| November 20, 2017 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | The 'VIX Elephant' Is Due to Stampede the Market
Luke Kawa - Bloomberg
Derivatives traders should brace themselves for massive volumes in volatility-linked options.
An options behemoth that's been betting on a modest rise of the Cboe's VIX index -- and traded 3.15 million contracts so far this year -- may roll over a huge position today or later this week based on trading patterns going back to July, Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, wrote in a note.
jlne.ws/2AXEnrb
A Boring Week in U.S. Stocks Masks a Roaring Appetite for Hedges
Dani Burger - Bloomberg
The main U.S. equity gauge moved just a 10th of a percent last week, but investor hedging has jumped to a six-year high.
Nowhere was the active bet-taking more apparent than on derivatives for two of the biggest U.S. equity-index funds. Total open interest for options on the $244 billion SPDR S&P 500 ETF Trust, or SPY, rose to the highest since October 2011. The measure also surged on the biggest small-cap ETF, as defensive companies regained leadership and the U.S. yield curve flashed bearish signals.
jlne.ws/2AWShd2
Bitcoin Has an Unusual Relationship With Volatility
Aaron Brown - Bloomberg
Cryptoassets are showing the signs of a bubble. Market capitalization is $222 billion, 16 times as much as a year ago, with no significant change in tangible economic value. The virtual currencies elicit investment excitement and breathless news coverage; sober analysis treating both technical issues and economic fundamentals is rarer.
jlne.ws/2AXmlFm
The Cost of Hedging Against Swings in Technology Stocks Has Plummeted
Kinsey Grant - TheStreet
No one on Wall Street sees the tech rally ending anytime soon after a strong earnings season rallied investor optimism. Now, hedging big swings in the tech-heavy Nasdaq is the cheapest it's been since May.
jlne.ws/2AWOIDN
The bears may have missed their last chance to feast on 2017's stock market
Michael Santoli - CNBC
One week ago, a full buffet seemed to open up in front of Wall Street's underfed bears.
Stocks in Europe and Japan, leaders all year, were in sharp pullbacks and Chinese growth numbers fell a bit short. Prices for high-yield corporate debt, a key support for equities, were sagging and their yields rising from historically low levels. And the stock market, already expensive and perhaps over-loved, had itself entered a cautious phase in November  smaller stocks lagging, bank shares struggling, defensive sectors holding up the indexes, more new lows littering the tape.
jlne.ws/2AZqeJT
Weekend Review of VIX Futures and Options - 11/13/2017
Russell Rhoads - Cboe
VIX showed signs of life last week with a move to the lower teens. November settlement Wednesday morning came in at the highest level (13.79) since April. However, when the week came to an end VIX finished only 0.14 higher. The VIX futures rose slightly as well, with the farther dated futures uncharacteristically gaining more than the nearer dated contracts.
jlne.ws/2AZtZ1M
Weekend Review of Volatility Indexes and ETPs - 11/13/2017
Russell Rhoads - Cboe
What the heck is going on with VXST on the chart below? Basically Thanksgiving. As a nine-day measure of SPX implied volatility this index takes into account options that have their implied volatility under pressure to adjust for extra time decay since we have Thursday off and a half day this coming Friday. I have a funny feeling this time next week VXST will have fallen back in line (or contango) with the other indexes below.
jlne.ws/2AWIELa
Weekend Review of Russell 2000 Options and Volatility - 11/13/2017
Russell Rhoads - Cboe
Small caps ruled the day last week as the Russell 2000 (RUT) rose 1.24% while the Russell 1000 (RUI) was down 0.11%. For the year RUI is up over 15% while RUT still lags at up 10%.
jlne.ws/2AXrDAR
| | | | | | Exchanges and Clearing | | | China regulator approves Shanghai copper options: state media
Reuters
The China Securities Regulatory Commission has approved an application from the Shanghai Futures Exchange (ShFE) to trade copper futures options, the official Shanghai Securities News reported on Sunday.
jlne.ws/2AWh68Y
MCX gold options off to a slow start
Palak Shah - Business Line
Options trading on MCX, the leading domestic commodity bourse, has witnessed a slow start.
