Is the VIX Being Gamed?; Bullish Options Positioning; Traders Love Crypto Stock Moves

Jan 10, 2018

Lead Stories

Is the VIX Being Gamed? A Sudden Swoon Has Traders Talking Again
Nikolaj Gammeltoft and Cecile Vannucci – Bloomberg
It made for quite a chart.
On the morning of Dec. 20, just as billions of dollars of futures tied to the Cboe Volatility Index were set to expire, the index plunged. The result was a settlement price, a weekly value critical to holders of some the most heavily traded derivatives in the country, that was 13 percent below the prior day’s close. A nice break, if you were short.

****SD: I think one upside to this whole conversation is more people get exposed to the inner workings of the VIX – anything to dispel the notion the index is simply a number representing “fear.” I would love for ProShares or Barclays to conduct a survey regarding the knowledge base of those folks (retail or institutional) trading VIX futures-based ETPs. Start off simple, like “Can you trade spot VIX?” and go from there.

Stock market investors make ‘fundamental shift’ in bullish outlook
Akin Oyedele – Business Insider Prime (Subscription)
Recent options-trading activity suggests “a more fundamental shift in outlook, rather than just bullish tactical positioning,” according to Credit Suisse.
The past two weeks have seen a drop in the S&P 500’s six-month skew, which measures option prices betting on a decline relative to those betting on a rise.

****SD: Wanna know something else that turned bullish and super active? Kodak. I check in on the OIC’s daily “most active” options list from time to time – as of this writing, volume in Kodak options put it in 7th place. Total volume of around 78,000 contracts is good for 9994 percent of its usual daily volume. Geez. See below story.

Traders Aren’t Falling for Crypto Name Changes But Love Them Anyway
Brandon Kochkodin – Bloomberg
Professional day traders are jumping into speculative frenzy; HFTs, algos also pour in, trying to profit off of ‘dumb money’

****SD: Not an options story per se, but another example of the “Hey, if there’s volatility, I’m there” phenomenon. Steve Sosnick, chief options strategist at Interactive Brokers, quoted in the story: “It’s a technology with great potential, but investors need to be extremely skeptical because these companies are flashing a big, red caveat emptor.”

Commentary: Vol-mageddon – is the hype warranted?
Roni Israelov and Harsha Tummala- Pensions & Investments
Volatility is low and that has people concerned. So much has been written about this subject that one columnist has wryly observed “people are worried that people are not worried enough,” which implies markets are supposed to move a certain amount. Some analysts have gone further, presenting an analogy between low market volatility and an overcompressed spring. They claim pressure in this spring is building, and when it explodes, the carnage will be massive — particularly for option sellers.

U.S. T-note volatility index highest in nearly a month
The CBOE/CBOT 10-year U.S. Treasury note volatility index rose to its highest level in almost a month on Wednesday, as a Bloomberg report that China might pare or stop its purchases of U.S. government debt knocked 10-year T-note futures to their lowest levels in more than nine months.

****SD: Well, that’s strange – not like anything has happened.

Exchanges and Clearing

NCDEX to launch guarseed options trading on Jan 14
Business Line
The National Commodity and Derivatives Exchange (NCDEX) plans to launch guarseed options on January 14.

****SD: Guarseed’s most common appearance in our daily lives is in the form of guar gum, a thickener/stabilizer used by the food industry. One thing I did not realize is that guar gum is used in the fracking industry now, too.

Cboe Global Markets Announces General Counsel’s Planned Retirement and Successor’s Appointment
Cboe Global Markets, Inc. today announced the planned retirement of its Executive Vice President, General Counsel and Corporate Secretary Joanne Moffic-Silver, after 37 years of service to the company, on February 28, 2018. Cboe plans to promote Patrick Sexton, currently Deputy General Counsel, to Executive Vice President, General Counsel and Corporate Secretary, effective March 1, 2018.

BOX Options Exchange: Floor Broker Guarantee
Effective Tuesday, January 9, 2018, the minimum eligible order size for the Floor Broker Guarantee provided in BOX Options Exchange (“BOX”) Rule 7600(f) will be decreased to fifty (50) contracts.

Bitcoin and the Commitment of Traders Report
Russell Rhoads – Cboe
Those of us in the financial markets have been learning new phrases such as “hash rate”, “block height”, and “hard fork” since the launch of Cboe Bitcoin Futures last month. Crypto traders that have embraced bitcoin futures are having to get up to speed on the listed markets. Something that is new to the crypto space is the Commitment of Traders Report (COT Report) that is released by the CFTC each Friday.

OPINION: Exchange Data Wars Continue
Rob Daly – Markets Media
The first round in the litigation between the Securities Industry and Financial Markets Association against NYSE Arca and Nasdaq regarding the pricing of their respective depth-of-book data feeds has gone to the exchange operators, but it was not a knockout and more rounds are ahead.

Regulation & Enforcement

CFD Derivative Firms Fall as Watchdog Has `Serious Concern’
Donal Griffin, Edward Robinson and Stefania Spezzati – Bloomberg
Shares at a group of European brokers that sell complex derivatives to retail investors fell after a U.K. regulator’s review of the industry found “areas of serious concern.”
IG Group Holdings Plc was down 4.4 percent to 745 pence in London trading as of 4:05 p.m., making it one of the worst performers on the FTSE 250 Index, while CMC Markets Plc was down 2.7 percent and Plus500 Ltd. slid 5.5 percent. The Financial Conduct Authority criticized how firms target customers for the derivatives, known as contracts for difference, or CFDs, and cited weaknesses in due diligence, conflict-of-interest controls and industry pay practices. More than three-quarters of customers lost money over the 12-month period the FCA reviewed.


Boards Seek Bigger Role in Thwarting Hackers
Kim S. Nash, Joann S. Lublin and AnnaMaria Andriotis – WSJ
Corporate boards are seeking greater insight into cybersecurity risks in the aftermath of the recent breach at Equifax Inc.
The hacking attack on the credit-reporting firm last summer was a defining moment for directors, say technology and corporate-governance experts.

****JB: OCC’s Mark Morrison is quoted in the article.


Speculative Players Still Not Complacent on the VIX
Bernie Schaeffer – Schaeffer’s Research
The front-month January 25 call is VIX’s biggest open interest strike

FX Options Market Update: January 10, 2018
Dan Larsen – (PDF)

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