind of interesting. Also see Zero Hedge’s VIX Briefly Hits The Kolanovic “Catastrophic Loss” Level and “This Is Getting Out Of Hand” – Another Vol Event Strikes As FANGs Face Worst Week In 5 Months. The “this is getting out of hand” quote is courtesy of John Bollinger (of band fame) on Twitter. Here’s an Investing.com article that tries to make sense of the spike.

Angst for Everyone in Markets as Chips Bleed With Bonds, Dollar
Jeran Wittenstein and Lu Wang – Bloomberg
The shroud of tranquility that has blanketed asset markets for the last eight months has been pulled back a bit.
Volatility is suddenly proving hard to get rid of in places like semiconductors, whose commercial ubiquity makes them a proxy in some eyes for economic growth. Treasury yields are rising at the same time the dollar’s falling, hinting at anxiety about central bank policy. This year’s hottest risk-on trade, the so-called Fang block of U.S. megacaps, has started taking lumps.

Hedge Funds Pile Into Aussie Options Betting RBA Joins Hawks
Lananh Nguyen and Robert Fullem – Bloomberg
Implied volatility surges for 1-week Australian dollar options; Volatility picking up around RBA, Riksbank policy meetings
Speculators looking to profit from the hawkish shift among global central banks have a fresh target: the Australian dollar.

Exchanges and Clearing

CBOE, WisdomTree Win 2017 Sharpe Product Award for Index/ETF Based on CBOE S&P 500 PutWrite Strategy
CBOE Holdings, Inc. today announced CBOE and WisdomTree Investments, Inc., received the Index/ETF Product of the Year Award for the CBOE S&P 500 PutWrite Index (PUT) and the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW). The award was announced Monday at the 22nd annual William F. Sharpe Indexing Achievement Awards, presented by Investment Management Networking (IMN) and The Journal of Index Investing in Dana Point, California.
WisdomTree launched the exchange-traded fund based on CBOE’s S&P 500 PutWrite Index on February 24, 2016. Fund assets under management in PUTW were approximately $164 million as of June 27, 2017, according to the fund manager.

‘Aristocrat of wheat’ soars in price as US drought worsens
Gregory Meyer – Financial Times
The price of a wheat prized for baking bread has soared on the back of a worsening drought in the US High Plains, attracting record trading volumes and hedge fund activity in an otherwise sleepy corner of the commodities markets.

****SD: It’s kind of a MGEX story, hence why I have it in this section. The exchange has been on a tear in regards to setting volume records. (Did you know that hard red spring wheat is the “aristocrat of wheat”? I didn’t.)

Amended: Nasdaq ISE Fee Alert, Effective June 30, 2017
Effective Friday, June 30, 2017, pending filing with the SEC, the following changes will apply to transactions on Nasdaq ISE.
As part of the ISE migration to INET, there will be no fees or rebates for executions in the following symbols on the INET trading system.

MIAX Regulatory Alert
FINRA received approval to amend FINRA Rules 12402 and 12403 of the Code of Arbitration Procedure for Customer Disputes and FINRA Rule 13403 of the Code of Arbitration Procedure for Industry Disputes to provide that the Director of FINRA’s Office of Dispute Resolution will send the list or lists generated by the Neutral List Selection System to all parties at the same time, within approximately 30 days after the last answer is due, regardless of the parties’ agreement to extend any answer due date.


Traders Who Left Banks for Hedge Funds Heading Back to Banks
Stefania Spezzati and Nishant Kumar – Bloomberg
Trump administration could rewrite some Dodd-Frank regulation; Low liquidity and volatility means hard slog for macro funds
Traders who fled banks for hedge funds are on their way back to Wall Street.

Regulation & Enforcement

Commodity hedge funds see low position limits, tax as hurdles
Rajesh Bhayani – Business Standard News
Hedge funds in commodity derivatives may begin business cautiously, exactly the way the regulator intended it.


Is A Big Move In Oil Prices Due? – Analysis
Brian Noble – Eurasia Review
In options trading, a straddle is literally a sit-on-the-fence strategy. By purchasing a put and a call at the same strike (price of underlying commodity) for the same time period, an investor isn’t making a conventional directional bet; rather the investor is looking for a big move either up or down. The rub is that the big move must be greater than the sum of the two option premia or the bet goes south. But that is in the nature of the trade.

Dollar bulls have a lot to worry about in second half of 2017
Anora Mahmudova – MarketWatch
The poor performance of the U.S. dollar during the first half of 2017 is not all that surprising given how varied forecasts were at the end of last year.
End-of-2017 target levels for the euro-dollar pair, for example, ranged from just below parity at 97 cents to as high as $1.15 by the end of the 2017, according to The Wall Street Journal. Many of the bullish calls for the dollar were driven by a rapid rise of the greenback following the U.S. presidential election, which brought Donald Trump to the White House.

****SD: In other currency news, Brightening economy sets euro up for strongest quarter since debt crisis


A Beginner’s Guide to Options Pricing
Katie Coburn – Schaeffer’s Research
Option pricing is calculated using the Black-Scholes model, which takes four influential factors into account: the price of an underlying stock (assuming constant drift and volatility), an option’s strike price, the amount of time until the option expires, and a constant, risk-free interest rate. Today, we’ll dive into two of these option pricing influences: intrinsic value and time value.


Are Central Bankers Twisted Geniuses, or Just Twisted?
James Mackintosh – WSJ
Are central bankers twisted geniuses manipulating the markets in order to meet their inflation goals? Or are they bumbling ex-academics whose ramblings are overinterpreted by investors besotted with their brilliance?

****SD: I was trying to think of the first time I heard about central banks as a kid. I’m not sure, but I believe it came up in the context of Fort Knox’s gold reserves the first time I saw “Goldfinger” (which would have made me pretty young).

Warren Buffett just made a quick $12 billion on Bank of America
John Melloy and Liz Moyer – CNBC
Because of an astute investment made in Bank of America six years ago while the bank was struggling, Warren Buffett is about to make a quick $12 billion and become the financial institution’s largest shareholder.
Buffett’s Berkshire Hathaway said Friday it will exercise warrants in Bank of America that will allow it to acquire 700 million common shares in the bank at an exercise price of just $7.14 each, or about $5 billion.

****SD: To put this in Warren Buffett terms, he just made 4.013 billion Sausage McMuffins with Egg (using an average price of $2.99 per Golden Arch staple).

Shkreli’s Hedge Fund Went From Success to Bust in 31 Minutes
Patricia Hurtado and Misyrlena Egkolfopoulou – Bloomberg
In 31 minutes a hedge fund managed by Martin Shkreli in 2012 went from a roaring success to an empty shell, one of his investors told a jury.
Sarah Hassan, 27, who gave Shkreli $300,000 to invest, said she got an email at 8:13 p.m. on Sept. 9, 2012, saying she was up $135,000, a return of 45 percent. At 8:44 p.m., Shkreli sent out a second email notifying Hassan and other investors he was shutting the fund down.

****SD: Pop goes the weasel!

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