U.S. Stock Volatility Topping Europe’s May Be the New Normal
Justina Lee – BloombergQuint
Europe’s VStoxx Index has fallen below U.S.’s VIX once again; This may reflect higher U.S. recession risks: BNP Paribas
What was once little more than a short-term anomaly in equity derivative markets is quickly becoming a regular feature.
****SD: Bloomberg TV has an interview with Pravit Chintawongvanich of Wells Fargo about VIX vs. VStoxx, too.
Bank of America the latest to retool its equity derivatives business
Beecher Tuttle – efinancialcareers
You can now add Bank of America to the long list of firms that are growing their equity derivatives business. Bofa just poached veteran banker Henri-Emmanuel Lewinger from BNP Paribas. He started earlier this month in New York as a managing director.
These Are the Charts That Scare Wall Street
Luke Kawa and Sid Verma – Bloomberg (SUBSCRIPTION)
With Halloween around the corner, October has been all trick and no treat for investors.
****SD: Google search trends, SPX correlation, tech earnings, rates, leveraged loans, the yuan, truck sales – there’s a lot here.
Hedge funds cut bullish bets on oil to lowest for over a year
John Kemp – Reuters
Hedge fund managers continued to liquidate former bullish positions in oil last week and for the first time in more than a year clear signs of fresh short-selling emerged.
Rising oil production from Saudi Arabia, the United Arab Emirates, Kuwait and Russia has eased concerns about the availability of supplies once U.S. sanctions on Iran are re-imposed in November.
At the same time, intensifying fears about a possible global economic slowdown have hit oil prices and equity markets hard over the last three weeks.
Investors hedge their faith in China’s faltering yuan
Noah Sin, Winni Zhou – Reuters
As China’s yuan approaches the 7 to the dollar barrier, investors are betting authorities will eventually let the currency fall beyond the historic level. Yet they are just as confident that China won’t allow the kind of capitulation seen in past market meltdowns.
****SD: For an overall look at FX, see Reuters’ As stocks suffer, forex markets keep calm and carry on
Banks Will Stop Hiring So Early
Matt Levine – Bloomberg
…Among the Laws of Insider Trading, two have special places in my heart. One is the Second Law, which is that if you have inside information about a company, don’t use it to buy short-dated out-of-the-money options on that company. This one is so important, and comes up so often, because that’s how they catch you: Suspicious options trades the day before a big event are a giant red flag, and if you’ve never traded options before it can be a bit hard to explain why you suddenly got a hankering to do it right before a merger.
****SD: A bit of coverage from Levine regarding yesterday’s top story – The Get-Rich-Quick Scheme That Almost Killed a German Soccer Team
Exchanges and Clearing
What To Expect From ICE’s Q3 Earnings
…ICE’s Q3 equity options average daily volumes ( ADV ) grew by nearly 30% y-o-y to slightly over 9.2 million, as a result of increased volatility. Consequently, it saw a 194 basis point (roughly 2%) rise in its market share. The industry-wide equity options daily trading volumes grew by 17% during the period. ICE’s continued strength in the segment – coupled with growth in equity market share – should propel its Q3 results. Cash equities volumes also gained, with a more than 7% growth in trading volumes and a 43 basis point increase in market share. The industry-wide volumes saw a 6% increase.
Regulation & Enforcement
FIA Welcomes Progress On Clearinghouse Access
FIA welcomes the European Commission’s decision to allow EU27 firms temporary continued access to UK clearinghouses, as confirmed by Commission Vice President Valdis Dombrovskis. Such a move means that firms will be able to continue to clear their derivatives on UK CCPs even in the event of a no-deal Brexit.
TD Ameritrade Unit Fights Cert. In Options Liquidation Suit
Matthew Guarnaccia – Law360 (SUBSCRIPTION)
A TD Ameritrade subsidiary has urged a Florida federal judge to block a bid to certify a class of clients accusing the company of causing major losses…
****SD: People really need to read the small print regarding what their broker does when positions are in/near the money around/at expiration. It seems like that’s where the majority of client/broker friction comes from.
