| August 22, 2017 | | | |  | Spencer Doar
Associate Editor
John Lothian News | |
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| | | | Observations & Insight | | | DRW News and a Solar Eclipse Hangover
Spencer Doar - JLN
Volumes were depressed yesterday because maybe just more dog days of August or maybe the eclipse or maybe who knows?
Now, the S&P resumes its march upward and the VIX is back under 12.
Cleared volume at the OCC yesterday was 15.2 million contracts, the lowest since the 12.4 million traded on August 7. For context, last Thursday (8/17) and Friday (8/18) both had more than 24 million contracts cleared.
One group very much not in lazy summer mode is DRW. The big news was the firm's acquisition of RGM Adivsors last week, but on August 9 the firm also made a notable move by bringing on Adam Garner in the newly created role of global head of fixed income options.
His arrival marked a reshuffling of DRW's fixed income desks under a new umbrella which no longer reports directly to Founder and CEO Don Wilson. Garner now oversees an amalgam of market making desks and principal risk taking traders. Garner said that in the current market environment DRW's diversification  in varying endeavors, asset classes and within fixed income, too  allows them to thrive regardless and that "you can see from our history we're pretty aggressive at finding opportunities."
Garner started his career at Credit Suisse in interest rate options, spending the last three of his nine years there as co-head of the unit. He then transitioned to the buy-side for two-plus years at Brevan Howard while focusing on G4 rates and volatility. He then went to Citadel's fixed income division in 2014.
Garner's appointment comes on the heels of DRW's 25th anniversary last month.
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Wall Street's Cowboy Traders Find New Riches In Bitcoin And Cryptocurrencies
Nathan Vardi - Forbes
Mike Komaransky spent 16 years trading, starting out as a clerk in the pits of the Chicago Mercantile Exchange, buying and selling everything from U.S. Treasuries to European fixed income derivatives. He spent his career at DRW Holdings, becoming a partner at the proprietary trading firm that runs one of Wall Street's largest high frequency trading businesses. Since 2010 Komaransky has focused on a new asset class, trading cryptocurrencies like bitcoin, and he did so well that Komaransky retired this summerÂat the age of 38.
/goo.gl/dnMLzx
****SD: This is a fun story that also pertains to DRW personnel.
| | | | | | Lead Stories | | | The Market Is Already Heeding Dalio's Warning on Risk
Cormac Mullen - Bloomberg
As billionaire hedge fund manager Ray Dalio joins a chorus of prominent investors saying it's time to offload risk, gauges of sentiment show the market is already getting the message.
Investors are no longer serenely sailing from crisis to crisis as politics divides the U.S. at home and isolates it abroad. Volatility is on the rise, bearish options are multiplying and small-cap stocks are tumbling.
/bloom.bg/2xq3QYx
Hedge-Fund Veteran Diggle Says Odds Against '08 Rout Redux
Netty Idayu Ismail - Bloomberg
Stephen Diggle said market turbulence is certain to surge. But he doesn't plan to resurrect his volatility hedge funds, which made $2.7 billion in the global financial crisis, as central banks will stop a repeat of the unprecedented price swings reached in 2008.
/bloom.bg/2wv7TGj
Will AI Replace the Traditional Trader by 2020?
Stephane Leroy, QuantHouse - TABB Forum
Trading desks across the sell side, hedge funds, prop and quant shops, and prime brokers need to get ready for the future reality of a machine-driven trading environment. Just as we have seen algos and smart order routers replace humans in the early 2000s, 2020 will see human ideas coded into trading strategies and executed not by humans, but by APIs. But robots will not completely replace traders; rather, the technology will require new skillsets. Technologists, data scientists and analysts will be key (and king) in helping financial market participants transition to this machine learning and AI-driven future.
/goo.gl/5PmeXo
Italian Debt and Derivatives: The Negative Effects of Poor Decisions
The Market Mogul
What explains rising Italian debt, even if interest rates are at their lowest and keep decreasing? Among other things, there is one bizarre reason: billions of euros of derivative contracts signed by the Italian Treasury. From 2013 to 2016, Italy paid almost EUR24bn on derivative contracts signed over 20 years ago. Moreover, as if this wasn't enough, Italy is expected to pay another EUR24bn over the next few years.
bit.ly/2xpC4Lq
How Do VelocityShares' EVIX And EXIV Work?
Vance Harwood - Seeking Alpha
In May 2017 VelocityShares introduced two new volatility funds, the VelocityShare 1X Daily Inverse VSTOXX Futures ETN (BATS:EXIV) and VelocityShares 1X Long VSTOXX Futures ETN (EVIX), which track European volatility futures. In digging into these funds I've encountered a dense mashup of the familiar and the foreign. The differences between European Volatility futures and VIX futures are relatively small so it's reasonable to view EXIV and EVIX as close cousins of the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX), however, these funds depend on a set of securities and processes with subtle and not so subtle differences with the mainstay USA volatility funds.
/goo.gl/hTiRJS
****SD: Blog from Bill Luby's VIX and More when the ETNs debuted.
Inverse VIX ETFs Attract Big Dollars -- XIV
Investing.com
As we mentioned last week, fund inflows continue to be very light and largely absent in the ETF marketplace even on the recent dip in equities. Conversely, we continue to see some mild position trimming in SPDR S&P 500 (MX:SPY) (NYSE:SPY) (-$2 billion out) in recent sessions, as the SPX clipped its 50 day MA last Thursday and has failed to bounce and hold since.
