Observations & Insight
The Industry Discusses Cryptocurrencies and DLT
At the 33rd Annual FIA Futures and Options Expo in mid-October, John Lothian News spoke with a variety of industry participants about upcoming milestones and trends in financial markets.
This fifth video in the series is the first to cover the crazily popular cryptocurrency space and its technological underpinnings. In part one, Ed Tilly, chairman and CEO of Cboe, Drew Shields, Trading Technologies’ CTO, Thomas Flake, the co-founder and chief marketing officer of bcause, Kevin Darby, managing partner at Blue Trading Systems and Chris Hehmeyer, CEO of Hehmeyer Trading + Investments share their thoughts on the future of the crypto space.
Oil Above $80 Before Christmas? Some Options Traders Think So
Alex Longley – Bloomberg
Millions of barrels of $71, $80 and $85 Brent calls trade; Brent put skew closed most bullish in 11 weeks on Thursday
With oil prices trading near their highest level in two years, some traders are betting that the price rise could have more room to run.
****SD: From Attain Alternatives blog – Crude Oil is Breaking Out
China widens foreign access to its giant financial sector
China will raise foreign ownership limits in financial firms in a step granting access to a tantalizing multi-trillion dollar financial services market, as the world’s second-biggest economy seeks to position itself as a major global finance hub.
****SD: “The latest changes include raising the limit on foreign ownership in joint-venture firms involved in the futures, securities and funds markets to 51 percent from the current 49 percent.”
Volatility Spikes as VIX Tops 2017 Average Amid Tax Uncertainty
Sarah Ponczek – Bloomberg
Volatility roared back into the U.S. equity market as fresh concern about the prospects for tax reform sent the Cboe VIX Index to its biggest surge since August.
****SD: Mike Palmer of Group One had commentary from the Cboe floor yesterday.
US Futures Volume Subdued But Still on Pace for Record Year
Tom Lehrkinder – TABB Forum
US futures and options-on-futures volumes were subdued in the third quarter of 2017, but they still are projected to break the full-year records both products set in 2016. Meanwhile, the FCM community welcomed a new member – whose parent group is based in China.
Round Numbers Are Another Problem for S&P 500 Buffeted by Tax Debate
Lu Wang – Bloomberg
Just when another round-number milestone seemed inevitable, U.S. stocks faltered and headed for the biggest drop in more than two months.
Yes, fresh concern that Republicans will fail to pass tax reform this year exacerbated Thursday’s selloff, and there’s no shortage of reasons investors can point to for bailing out of an equity market that has gone longer than ever without a retreat of 3 percent.
Yield Curves and Market Color
Matt Levine – Bloomberg
….A useful way to think about modern electronic market structure is that in the olden days humans traded stocks and options, making markets based on gut instinct, and then those humans were replaced by computers that used algorithms that largely replicated the humans’ gut instincts but more efficiently. But also, in the olden days, those humans did various shady things, and over time the computers have started to replicate the humans’ shady-thing-doing abilities, because, you know, the shady-thing-doing tradition runs deep.
****SD: Matt Levine on Nasdaq’s proposed “Intellicator Analytic Tool.”
Bitcoin slides by over $1000 in less than 48 hours
Bitcoin dropped below $7,000 on Friday to trade more than 5 percent down on the day, having fallen by well over $1,000 since hitting an all-time high on Wednesday.
****SD: This is why getting margining right is so important.
Venezuela creditors sceptical despite pledges on Caracas meeting
Corina Pons and Davide Scigliuzzo – Reuters
Venezuela has promised investors that government officials under sanction by the United States will not participate in debt talks next week, three market sources told Reuters on Thursday, but several creditors said they were still unlikely to attend.
****SD: There are many complex derivatives tied to this realm. For more reading check out Bloomberg’s As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion and This Is How Leverage in the Financial System Lives On. From the second – “Further complicating matters is the explosion in alternative derivatives or ‘derivatives of derivatives,’ with investors now served an expansive menu of exotic synthetic credit products including options on total return swaps (TRS) and options on CDS indexes.”
Exchanges and Clearing
Traders Jump Into FANG Futures on First Day
Ben Eisen – WSJ
Investors are wading into a new futures contract that tracks an index of high-profile technology companies.
Futures on the New York Stock Exchange’s FANG+ Index follow 10 big firms, including Facebook, Amazon.com, Netflix, and Google parent Alphabet, often shorthanded as FANG. On Wednesday, the first day of trading, 418 contracts had changed hands, all of which expire in December. Contracts that expire in March, June, and September of next year have yet to trade.
****SD: Jumping into fangs? Ouch.
MIAX Options & MIAX PEARL
As previously announced in the MIAX October 23, 2017 Alert, MIAX introduced Member Firm Portal (MFP) functionality to allow MIAX Market Makers to make manual option class symbol assignments.
Regulation & Enforcement
ECB’s Nouy happy to leave clearing houses to market watchdog ESMA
The European Central Bank’s top supervisor said she would welcome leaving the oversight of clearing houses, a key point of contention ahead of Brexit, to the European Securities and Markets Authority market watchdog.
Florida lawyer pleads guilty in insider trading case
Brendan Pierson – Reuters
A Florida lawyer accused by U.S. prosecutors of engaging in a nearly $1 million insider trading scheme using information he improperly obtained from his law firm’s databases pleaded guilty on Thursday, prosecutors said.
****SD: The two men in this case made roughly $1 million, unlike the case earlier this week where a Virginia man faked a takeover bid of Fitbit and then traded options for a $3k profit. He said he would not appeal a sentence of 6.5 years or less. Unclear how much time the two fellows in the above case face.
How managed futures can help diversify client portfolios
Darran Goodwin – InvestmentWeek
Increasing correlation between bonds and equities, rising interest rates, increased geopolitical risk and potentially overheating markets appear to have eroded many of the diversification benefits of the 60:40 balanced portfolio.
Risk Management — Should The Board Get Involved?
Christopher Skroupa – Forbes
Adam Litke is the Head of Enterprise Risk Services for Bloomberg. He is responsible for developing Bloomberg’s strategy around risk models and software. Prior to this Litke was the head of Market Risk for the Securities and Investment Group of Wells Fargo and head of Market Risk for Wachovia where he managed market risk activities including quantitative risk management, counterparty risk modeling and direct management of market risk.
A Former LTCM Partner Embraces Indexing, and Says You Should Too
Sam Goldfarb – WSJ
A man once at the center of a world-rattling hedge-fund collapse believes you should think twice before trying to beat the market.
Victor Haghani, a veteran of the legendary Salomon Brothers trading floor, is probably best known as a founding partner of Long-Term Capital Management LP, the hedge fund that posted huge returns using leveraged bets in the mid-90s before collapsing 19 years ago so spectacularly that the Federal Reserve deemed it a threat to the financial system.
****SD: How times change…
5 Blockchain-Based Diversification Options for Cryptocurrency Portfolios
Antonio Madeira – Bitcoinist
Regardless of how much cryptos have grown and how much you would have made if you bought Bitcoin five years ago, investment should never be as straightforward as “buy and hold.” You need a strategy and that’s where hedging comes in. Hedging is usually done through derivatives but for crypto, we’ll need to diversify our portfolio.
****SD: To be clear, it’s an article about hedging without needing to leave the blockchain space.