Observations & Insight
SR-NASDAQ-2018-101 – A proposal to amend the Exchange’s transaction fees at Options 7, Section 2(1), which governs the pricing for Nasdaq participants using The Nasdaq Options Market
Nasdaq Rule Filing
The Nasdaq Stock Market LLC, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b -4 thereunder, 2 is filing with the Securities and Exchange Commission a proposal to amend the Exchange’s transaction fees at Options 7, Section 2 (1) , which governs the pricing for Nasdaq participants using The Nasdaq Options Market (“NOM”), Nasdaq’s facility for executing and routing standardized equity and index options.
****SD: Nasdaq is lowering an array of thresholds so that more participants are eligible for rebates in the hopes of bettering liquidity provision. (Nasdaq also just filed to alter its definition of “in-the-money” to include an “at-the-money” option. The new wording for call options would be “all strike prices at or below the offer in the underlying security on the primary listing market; for put options, all strike prices at or above the bid in the underlying security on the primary listing market.”)
Oil prices edge higher as traders sort through talk ahead of an expected OPEC output cut
Myra P. Saefong and Rachel Koning Beals – MarketWatch
Oil prices edged higher on Wednesday as global investors awaited clarity on a possible, but far-from-assured, output cut by major producers gathering in Vienna.
The Joint OPEC-Non-OPEC Ministerial Monitoring Committee, or JMMC, which includes the Organization of the Petroleum Exporting Countries member Saudi Arabia and nonmember Russia, met Wednesday. It recommended a production cut from the September-October output levels, Oman’s oil minister told reporters, according to Dow Jones. The minister also said Russia agreed on the need for an output cut.
****SD: As U.S. linked equity and options markets are closed today due to the day of mourning for President George H.W. Bush, commodities are the thing to watch, especially crude what with the meeting tomorrow. According to the QuikStrike’s CME OPEC Watch Tool, the odds of a small production cut decision at the meeting are 67.99 percent and the odds of little or no change are 32.01 percent. The odds of little or no change have increased from 13.44 percent on 11/19, as views that significant production cuts are no longer an option.
Wiped-Out Fund Investors Seek To Recoup Losses From Broker
Bloomberg via Crain’s Cleveland Business
Twelve investors of wiped-out investment firm OptionSellers.com are seeking to recoup more than $7 million in losses from INTL FCStone Inc., the brokerage that handled their accounts. ChapmanAlbin LLC, a Cleveland-based law firm, said it filed for arbitration with the Financial Industry Regulatory Authority on behalf of the Michigan-based investors, who lost all the funds in their accounts and now also owe money to FCStone.
****SD: Another update on what I’d like to start calling “The Cordier Kerfuffle.”
Carbon Last-Gasp Bullish Bets Hit Record Before Key Brexit Vote
Mathew Carr – BloombergQuint
U.K. decision next week a ‘lottery’ for carbon, Belektron says; EU Dec. carbon options expire one day after that vote
Carbon traders handled a record amount of options that pay out if the price of Europe’s emission rights climbs 25 percent in a week.
The trading surge in the calls giving holders the right to buy carbon at 25 euros ($28) a ton comes at a crucial time for the carbon market. The securities expire on Dec. 12, one day after the U.K. parliament’s Brexit vote is planned.
Pound trapped by Brexit uncertainty; Sterling moves toward $1.28 as investors assess UK government’s EU exit
Cat Rutter Pooley and Michael Hunter – Financial Times via Irish Times
The latest UK political drama has shaken up the pound yet again, but the currency is still trapped in its narrow holding pattern, with some describing it as “impossible to trade” before investors have clear certainty on how Brexit will develop.
****SD: Don’t know why exactly this prompted me to Google “pound sterling political cartoons,” but this was a good result.
Putting On The Calls
Christopher Robbins – Financial Advisor
More advisors have warmed to using options and products that use options in their portfolios in 2018. They have been encouraged by both more volatile markets in stocks and bonds and by the increasing ease and efficiency of applying the strategies.
In October, amid several volatile weeks for U.S. equities, the Options Clearing Corporation cleared a record 567.8 million options contracts, up 48.9% from October 2017’s volume of 381.5 million. According to the Chicago Board Options Exchange (“Cboe,”) October set a new monthly volume record for S&P 500 options, at 41.4 million contracts traded.
Trump Whipsaws Markets Again With Habit of Overstating Success
Joshua Gallu and Shawn Donnan – BloombergQuint
Boasts of win in Xi meeting give way to more nuanced reality; Markets plunge as investors grow skeptical of Trump’s claim
President Donald Trump turned to a familiar playbook after his high-stakes dinner with Chinese President Xi Jinping on Saturday: boast of a big victory first, and let a more nuanced reality sink in later.
It’s the Worst Time to Make Money in Markets Since 1972
Elena Popina – BloombergQuint
Not a single of 8 main asset classes is up at least 5% in 2018; There was bull market somewhere in 2008, 1974 routs, NDR says
Market statisticians are falling over each other in 2018 to describe the pain being felt across asset classes. One venerable shop frames it this way: Things haven’t been this bad since Richard Nixon’s presidency.
****SD: See the WSJ’s Cash Is a Star in Rocky Year for Global Markets.
London’s stockbrokers fight for their survival
Hannah Murphy – Financial Times (SUBSCRIPTION)
A new game has become popular in the City of London: making bets on which famous stockbroking name will disappear first.
****SD: Probably better to focus on the fight for survival rather than the right to party – one gets you out of trouble and the other gets you into trouble.
