Options Volume Diversifies as It Rolls Toward Record 2018

Nov 26, 2018

Lead Stories

Options Volume Diversifies as It Rolls Toward Record 2018
Russell Rhoads – Tabb Forum
The US options market remains on track to post record numbers in 2018, despite some softness in volatility and volume during the third quarter. The diversity of the volume also has been increasing, as individual stock option trading takes back share that had been lost to the index and ETF segments of the market.

****SD: The concentration of options trading in select single names (FANGs, etc.) and a handful of ETFs has been a long-running topic of conversation, so this diversification should please plenty of folks.

Fixed-income hedging set to climb as rates rise; Volumes of derivatives traded on exchanges have soared this year
Philip Stafford – Financial Times (SUBSCRIPTION)
Open interest in fixed-income contracts at Europe’s two largest futures exchanges has soared in the final quarter of the year. ICE Futures Europe, which trades contracts at the short end of the yield curve, hit a record high of nearly 11m contracts earlier this month. Deutsche Börse’s Eurex, whose contracts cover longer-dated futures, rose to 9.6m from 8m a year ago in October.

Oil Options Traders Turn More Bearish Than During 2014 Crash
Alex Longley – BloombergQuint
Brent oil’s put-options bias biggest in data since 2013; Crude’s bear market slide exacerbated by options trading
Oil options traders have turned more bearish than when prices plunged back in 2014. The premiums they’re paying for bearish put options over bullish calls over the next 12 months has reached the largest in data compiled by Bloomberg since 2013. The skew, as it’s known, indicates demand for protection against a slump. The negative bias is far greater than during four years ago, when Saudi Arabia adopted a pump-at-will production policy, helping prices crash to $47 from $115 in a matter of months.

****JB: More oil news from Reuters – Seeing the bigger picture: oil price slump is part of broader Asian pullback

No Refuge for Investors as 2018 Rout Sends Stocks, Bonds, Oil Lower; The failure of so many investment strategies is viewed by some as a warning of what could come following years of above-average returns
Akane Otani and Michael Wursthorn – WSJ (SUBSCRIPTION)
Stocks, bonds and commodities from copper to crude oil to burlap are staging a rare simultaneous retreat, putting global markets on track for one of their worst years on record and deepening a sense of unease on Wall Street. Data show global stocks and bonds could both finish the year in the red for the first time in at least a quarter-century, according to BlackRock Inc.

****SD: In times like these it’s no wonder options volumes are setting records. Also see Bloomberg’s Grim Stock Signals Piling Up as Wall Street Mulls Recession Odds

Markets Can No Longer Rely on the Fed ‘Put’
John Authers – Bloomberg (SUBSCRIPTION)
A Powell “put” or tighten until it breaks? Or neither?
Not unlike the typical U.S. family trying to survive the Thanksgiving break altogether and under one roof, the Federal Reserve and the stock market have a tense relationship. Both sides like to believe that they are in charge. And as Thanksgiving approached, there was a growing sense the Fed might accede the stock market’s wishes and signal that it’s poised to maybe stop raising interest rates.

Exchanges and Clearing

Business in Brief: Tel Aviv Stock Exchange Releases Fear Index
…The Tel Aviv Stock Exchange released its own fear index on Sunday morning, named the VTA35, which tracks the level of volatility reflected by options on shares in the Tel Aviv-35 Index. This brings Tel Aviv’s exchange in line with other major exchanges around the world, many of which have their own volatility indexes, including VIX, VSTOXX and VFTSE.

SR-CBOE-2018-073 – Proposed rule change to list up to 10 long-term options on SPY.
The Exchange proposes to amend Rule 5.8, Long-Term Equity Option Series (LEAPS), to permit the listing and trading of up to ten long-term expiration months for longterm options on the SPDR S&P 500 exchange-traded fund (“SPY”) in response to customer demand.1 Rule 5.8 currently provides that the Exchange may list long-term option contracts that expire from 12 to 180 months from the time they are listed (LEAPS). There may be up to six long-term expiration months per option class. The proposal will add liquidity to the SPY options market by allowing market participants to hedge risks relating to SPY positions over a longer period with a known and limited cost.

UK competition regulator investigates Nasdaq’s Cinnober acquisition
Hayley McDowell – The Trade
The UK’s Competition and Markets Authority has invited comment on Nasdaq’s proposed acquisition of Cinnober.

CCP Risk Management: Shifting Focus to the Margins
Anders Staring, Cinnober – Tabb Forum
The margining process isn’t always straightforward for a central counterparty clearinghouse. The process encompasses a variety of factors in order to calculate margins that adequately protect the CCP, clearing members, customers and, of course, the marketplace. And the market-wide impact of changing models and procedures is an onerous task. But with an ever-increasing focus on better risk management, do CCPs need to update their approach?

NSE to launch weekly options on US dollar – Indian rupee on 3 December
The National Stock Exchange(NSE) said it has received SEBI’s approval to introduce weekly derivatives contracts on USD-INR which it will launch from December 3.