UK to study possible ban on sale of cryptocurrency derivatives
Hannah Murphy – Financial Times (SUBSCRIPTION)
The UK’s financial watchdog is weighing a potential ban on the sale of derivatives based on cryptocurrencies such as bitcoin, in what would be its first major intervention in the nascent market.
Alexa, buy 10 shares of Facebook’: A discount brokerage giant now lets Main Street investors trade stocks via voice
Madeline Shi – Business Insider
TD Ameritrade last week rolled out a new offering allowing Main Street investors to place trades via Amazon’s voice assistant, Alexa.
It’s the first instance of people being able to trade stocks through Alexa, TD Ameritrade said.
The move comes as TD Ameritrade is trying to make trading more mainstream and pull in new clients
****SD: “Alexa, enter Netflix ratio calendar spread” doesn’t sound as easy as “buy Netflix.” But we’ll get there.
Six Options Strategies for High-Volatility Trading Environments
Chris Wright – The Ticker Tape
The recent rise in volatility means it could be time to talk about strategies designed to capitalize on elevated volatility levels.
Options traders make 35 times their money on stock market’s big rollover Monday
Jon Najarian – CNBC
Some risk-taking traders pounced on a very short-term market bet and levered their returns via an all or nothing options trade expiring in just a single day.
****SD: For another big winner, see this Red Hat trade via Schaeffer’s Research.
The stock market could suffer a ‘brutal dislocation’ if this level is breached
Shawn Langlois – MarketWatch
Remember when the bull market had an air of invincibility about it? Almost as if investors were getting tired from all that winning.
Yeah, well, that was way back in October 2018, when the blue chips DJIA, +1.14% were on the verge of breaking through another big round number on their way to more big round numbers. Alas, Dow 27,000 wasn’t meant to be.
I’m Struck by How Bearish Everyone Has Become
Helene Meisler – TheStreet
The question I see asked most often now is if we have seen capitulation. By most measures we probably haven’t.
For example, during this entire decline the TRIN has not gotten over 2.0 once. It came close with a reading of 1.99 last week but a reading over 2.0 is when we know there has been some real panicked selling.
We haven’t seen the VIX get to its usual jumpy self. Did you see where it ended the day on Monday? Up 50 cents. Come on, after the day we had, the VIX was essentially nowhere.
Traders betting against FAANG stocks have made $5.5 billion during the brutal October sell-off
Ethel Jiang – Markets Insider
Betting against some of this year’s best-performing tech stocks — the FAANG basket — has been a money-making machine during the brutal tech sell-off in October.
Roasting Marshmallows Over GE’s Dumpster Fire
Steven M. Sears – OCCAM (SUBSCRIPTION)
General Electric is the corporate equivalent of a dumpster fire. Suffering shareholders need to break out marshmallows to roast over the flames.
It’s an unorthodox, and yet reasonable, way for many shareholders to deal with the problem of owning this hot mess. GE, which was once among the most respected companies in the world, was bequeathed from grandparents and parents to younger generations. The company’s stock was considered money in the bank because GE was famous for employing skillful mangers like Jack Welch. We know some shareholders who have owned GE for so long that their per share cost basis is below 25-cents. Those investors feel they cannot sell even if they wanted following GE’s second dividend cut.
Register for the 2019 Options Industry Conference
Join MIAX and OCC for the 37th Annual Options Industry Conference, May 1-3, 2019. South Florida’s renowned Trump National Doral Miami provides the perfect backdrop for focusing on the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.
Wall Street shifts to Democrats
Ben White – Politico
Barack Obama in 2008 outraised John McCain from the securities and investment industry and Democrats overall raised more from Wall Street during that cycle. Since then, the industry shifted more of its money back to the GOP, especially during former private equity executive Mitt Romney’s 2012 presidential campaign.
But according the Center for Responsive Politics, Wall Street has shifted back in Democrats’ direction, despite all the deregulation from the Trump administration and GOP congress. Per the CRP’s latest report out Monday: “The Securities & Investment industry has spent at least $100 million more than in 2014 and has favored Democrats over Republicans — 52 to 46 percent — for the first midterm election cycle since 2006.