Observations & Insight

Hits & Takes
By JLN Staff

Yesterday was a success for the MarketsWiki Education World of Opportunity at the Stuart School of Business at Illinois Tech in Chicago. We had six strong speakers who were appreciated by the audience of industry interns.

Rick Cooper, a professor at IIT’s Stuart School of Business, talked about the importance of the markets for funding companies and ensuring fair prices, and how participants help the economy in general by driving out market inefficiencies. Tom Sexton, NFA CEO, said that without regulation from bodies such as his (and FINRA, and the CFTC, etc.) to insure fairness, people wouldn’t use our markets; and he talked about the many job opportunities available in market regulation.

tastytrade’s Tom Sosnoff spoke about how trading gives people the ability to make quick decisions and to value goods and services. Paul Georgy, president of the introducing broker Allendale, outlined the “Three steps to thriving as a futures broker”. Dan Gramza, president of Gramza Capital Management, injected some zen into the conversation by reminding the audience that even in trading, “how we think creates our reality,” and that we cannot control the outcome of a trade, only our actions.

Rich Mackey, the president of Rosenthal Global Securities, wrapped things up by explaining what caddying as a teenager taught him about trading and building algos.

It was a lively and varied event, and the large audience stayed until the end, some hanging on to talk to the speakers afterwards.

Congratulations to the Osaka Exchange of the JPX Group. They are celebrating 20 years since the launch of securities options trading on their exchange.

Bob Greifeld has taken over as the new chairman of Virtu, reported late last week by several sources including Reuters.

Our friends at ICDA in Switzerland are happy to announce Eurex as sponsors and new CEOs joining as speakers for their Bürgenstock Conference. In addition, they announced the support of China Futures Association and Zug Commodity Association. The conference is scheduled for September 11 to 13.

We have two sponsored content pieces in today’s newsletter. One, from CME Group, highlights some of the key aspects for the Russell Indexes, now trading on CME with comments from Ron Bundy, of Russell, Blu Putnam and Tim McCourt, both of CME Group.

Our second sponsored content piece today is from the Intercontinental Exchange, which features a preview for key central bank meetings starting with the ECB meeting on July 20, the Fed meeting on July 25-26 and the Bank of England meeting on August 3.

Both are worth checking out.


Sponsored Content

Intercontinental Exchange

Upcoming Central Bank Meetings: When & What to Watch

Prepare for the next round of central bank meetings and learn how you can manage your exposure through ICE’s deeply liquid interest rate product portfolio.

Sponsored content from:
Intercontinental Exchange


Sponsored Content

Russell 2000

The Return of the Russell 2000

FTSE Russell Indexes have brought the Russell index futures and options back to CME Group. See what both have to say about the contracts and what it means for traders.

Watch the video above and visit us at www.cmegroup.com.

Sponsored content from:
Russell 2000


Lead Stories

The VIX just hit its lowest level in 24 years
Joe Ciolli – Business Insider
The stock market hasn’t been this sure of itself since President Bill Clinton first took office.
Or rather, the VIX, a measure designed to track stock market fear, is at its lowest level in 24 years.
While alarmists may view this as a negative — a signal that complacency has made traders vulnerable to an unforeseen shock — many investors simply see it as a byproduct of conditions ideal for stocks to continue edging higher.

****SD: Barron’s has a vol update too here.

Q&A with John Davidson, OCC President and Chief Operating Officer
John Davidson joined OCC on May 8 as President and Chief Operating Officer. He shares his insights on the listed options industry and his new responsibilities at the world’s largest equity derivatives clearing organization.

****SD: This is a link to the full OCC News for July.

Twice burned, funds wait for clear sign of oil rebalancing
John Kemp – Reuters
Hedge funds have continued to cover their short positions in crude and refined products, but the impact on oil prices has been surprisingly muted so far, with a much smaller rally in prices than expected. Hedge funds and other money managers reduced short positions in the five main futures and options contracts linked to petroleum prices by a combined 69 million barrels in the week to July 11.

BGC Brokers’ Capitalab Portfolio Compression Service Executes the First Interest Rate Swaps and Options Combined Compression Cycle
Capitalab, a division of BGC Brokers L.P., an entity within the BGC Partners, Inc. group today announced that its Swaptioniser(R) portfolio compression service has successfully executed the first combined Swap and Option compression cycle, eliminating over $100 billion of non-cleared Swaps, Swaptions and Caps & Floors notional, making it the largest Capitalab USD compression to date.

****SD: Notice the rare and elusive swaptions news, spotted in the wild!

Exchanges and Clearing

Osaka Exchange: 20th Anniversary Of Securities Options
Osaka Exchange, Inc. (OSE) is celebrating the 20th anniversary of the launch of Securities Options. On July 18, 1997, securities options markets were launched at then Osaka Securities Exchange and at Tokyo Stock Exchange. Though only a mere 20 underlying securities were being traded at each respective market at the time, said number has surpassed 200 today in response to the needs of market users over the years.