Nasdaq Dubai Celebrates Integrated Securities Being The Most Active Broker On Its Equity Futures Market – Company’s Market Share Has Increased To 63% Of Traded Value In Last Three Months
Integrated Securities, SHUAA Capital psc.’s securities brokerage arm, and one of the UAE’s most prominent institutions, has today been recognised by Nasdaq Dubai as its most active equity futures broker in 2018.

****SD: Options on regional indices are in the works.

Moscow Exchange Signs MoU With China International Capital Corporation Date
On 22 November 2018, Moscow Exchange signed a Memorandum of Understanding with China International Capital Corporation (CICC), one of the largest investment banks in China. The agreement aims to strengthen cooperation between Russia and China to promote investment and develop the offshore Chinese yuan market in Russia.

****SD: Trying to get more yuan denominated oil trading via regional futures was only one step along the path…


Citi hired a top equity derivatives trader from J.P. Morgan in NYC
Sarah Butcher – eFinancialCareers
Remember how equity derivatives traders have had an extraordinarily good year according to research firm Coalition? Jason Cuttler, one of New York City’s top equity derivatives has just turned up at Citi after a pleasant four months of gardening leave. Cuttler has joined Citi as a managing director on the bank’s CETS (Citi Equity Trading Strategy) team, where he will be looking after global volatility and derivatives.

Regulation & Enforcement

Why Global Finance Stopped Shouting About Brexit
Brexit has entered its endgame, yet the once-noisy finance industry is quiet. Truth is, most banks are ready for whatever happens next. The big problems are more likely to hit local lenders with little stake in cross-border finance.

****BloombergOpinion has May’s Big Gamble: Everybody Is Bored of Brexit


How to Cash In on Rising Volatility
Bill Luby – Barron’s
Steep declines in stocks, such as the one we have witnessed since the beginning of October, typically trigger sharp emotional reactions on the part of investors and often serve as calls to action. But what is the appropriate action to take? Over the past decade, investors have slowly grown habituated to the idea of a persistent bull market that has rewarded those who have been willing to buy the dips. Big threats to stocks have come and gone, and in most instances, those dip buyers have been rewarded with a V-shaped bounce.

Macro Risk Advises Hedging Tech Through the G-20 Meeting
Joanna Ossinger – Bloomberg (SUBSCRIPTION)
Options on QQQ, FXI seen capturing moves from trade events; ‘Negligible event risk’ priced into ETF for Trump-Xi talks
U.S. technology stocks have been beaten down. Their realized volatility is way up. And that’s even before the highly anticipated Group of 20 meeting and deadlines on U.S.-China tariffs.

There’s a Strong Case for Cash Over Stocks Right Now
Reshma Kapadia – Barron’s
As major stock market indexes give up their gains for the year in this week’s sharp selloff, cash may be looking like a decent alternative. Goldman Sachs strategists highlighted cash as a competitive option to stocks for the first time in years as they offered clients their market outlook for 2019. It is a good time to brush off that cash strategy, especially if you are retired.


Bitcoin’s deepening crash now approaches its worst bear markets as it free-falls toward $3,000
Bloomberg via Financial Post
Bitcoin broke below US$4,000 and extended its 2018 crash to within striking distance of the biggest cryptocurrency’s worst bear markets. The virtual currency conceived just over a decade ago slid as much as 14 per cent to US$3,675 on Monday, bringing its decline from last December’s record high of almost US$20,000 to about 80 per cent. All nine of its largest peers tracked in real time by Bloomberg fell, with drops ranging as high as 21 per cent for Monero.

Point72 Global Case Competition for college freshmen
Julia La Roche – Yahoo Finance
Steve Cohen’s $12.4 billion hedge fund is letting teens and early twenty-somethings pitch stock ideas to its investment professionals to recruit the next generation of talent.
Earlier this month, Point72 Asset Management hosted The Global Case Competition, giving college first-year students and juniors the opportunity to demonstrate their investing skills through a stock pitch — either a long or short idea.
This year’s competition attracted 666 students from 94 different colleges and universities from around the world. The students worked in teams of three, more than 225 groups in total, to form their ideas. The top 8 teams were invited for a free trip to New York to compete for cash prizes.

****JB: 666 students? Hmmm…

Goldman Sachs: Hedge funds have plunged into a ‘vicious downward cycle’ with the most popular stocks, and it’s a sign the meltdown is just getting started
Akin Oyedele – Business Insider Prime (SUBSCRIPTION)
The average hedge fund is underperforming year-to-date, dragged by the sell-offs in popular tech companies, according to Goldman Sachs.
Goldman’s analysis of funds’ third-quarter activity showed a continued rotation towards more defensive sectors of the market. S
everal strategists are advising investors to increase their cash levels heading into 2019. Not even hedge funds have been able to escape the ongoing correction in the stock market.

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