What the VIX is saying about today’s plunge, and why the sell-off might be overdone
Pippa Stevens – CNBC
Stocks plunged more than 3% Tuesday on fears of slowing economic growth.
As stocks dropped Wall Street’s fear gauge — the VIX — broke above 20 for the first time since November, hitting an intraday high of 21.94.
But “Halftime Report” trader and Investitute co-founder Jon Najarian believes the sell-off might be short-lived since the VIX didn’t move closer toward 32, indicating traders believe the market might turn around.
****SD: This piece just throws out the rule of 16 like, “The VIX is closer to 16 than 32, suggesting the market reaction is overblown,” without good context as to why 16 being the square root of the (rough) average number of trading days in a year (256) is relevant or important. I’ll leave it to Bill Luby to explain as he puts it better than I could: “Technically, the VIX represents one standard deviation of the market’s estimation of changes in the price of the SPX during the next 30 days. The VIX number is the size of that standard deviation in annual percentage terms, but since volatility is a function of the square root of time, in order to translate that annual standard deviation number into a daily number, one has to divide by the square root of the number of trading days in a year.”
Volatility With A Capital V: Trade Tensions, Yield Curve Send Tech, Financials Into Red
JJ Kinahan – The Ticker Tape
To borrow a phrase from Mark Twain, it looks as though reports of volatility’s death were “greatly exaggerated.”
The market’s most closely-followed “fear index,” the Cboe Volatility Index, jumped more than 25% Tuesday after easing earlier in the week, with major stock indices going the opposite way and taking a big plunge. Financials— which are heavily weighted in the major indices—fell hard, exacerbating overall point losses.
Exchanges and Clearing
NYMEX natgas futures volume hit record high in November
Year-over-year average daily volume (ADV) in U.S. natural gas futures on the New York Mercantile Exchange (NYMEX) jumped to a record high in November, according to data from CME Group Inc, which owns the NYMEX.
****SD: Nat gas options ADV was up, but not enough to topple the record set in January 2018. Maybe if OptionSellers had doubled down on its positions it could have happened…
Intercontinental Exchange Reports November 2018 Statistics
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported November 2018 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
****SD: Equity options ADV is up 31 percent y/y.
FOW International Award winners unveiled
Luke Jeffs – FOW
CME Group was the big winner at tonight’s FOW International Awards taking home four awards as well as CEO Terry Duffy being announced as CEO of the Year.
The US exchange group won Global Exchange of the Year, Americas Exchange of the Year, Best new interest rates contract and Proprietary Traders’ Exchange of the Year.
The winners were unveiled at a Gala Dinner in London. In the opening proceedings Andreas Preuss, former CEO of Eurex, was awarded with the Lifetime Achievement Award for 2018.
The full list of winners can be found below, congratulations to all 2018 winners.
****SD: There were a number of options-relevant winners.
Regulation & Enforcement
The New Risks in Risk Regulation
Howard Davies – Project Syndicate
The received wisdom among financial regulators is that they are better off being able to say, “We told you so” if something goes wrong, and that there is little downside in occasionally issuing dark warnings. So should we be genuinely anxious about a spate of recent warnings from central banks and international financial institutions?
Capital Markets Prepare to Make a Quantum Leap
Monica Summerville – Tabb Forum
Innovation arising from quantum computing may have more disruptive potential than either blockchain or artificial intelligence. Banks already are investigating the technology and actively addressing the risks, and they are optimistic about the potential cost savings and competitive opportunities. TABB Group head of fintech research Monica Summerville looks at the areas within capital markets where quantum computing has the most potential, as well as why investment in the technology remains muted – for now.
Interactive Brokers’ TWS platform to enable creation of custom Market Depth Trader order Maria Nikolova – FinanceFeeds
These buttons are available for all instruments, for a specific asset type, or even for a specific instrument.
Buy Yen on Tail Risks as U.S. Slowdown Saps Dollar, BofAML Says
Ruth Carson and Masaki Kondo – BloombergQuint
Bank turns bullish on yen for first time since 2016, Woo says; Yen, Swiss franc offer best risk-reward for dollar bears
The yen will strengthen next year as a slowing U.S. economy weighs on the dollar and a range of global threats spur safety demand, according to Bank of America Merrill Lynch.
Bulls Lurking Amid Tuesday Selloff: Options Recap
David Russell – TradeStation
The S&P 500 dropped violently on Tuesday, but at least one big options trader was looking for a rebound.
A large bullish call spread was detected on the index-tracking SPDR S&P 500 ETF (SPY) about mid-way through the session.
****SD: It was the biggest trade all session yesterday.
China Is Said to Be Preparing to Buy U.S. LNG and Soybeans Again
Chinese officials have begun preparing to restart imports of U.S. soybeans and liquefied natural gas, the first sign confirming the claims of President Donald Trump and the White House that China had agreed to start buying some U.S. products “immediately.”
Trump says he believes China’s Xi is sincere on trade
U.S. President Donald Trump on Wednesday said he believed Chinese President Xi Jinping was being sincere at their meeting on trade and that Beijing had been sending “strong signals” since then.
****SD: Since when did “Seeing is believing” invert to become “Believing is seeing”?
Will U.S. Dollar Keep Its Momentum in 2019?
Bluford Putnam – CME Group (VIDEO)
The Fed’s rate hikes have underpinned the U.S. dollar for nearly two years. Equities, GDP growth and the widening deficit could alter its path in 2019.