Lead Stories

The U.S. Dollar Replaces a Broken VIX Index
Brian Kelly – RealClearMarkets
The VIX Index is broken. It no longer provides an accurate measure of the amount of leverage in the financial system. This poses a problem because central bankers, regulators, policy makers and economic forecasters all use the VIX as a the central measure of leverage.

Tail risks wagging the dog with Wall Street fear gauge
Miles Johnson – Financial Times
When a man goes bankrupt it happens in two ways: first gradually, then suddenly. Those who look to financial markets for meaningful information about the future must accept the risk that the market may be wrong. The problem for those who place their faith in its predictive powers is that — like the bankrupt described by Ernest Hemingway — when investors discover they are wrong they too realise it in two ways; first gradually, then in a sudden panic.

Oil Bets Are Biggest in 9 Years Amid OPEC, Trump Volatility
Mark Shenk – Bloomberg
Producer, hedger bets on WTI rise to highest since 2007: CFTC; Oil traders bought record number of WTI calls on Nov. 15
Money managers, producers and consumers made the biggest bets on West Texas Intermediate crude prices in nine years, amid signals more volatility is coming.

****SD: Check out Self-Financing Oil: Digitizing the Commodity Lifecycle at Tabb Forum as well.

Bond Market Moves May Lead to – ‘Normal Markets’?
Bob Lang – CBOE Options Hub
The amazing sell off in the bond market over the past couple weeks since the election ended did not go unnoticed by market players. I’ve seen a ton of articles now proclaiming the ‘bull market in bonds is over’, and the ‘bear is going to growl over bonds’. Yet, the long bond has not even reached the highest levels seen in 2015! All the sudden, the calls for the end of the bond bull are everywhere? It might be true, but color me skeptical (so far).
How many calls for this bond market bull to end? Year after year we hear it, yet it never materializes. Like the boy who cried wolf?

The Option Queen Newsletter
J.A. Schwarz – The Option Queen Newsletter
Yowie…….look at the US Dollar’s rise! Ten days of back to back rallies took the US Dollar to a high of 101.54 in the Friday session. Next target 102.53! That said, it is time for the US Dollar to retreat and, as they say, back and fill a bit before attempting to further its progress higher. The S&P 500 has not as yet removed the highs seen in August. Interest rates have run to the upside as money exited the trade.

Investors bet Trump stimulus will boost U.S. stocks
David Randall and Jonathan Stempel – Reuters
U.S. voters’ decision to install Donald Trump in the White House may extend the life of the aging, seven-year bull market in U.S. stocks.
That is the consensus of prominent investors attending this week’s Reuters Global Investment Outlook Summit.
Expectations that Trump will successfully engineer massive new infrastructure spending, slash corporate and some personal income taxes, and wipe out a slew of regulations may boost prospects for U.S. stocks, and end what some investors call a three-decade bull market in bonds.

Hedge Funds That Backed Trump Enter Washington, Demands in Hand
Simone Foxman – Bloomberg
Donald Trump, the candidate, was blunt: “Hedge fund guys are getting away with murder.”
But Donald Trump, the President-elect, is going a bit easier on the hedge funders — to huzzahs from the industry. In Trump, hedge-fund types are finally getting their day in Washington. One of their own, Steven Mnuchin, is even a contender for Treasury secretary.

Derivatives Data Suggests More Weakness For Nifty
Agam Vakil – Bloomberg
The NSE Nifty 50 Index closed its worst week since February on a flat note but its underlying variables reflect near-term concerns for the traders with long positions. The benchmark closed only 6 points lower but its open interest in futures across all series declined by 4 percent indicating unwinding of positions.


Chicago firm plans to launch an open-outcry trading floor
Lynne Marek – Crain’s Chicago Business
Box Options Exchange is building the first new trading floor in Chicago in decades, bucking a trend of shrinking and shuttering pits nationwide. Over the past 20 years, major exchanges such as Chicago operators CBOE Holdings and CME Group have closed pits in favor of more efficient and transparent electronic systems. “Many people would like to see less floor trading rather than more, and I wouldn’t rule myself out,” says Ed Boyle, CEO of parent Box Holdings Group. “But the fact of the matter is, there are some types of trades that are better suited to the floor.”