/goo.gl/CvcAaQ
****SD: Compliment to above EXIV and EVIX story.
Are Long-Term Investors the Market's True Gamblers?
James Mackintosh - WSJ
To politicians and voters, "investors" carry on the noble work of capitalism, while "speculators" are no better than gamblers who treat share prices the same way as racing odds.
A new study suggests the caricature has it backward. The most speculative of speculators, it turns out, make their money when the companies they gamble on have good fundamentalsÂthe cornerstone of what we traditionally think of as investing. And those who think of themselves as the most fundamentalist of fundamental investors make most of their money when the luck of the markets pushes prices up, absent improving company financials.
on.wsj.com/2wvbrbS
****SD: Well whaddya know - an article about "speculators" and "gambling" in markets that doesn't have anything to do with options.
| | | | | | Exchanges and Clearing | | | Bourses to give 'do not exercise' option in equity derivatives
PTI - The Times of India
Providing more leeway, leading exchanges BSE and NSE will provide trading members the option to not exercise certain options contracts in the equity derivatives segment.
/goo.gl/NmjqNP
****SD: The Economic Times on the news here.
| | | | | | Regulation & Enforcement | | | Trump's team and lawmakers making strides on tax reform plan
Nancy Cook - Politico
President Donald Trump's top aides and congressional leaders have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP's top priorities.
politi.co/2wuQkq9
Volcker rule and the recent updates
Finextra
Volcker Rule is a federal regulation that restricts banks from making speculative investments with their own customers' accounts. The rule was proposed by former US Federal Reserve Chairman Paul Volcker as part of section 619 of Dodd-Frank Wall Street Reform and Consumer Protection Act to avoid financial stability similar. The decision for taken to avoid crises similar to 2008 financial crises.
bit.ly/2wvmbqG
****SD: TL;DR - Office of the Comptroller of the Currency (aka the "other" OCC) is taking comments on the Volcker Rule until September 21.
| | | | | | Strategy | | | Options Traders Wary of Tech Stocks
Gunjan Banerji - WSJ
Options traders are leery of potential risks lurking in technology stocks.
The number of options contracts outstanding on the $51 billion PowerShares QQQ Trust, a tech-heavy exchange-traded fund, recently reached its highest since 2009, according to MKM Partners. And the ratio of bearish options bets to bullish options bets, known as the put-call ratio, is hovering near a long-term peak, according to the derivatives strategy firm.
on.wsj.com/2xq16dy
JPMorgan: Range-Bound S&P 500 Could Spell Trouble For U.S. Equities
Conor Molumby - Bloomberg
For once, stability in stocks might be a bad thing. Technical analysts at JPMorgan Chase & Co. say that if the S&P 500 can't escape its 2,400 to 2,500 range, it could spell trouble for U.S. equities heading into September.
/bloom.bg/2xpMVVH
Earnings and Confidence Make For a Powerful Combination, But...
Bob Lang - CBOE Options Blog
Since the election the stock market has been on a roll, and even bonds have shown strength. We are just about finished with second quarter earnings reports and we have seen some solid surprises to the upside, a near 10% gain in earnings over 2016. This follows another double digit gain from first quarter, and some estimates have the second half of 2017 coming in with double digit gains. This will help buoy the markets until the earnings cycle inflects to the downside. That may be another two or three quarters down the road, but as always the markets will sniff it out.
/goo.gl/a2YJon
| | | | | | Events | | | Myron Scholes, Nobel Laureate in Economic Sciences, to Speak at University of San Francisco
Benzinga
Myron Scholes, a Nobel Laureate in Economic Sciences, will speak at the University of San Francisco on Wednesday, Aug. 30, at 6 p.m. in McLaren Hall on the university's main campus.
/goo.gl/1KafZH
| | | | | | Miscellaneous | | | Why Blockchain Needs Design
Katharine Schwab - Co.Design
The global supply chain is incredibly complicated, with millions of ships and airplanes and trucks bringing goods thousands of miles across the world, crossing national boundaries, and changing hands along the way. If that's totally overwhelming to imagine, that's nothing compared to keeping the pieces of this system moving efficiently. The most baffling thing? Much of this unthinkably complex global system still runs on old-school forms of record keeping: namely, paperwork.
/goo.gl/T3p1Z8
****SD: Love this.
Identity Thieves Hijack Cellphone Accounts to Go After Virtual Currency
Nathaniel Popper - NY Times
Hackers have discovered that one of the most central elements of online security  the mobile phone number  is also one of the easiest to steal.
In a growing number of online attacks, hackers have been calling up Verizon, T-Mobile U.S., Sprint and AT&T and asking them to transfer control of a victim's phone number to a device under the control of the hackers.
nyti.ms/2wvzg3h
****SD: We're looking idiosyncratic risk right in the face, folks.
The Unintended Consequences of Quantitative Easing
Jean-Michel Paul - Bloomberg
Quantitative easing, which saw major central banks buying government bonds outright and quadrupling their balance sheets since 2008 to $15 trillion, has boosted asset prices across the board. That was the aim: to counter a severe economic downturn and to save a financial system close to the brink. Little thought, however, was put into the longer-term consequences of these actions.
/bloom.bg/2wvzNCj
Booming Metals Rally Signals Optimism on Global Growth
Ira Iosebashvili and Amrith Ramkumar - WSJ
Bullish investors are pushing the prices of copper, aluminum and other industrial metals to multiyear highs, betting that recent signs of resurgent global growth and falling supplies will stoke demand for raw materials.
on.wsj.com/2wvgDMP
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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