MIAX Regulatory: Approved Rule—CBOE Margin Rule 12.3
The Chicago Board Options Exchange (“CBOE”) has received approval to extend the Credit Option Margin Pilot Program through July 18, 2018 described in CBOE Rule 12.3, Margin Requirements.

****SD: This is a CBOE story in a MIAX release. Bottom line: CBOE wants to compete with OTC credit derivatives and needs its pilot program to keep the endeavor going. Or as the exchange puts it – “it will continue to allow the Exchange to list Credit Options for trading. As a result, the Exchange will remain competitive with the Over-the-Counter Market with respect to swaps and security-based swaps.”

MIAX Regulatory: Member Firm Portal As The Approved Electronic Interface For Performing Post-Trade Adjustments
MIAX Options Rule 524, Reporting of Matched Trades to Clearing Corporation, has been amended to state that post-trade adjustments that do not affect the contractual terms of a trade are to be performed by the Exchange Member via an Exchange approved electronic interface.

****SD: The root of the matter – MIAX wants you to do your own darn changes and cut their own post-trade man hours in the process. Or as the exchange puts it – “Processing these requests is a time consuming exercise for Exchange staff and is an inefficient use of Exchange time and resources given that Members have the ability to perform these adjustments themselves electronically via an Exchange provided interface.”


Can Anyone Bury Bloomberg?; Inside the decades-long quest to bring down a financial information giant.
Dan Weil – Institutional Investor
In 1989, Reuters — the legendary international news agency based in London — launched an ambitious and secretive project.
Bloomberg, a relatively young New York – based company, had been eating into Reuters’ market, providing analytics and data to Wall Street’s Masters of the Universe via proprietary terminals. Dubbed Decision 2000, the project’s goal was no less than the destruction of Reuters’ competitor and its terminals.


A Week With Volatility Written All Over It
Seeking Alpha
This week has volatility written all over it, literally. There are several key expiration dates this week, including the expiration of the volatility index. The combination of more than four volatility-related expirations (including several kinds of option expirations) could easily introduce volatility and risk into the markets. Very often, expiration dates correspond with volatility as market makers and investors close out, hedge or roll their positions.

The shockingly subdued ‘fear index’ doesn’t mean what you think it means
Mark Hulbert – MarketWatch
Here’s something else not to worry about: The record low VIX level hit last week.
The list of such things to ignore is already quite lengthy, and in recent weeks I’ve added yet more things to it. Just last week I argued that the flattening yield curve is not the cause of concern that many are assuming it is. The week before that, I argued that analogies to the top of the internet bubble aren’t based on fact.

A Market Stress Test Signals Danger Ahead
Jonathan Kinlay – Seeking Alpha
One metric of market stress is the VX Ratio, defined as the ratio of the CBOE VVIX Index to the VIX Index. The former measures the volatility of the VIX, or the volatility of volatility. When markets are very quiet and the VIX Index is low the ratio moves to higher levels. During periods of market stress the ratio moves down as the VIX Index skyrockets.

Apple options traders bet on more near-term upside
Reuters via Times of India
Apple Inc options volume busy as traders position for further near-term gains, as shares rise to highest in about five weeks

****SD: Yesterday the company of note was Netflix – Netflix options imply 8 pct post-earnings swing. Of course, Netflix has shot up more like 12 percent, so plenty of money moving around. More on some of yesterday’s notable action from the CBOE Blog – What’s Trading Now? Netflix Numbers Next (NFLX). CBOE Morning Call can be found here. It has an update on all of the CBOE’s volatility indexes.

Trading Within Your Own Means
Bob Lang – CBOE Options Hub
I am asked quite often how I have managed to stick around as an options trader for as long as I have, well over fifteen years and counting. I refer often to the successes and failures along the way and learning about myself, my behavior under certain conditions and how I have dealt with adversity. Trading I consider a metaphor of life, and we can extract some of the same principles of action and behavior simply by taking an introspective look into our own lives.


Goldman’s Traders Turn In Worst First Half of Blankfein’s Reign
Dakin Campbell
Second-quarter fixed-income trading revenue tumbles 40%; Every other business line surpasses analysts’ estimates

Wall Street Profits by Putting Investors in the Slow Lane
Jonathan Macey and David Swensen – NY Times
Wall Street has developed a new way, clouded in obscurity, to fleece the hundreds of millions of Americans who have money invested in company pension plans, mutual funds and insurance policies. Institutional brokers are legally obliged to execute trades on the exchange that offers the most favorable terms for their clients, including the best price and likelihood of executing the trade. The 12 exchanges, most of which are owned by New York Stock Exchange, Nasdaq and Better Alternative Trade System (BATS), along with the Chicago Stock Exchange and the Investors Exchange (IEX), are supposed to compete to offer the best opportunities.

****SD: Little bit misleading – the authors argue it puts institutional investors in the slow lane, not individual investors, which is an important distinction. And they take a pretty narrow view on the subject matter.

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