Observations & Insight
TGIF – Miscellany
Spencer Doar – JLN
Susquehanna’s Stacey Gilbert, head of derivative strategy, said during a panel at SIFMA’s Listed Options Symposium that there have been seven days in 2018 that saw a three standard deviation move. That should happen only two or three times a year. In the last 30 years, there was only one other year it happened: 2008.
An uncommon name on the “most active options” lists this week has been Pacific Gas & Electric Co. (PCG). The utility’s stock has been bouncing all over the place on news that its equipment might have had a role in starting the disastrous Camp Fire in California and that its insurance wouldn’t cover that liability. For more on Pacific Gas & Electric’s options, see the following Reuters story – PG&E options traders bet stock not out of the woods yet.
Also, how ’bout Nvidia? Its mega drop on the heels of waning demand for its chips have pushed its options into the top three most active equity names today.
For obvious reasons, crude oil and nat gas were the commodities of the week, but did you know that palladium just set an all-time high?
Continuing on the pricing front, it looks like this Thanksgiving won’t be too hard on the pocketbook. The American Farm Bureau Federation said the average nationwide cost of a holiday meal for 10 people was $48.90 (?!) – less than 2017. (I don’t know about you, but that holiday meal total seems kind of low…) Also, retail turkey prices are at 2014 lows.
The next OPEC meeting is less than three weeks away. CME’s OPEC Watch Tool – powered by QuikStrike’s tech – received an update to its methodology. Current odds are ~76 percent that the meeting’s outcome won’t herald changes in production.
Yesterday’s LaSalle Street Trading Tech Awards program was good fun for a good cause, despite the absence of one John Lothian. (His surgery went well – you can tell because he’s tweeting again.) Over $150k was raised to help Scouts from underserved areas of the city get exposure to finance, witness corporate life and develop leadership skills. And how often do you get to see options industry leaders in campaign hats?
Spoofing: The Need for Regulatory Clarity
“You don’t want to get caught doing something that you thought was legal, but somehow it has wandered into the grey zone, somebody’s taken a dislike to you, and then they throw the book at you three years afterwards.”
In this video, Alex Lamb, The Technancial Company’s head of marketing and business development Americas, discusses the problems with identifying and preventing manipulative trading practices.
Watch the video and read the rest »
PTAB Grants 100% of MIAX’s Invalidity Petitions Against Nasdaq Patents with Sixth and Final Petition Granted This Week
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options and MIAX PEARL exchanges (MIAX), today announced that the sixth and final MIAX petition for review of the patents asserted by Nasdaq in a complaint filed against MIAX has been granted by the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO). The PTAB has now granted all six of the filed MIAX petitions for review. In each instance, the PTAB found that it is more likely than not that the claims in each of the respective patents are unpatentable under current law.
Sterling slump sparks dash for options to protect investments
Saikat Chatterjee, Tommy Wilkes – Reuters
Foreign exchange derivatives indicate markets are bracing for a fresh round of volatility in sterling, with investors ramping up purchases of options giving them the right to sell sterling if Brexit uncertainty escalates.
ETFs Get Cheaper, Wall Street Looks for Ways to Charge More
Rachel Evans – BloombergQuint
Investors love exchange-traded funds because they’re simple and cheap. With some index funds now charging zero fees, it’s getting harder for asset managers to make money selling investors the basics. Watch ETFs get more complicated.
****SD: “Why did you tack on 50 bps in fees?” “Uhhh, because options?” I think that in the long term using complex hedges/strategies or niche sector exposure won’t be enough of an excuse for elevated fees vs. the rest of the “vanilla” ETF universe (at least in the eyes of the everyday investor).
US stock market surveillance system goes live; Long-awaited ‘CAT’ system to track orders and trades launched despite ‘bugs’
Nicole Bullock – Financial Times (SUBSCRIPTION)
A long-awaited surveillance system for the US stock market launched on Thursday even as “bugs” remained to be ironed out.
****SD: Keep in mind that reporting to the CAT is being rolled out in phases – both by type of participant (exchange vs. broker, etc.) and type of instrument (equity vs. options).
No Sleep for Traders as U.K. Sees Most Turmoil Since Brexit Vote
Charlotte Ryan and Shoko Oda – BloombergQuint
It’s been a tumultuous week in U.K. markets, and for traders that’s meant canceling dinner plans and waking up in the night.
