US Options Volume Gains Momentum in Q1 2017; Borussia Dortmund Bus Attacker Hoped to Profit From Share Slump; Options market signals the need for Europe to change

Apr 21, 2017

Observations & Insight

UChicago Midwest Trading Competition: The Next Generation Gets a Taste

On April 8, the University of Chicago hosted its fifth iteration of the Midwest Trading Competition, drawing 102 students from some of the most prestigious colleges and universities across the United States and Canada. The students got a chance to test their algorithms using Trading Technologies’ TT Platform in a variety of simulations involving pairs trading and options market-making.

But the event was more than just a fun way for smart kids to strut their stuff using real-world technology and market data. It was a rare networking opportunity for the students and sponsors — some of Chicago’s biggest prop shops had staff and management on hand to mingle. The day before the competition, Optiver and IMC hosted students at their offices and then Citadel took everybody out for ping pong and beer. For the sponsor firms, this was the perfect talent pool. As proof, some former participants were on hand, no longer as students but as employees of the firm they met when they competed in years past.

Read the rest and watch the video »

Lead Stories

US Options Volume Gains Momentum in Q1 2017
Tom Lehrkinder – TABB Forum
US listed options volume increased slightly in the first quarter, totaling 1.03 billion contracts. And even as volatility remained relatively non-existent, recent geopolitical events provide hope for increased trading activity.

Borussia Dortmund Bus Attacker Hoped to Profit From Share Slump
Karin Matussek – Bloomberg
In what seems like a plot from a James Bond movie, police arrested a man on suspicion he attacked the bus of German soccer team Borussia Dortmund GmbH last week as part of a scheme to profit from a slump in the club’s share price. The 28-year-old, who has both German and Russian citizenship, was apprehended in the southern city of Tuebingen on Friday, the Federal Prosecutor’s Office said. On the day of the April 11 attack in the team’s home city, he bought 15,000 options on Borussia Dortmund shares betting they would drop sharply after the attack.

****SD: I don’t even…

Options market signals the need for Europe to change
Myron Scholes and Ash Alankar – FT
In late February it emerged that officials from major financial institutions had been seeking and attending meetings with representatives of Marine Le Pen’s National Front in an attempt to understand the French presidential candidate’s economic proposals and possible plans to take the country out of the euro.

Investors duck for protection ahead of French election
Richard Leong and Saqib Iqbal Ahmed – Reuters
Hedging has become all the rage as investors seek cover ahead of Sunday’s national elections in France that could signal whether the country remains in the European Union. Prices for protection against wild swings in stocks, bonds and the euro have surged this week as polls have tightened and investors fretted that another unforseen election outcome could upend a solid start to the year for risk assets.

****SD: More French election options stories: Reuters – French vote widens gulf in U.S.-Europe stock volatility expectations; The Telegraph – Options market shows insider alarm on ‘Frexit’ upset; and Bloomberg – Euro Rises a Second Week as Bets Before France Vote Go Two Ways

Investors not yet ruffled by looming government shutdown
Chuck Mikolajczak and Saqib Iqbal Ahmed – Reuters
U.S. stocks have struggled since the timeline for the Trump administration’s pro-growth agenda came into question, but investors appear confident that next week’s deadline that could shut down the federal government will not become another market hurdle.

****SD: Why think about something that may not happen when there is definitely nutty French stuff going on?

Hedging will support US 2017 output: Deloitte
US oil and gas producers expanded their hedging at the end of last year and early this year which will allow them to sustain output even if prices weaken, consultancy Deloitte said. Most of the hedges taken by producers have been above $50/bl, ensuring steady cash flow to push ahead with investment plans for this year and possibly next year. But pushing through higher output even in a low oil price environment risks prolonging the oil market downturn as supply and demand remain imbalanced, said John England, vice chairman of the US energy practice at Deloitte, at the Mergermarket Energy Forum conference today.