CBOE Holdings Announces Early Termination of Hart-Scott-Rodino Waiting Period for Bats Acquisition
Press Release – CBOE
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced that the U.S. Federal Trade Commission has granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR), in connection with its proposed acquisition of Bats Global Markets, Inc. (Bats: BATS). The end of the HSR waiting period allows the proposed acquisition to continue to move forward toward closing. The transaction remains subject to other customary closing conditions, including the approval of the stockholders of both companies, and receipt of other required regulatory clearances and approvals.

US Futures Volume Remains on Pace for Record Year
Tom Lehrkinder – TABB Forum
Expected volatility in the fourth quarter of 2016 likely will drive US futures trading volume to a record 3.4 billion contracts for the year. Meanwhile, the number of FCMs continued to shrink, as two more left the business, bringing the total to 68 at the end of August 2016.

****SD: Key — “… options on futures volume is projected to jump to a record 836 million contracts, which represents an 11% increase year-over-year. Metals are leading the charge, with a projected increase of 23% over 2015.” I wrote about the growing OOFs complex a month ago. To check out that story, “A Tangled Web: Exploring The Explosive U.S. Growth Of Options On Futures,” click here.

CME to hire DME’s Johnson to target energy
Luke Jeffs – Futures & Options World
Johnson, who was at DME for over four years, will join CME in London next week
CME Group is set to hire Owain Johnson, a former managing director at the Dubai Mercantile Exchange, to run energy research and product development in London, marking the latest senior management change at the US exchange giant. Johnson, who worked for the Merc in Singapore before joining the Dubai-based exchange in late 2012, is set to become CME’s London-based managing director of energy research and product development on November 30, according to the exchange.

S&P Global Platts & Intercontinental Exchange (ICE) to Improve Natural Gas Price Transparency and Bolster North America Benchmarks
Press Release – Intercontinental Exchange
S&P Global Platts (“Platts”), the leading independent provider of information and benchmark prices for the commodities and energy markets, and Intercontinental Exchange (ICE), a leading operator of global exchanges and clearing houses, today announced they have entered into a strategic agreement to strengthen North America’s natural gas benchmarks, streamline the reporting process, and further improve transparency in over-the-counter (OTC) pricing.

LSEG Makes Derivatives Push
Rob Daly – MarketsMedia
Regulatory permission for transatlantic trading and a new rates market has the London Stock Exchange Group making a major derivatives push into 2017.
The exchange operator began trading on its CurveGlobal interest rates derivative market in late September.

Regulation & Enforcement

CFTC Chair Massad Urges New Administration to Continue Derivatives Market Reforms
Bob Zwirb – CadwaladerCabinet
In an address before the CME Global Financial Leadership Conference, CFTC Chair Timothy Massad described the Commission’s accomplishments in derivatives regulation and emphasized that he does not expect that administration to effect a “wholesale repeal” of the Dodd-Frank Act because “there’s a growing consensus that the reforms made to bring transparency and oversight to the swaps market made sense.”


In Calm Markets Should We Buy “Cheap” Put Protection?
In the current market environment, investors are understandably worried about tail risk. Overall asset valuations are high, uncertainty is elevated, and markets have been generally stable for a long time. nvestors worried about the prospect of a big market drawdown often look for portfolio insurance for protection. The best sort of insurance is cheap insurance. We’ve written on a few ways to buy insurance on the cheap.

Time To Reload On VIX?
Peter Tchir – Forbes
VIX peaked above 22 on the Friday before the election. In the aftermath of the election result, VIX climbed back to almost 22 on November 9th. Since then it has steadily declined and closed on Friday at 12.85. That is consistent with the the idea that VIX would increase into the election (here and here) and would decline after the result due as I wrote here on the morning after the election.

Goldman Sachs has an idea for how to make money this holiday season
Alex Rosenberg – CNBC
Looking for a fun Christmas gift? Perhaps you should consider stuffing some stockings with options on retail stocks. In a note released this week, Goldman Sachs’ options research team opined that “there are significant catalysts for many retail stocks — including high uncertainty around Holiday selling season, preannouncement season for the sector and the ICR XChange Industry conference in January.”

Paulson’s Big Long: A Bet on Trump Yields Power and Profit
Joe Light – Bloomberg
John Paulson went long Donald Trump when much of Wall Street went short. Now, he’s reaping the rewards. Since making a fortune on the U.S. housing collapse a decade ago, the hedge-fund billionaire’s company has played a key role in lobbying in Washington. Much of it is directed at Fannie Mae and Freddie Mac, the giants at the heart of the nation’s mortgage market.

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