The drama kicked off Tuesday as negotiators clinched a Brexit deal, before investors watched for headlines into the evening Wednesday on whether Prime Minister Theresa May’s five-hour Cabinet meeting would back it. Thursday saw the Brexit minister resigning and speculation May would face a leadership challenge, sending the pound falling the most in two years in a late slump.
‘Get Me Out’: Investors Sour on Market Strewn by Tape Bombs
Lu Wang, Elena Popina and Vildana Hajric – Bloomberg (SUBSCRIPTION)
Anxiety is an occupational hazard, a fact of life, for professional traders. After all, even on good days, something is always going wrong, somewhere.
****SD: I read that as “Get Out” and wondered for a moment what that film had to do with investor sentiment.
Exchanges and Clearing
Wild gas price swings spur CME ’emergency action’
Gregory Meyer and Robin Wigglesworth – Financial Times (SUBSCRIPTION)
The largest US futures exchange took “emergency action” to maintain orderly trading in natural gas contracts as wild price swings gave rise to fears of forced selling.
****SD: This provides an update on the leveraged ETF discussed in yesterday’s JLN Options.
Opposition mounts as CME looks to slim down its board
Lynne Marek – Crain’s Chicago Business
Futures exchange operator CME Group postponed a November shareholder vote aimed at eliminating board members, as opposition to the proposal mounted, though voter apathy might have something to do with the decision, too.
Chicago-based CME, which operates the biggest futures market in the world, had planned to tally the vote at a Nov. 5 special meeting, but postponed the poll to Nov. 29. A spokeswoman for the company didn’t have any comment regarding the delay.
****SD: I am zero percent surprised.
Former LSE boss Rolet close to joining CQS as co-CEO – report
Samuel Agini – Financial News
Xavier Rolet, the former chief executive of the London Stock Exchange, is edging closer to joining Sir Michael Hintze’s $17bn hedge fund, CQS.
Regulation & Enforcement
FIA offers recommendations for CFTC and SEC harmonization
The Futures Industry Association (“we” or “FIA”) is submitting this letter to the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC” and, together with the SEC, the “Commissions”) to propose several areas in which the Commissions could coordinate and harmonize their regulatory programs. We believe that the proposals support the goals of the CFTC, SEC and U.S. Department of the Treasury to promote coordination, harmonization and efficient regulations.1 We also believe that these proposals will provide clarity to regulated markets and reduce unnecessary costs for regulators and market participants.
Sebi may allow agencies to use derivatives mkt to set MSP, launch new goods
Press Trust of India via Business Standard
Market regulator Sebi Friday said it is looking to allow government agencies to use commodity derivatives platform to administer the minimum support price (MSP) and launch new products such as indices, weather and freight derivatives soon.
HSBC Doubles Down on Dollar as Morgan Stanley Calls Its Peak
Todd White – Bloomberg via Yahoo
U.S. growth, rate hikes to fuel dollar over euro: HSBC’s Bloom; Greenback may benefit from haven flow if risk appetite wanes
One of the world’s biggest dollar bulls is sticking to his guns as the U.S. economy powers ahead and dangles some of the highest interest rates versus Europe in history.
****SD: “Traders in three-month options have increased their dollar bets versus a basket of six major currencies, risk reversals show. The premium for calls over puts has pulled to within 10 basis points of the 2018 closing high seen mid-August, according to data compiled by Bloomberg.”
There’s nothing to fear from this volatile stock market’s low VIX ‘fear gauge’
Mark Hulbert – MarketWatch
What does it mean that the VIX is only barely higher than average, even as the stock market is experiencing remarkable volatility?
The Market Never Rests: How One Equity Options Trader Spends His Day
Scott Bauer – CME Group OpenMarkets
I have been an equities trader for almost my entire adult life. I spent time trading in the pits at both the CME and CBOE. I am currently CEO of Prosper Trading Academy and I trade “upstairs” while also educating students on the financial markets.
It was eight years ago that Traders Magazine’s publisher Kenneth Heath decided it was time to celebrate the contributions made by women on Wall Street. A first for its time, Traders Magazine solicited, vetted and selected several spectacular women for special recognition at the New York Academy of Sciences on November 10. There were 16 awards presented at the inaugural event including a Diversity of the Year award – given to the firm which made the greatest strides to advance women and minorities.