Exchanges and Clearing

Chess Moves: Can Exchange M&A Really Make Shareholders and Customers Happy?
Jim Kharouf – JLN
I put CBOE’s John Deters on the spot. “Do you care about your customers, John?” I asked. “Yes, we care very much about our customers,” he replied. As chief strategy officer and head of multi-asset class solutions at CBOE Holdings, Deters really does care about them. But that is a question end users often ask about exchanges today, especially as we look at the M&A activity in the stock, futures and options space.

****SD: Jim has been a busy guy over in Frankfurt. Back in the fold next week.

Philadelphia Stock Exchange Moves To New Location
CBS Philly
The Philadelphia Stock Exchange, the nation’s oldest, has moved into new space. Nasdaq’s options trading market at 1900 Market Street is now in the FMC Tower at 30th and Walnut Streets.

Equity narrows its share of listed derivatives
Helen Bartholomew – Reuters
Equity derivatives saw their share of the exchange-traded derivatives market fall below 50% for the first time on record during 2016, data from the World Federation of Exchanges show.

****SD: Drawn from the WFE study this week.

Matt Chamberlain appointed LME chief executive
Hong Kong Exchanges and Clearing Ltd (HKEx) on Friday appointed Matt Chamberlain chief executive of the London Metal Exchange (LME), the world’s largest and oldest metals market.

****SD: In case you missed it, we sat down with Matt at Boca to get the lowdown on the LME’s plans for the upcoming year.

Regulation & Enforcement

Deutsche Bank Is First Bank Busted for Breaking Volcker Rule
Jesse Hamilton – Bloomberg
Deutsche Bank AG was hit with the Federal Reserve’s first major fine for failing to ensure traders abide by the Volcker Rule’s ban on risky market bets — and will also pay even more for letting currency desks chat online with competitors, allegedly revealing positions.

****SD: I’m just going to assume this involved a lot of funky derivatives activity.


Testing the Waters: Blockchain Technology is Edging into the Exchange Space
Jim Kharouf – JLN
By now, the hype surrounding digital ledger technology has subsided into reality. The reality, however, is that initial blockchain-based solutions are on the way. The hysteria that blockchain was going to be the big disruptor that puts clearinghouses out of business is essentially over. What is sprouting up instead are some interesting projects that are much more targeted at markets and sectors that beg for technological advancement.


Traders Are Losing Faith in European Banks as Earnings Loom
Justina Lee – Bloomberg
Investors in European lenders are getting cold feet. Riding on a wave of optimism over the economic and earnings outlook, an index of the region’s banks rallied to a 15-month high in March — before posting the second-biggest decline among industry groups this month. At the same time, bets for swings in lenders’ stocks have jumped, and options reached their highest prices since February 2016 relative to those for euro-area blue chips.

****SD: But all the headlines I see are sooo positive.

Short Some Shares and Call Me in the Morning
Meredith Kelley Zidek – CBOE Options Hub
Who wants to buy high and sell low? Why would anyone buy calls before the closing bell and sell them to someone for half price the next morning when the opening bell rings? When would anyone feel okay about buying for 88 cents and then selling for 45? Answer: When the calls are just a wrapper, a box designed to keep something else safe while in transit, like a shoe box protects the merchandise on the delivery truck so that your purchase isn’t thrown on the porch one shoe at a time by the people in the step van.

Rewrap and Return to the Store
Meredith Kelley Zidek – CBOE Options Hub
Before the paint was really dry I started tinkering with the reverse collar set up yesterday. The first thing I did, acting upon a suspicion (you could call it a wish) that the VIX would sift downward the next day (which is today, as I write this), is that I closed the short put. To recap the spread, it was as such, all of it opened yesterday, April 18th:

It’s Time to Load Up on Chocolates Before Cocoa Rebounds
Marvin G Perez – Bloomberg
Chocolate addicts, it’s probably a good time to start stocking up. The treats may not be this cheap much longer. Cocoa’s 41 percent slump over the last 12 months makes it the worst performer among 34 commodities tracked by Bloomberg. Prices tumbled as output increased in Ivory Coast, the world’s top grower, and the decline has pushed down retail prices for chocolates.

****SD: Buy chocolate? Consider it done.

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