Trading volumes that were more than ?1,500 crore on the launch of Gold options on October 17 fell to less than ?50 crore. The lack of trader interest in options is significant given the fact that MCX is the only bourse in India that trades gold options and has a monopoly in bullion trading.
jlne.ws/2AVWCgE
More KOSDAQ Stocks to Be Included in Derivatives Market
Yoon Yung Sil - BusinessKorea
An increasing number of KOSDAQ stocks will be traded on the derivatives market from next year in order to revitalize the KOSDAQ market.
The Derivatives Market Division of the Korea Exchange (KRX) announced that it will help the National Pension Service (NPS) invest more into the KOSDAQ market and include more KOSDAQ stocks in the derivatives market as early as from the first quarter next year in its bid to comply with the government's measures to activate the KOSDAQ.
jlne.ws/2AZqdFE
Deutsche Börse eyes City of London's euro clearing crown
Philip Stafford - Financial Times
More than 20 investment banks and market makers have signed up for Deutsche Börse's attempt to draw London's prized swaps clearing business from its City home.
Barclays, Citadel Securities, UBS, HSBC and ABN Amro are among the institutions joining the Frankfurt-based exchange and its scheme to share the profits from clearing with its users. An incentive programme expires later on Monday.
jlne.ws/2AWCNWz
| | | | | | Technology | | | The eclipse of the speed traders and a lesson for today's fintechs
Ian Fraser - Raconteur
The high frequency traders who, just a few years ago, threatened to disrupt financial markets with their rapid, algorithmic trading are themselves being disrupted. And that disruption is coming from an unusual source: the markets are too quiet.
jlne.ws/2hOPZZy
Goldman builds out new R&D engineering group by hiring for AI A-team
Dan Butcher - efinancialcareers
Technology is central to Goldman Sachs' business, particularly now that former chief information officer Marty Chavez has moved across to the CFO job, and it's just created a crack-team to work on big strategic projects that will stretch across the organisation.
jlne.ws/2hMM1Rb
| | | | | | Strategy | | | Pricing Ratio Spreads - Comparing Expirations and Strikes with SPX and CMG
Russell Rhoads - Cboe
Wednesday I conducted a webinar for Interactive Brokers discussing ratio spreads. During the presentation I was asked about initiating 1 x 2 and what expirations and strike combinations would result in a credit. Another stipulation was that the trade would buy one at-the-money option and sell two out-of-the-money options. I wasn't asked for a call or put spread, so I did both with each expiration. With so many moving parts to that question I responded that I would investigate and report back in this space. I used pricing from November 15th on the close and option expirations for November 24th, December 1st, and December 29th. I also let the asker of the question pick the markets and they chose SPX and CMG. I'll start with SPX.
jlne.ws/2AWCP0h
Interpreting The Market's 'Chronic Quietness' And What May Lie Ahead (Audio)
Seeking Alpha
Dr. Ashwin Alankar sits down with Tom Keene on Bloomberg Radio for a wide-ranging interview discussing what the options market is signaling for equities, inflation and the revolutionary impact from technology.
jlne.ws/2AXJYO9
Some Dangerous Ideas
Highly Evolved Vol
All trades can lose money. Even strategies with positive expectation don't win all the time. This is just the nature of math and the markets. But some trades are more dangerous than their statistics would indicate. Here are a couple of examples.
bit.ly/2hOGhGG
The VIX Friday Close is a Red Flag for Stocks
Todd Salamone - Schaeffer's Investment Research
Last Wednesday, the S&P 500 Index (SPX - 2,578.85) succumbed to selling related to concerns about the world economy slowing after the release of weaker-than-expected Chinese economic data and more concerns about a U.S. tax reform deal getting done. The action that day and the rest of the week followed a familiar pattern with regards to observations I have made for some time related to the SPX's behavior around half-century marks, the importance of its closing price on Fed meeting days, and the uncanny tendency for volatility -- as measured by the CBOE Volatility Index (VIX - 11.43) -- to respect certain levels, such as half-highs and year-to-date breakeven levels, when moving sharply.
jlne.ws/2AVPHnG
Time To Short Corporate Spreads
Barron Gati - Seeking Alpha
First, let's take a look at the structure of the corporate debt industry. Accurate distributions of debt outstanding with respect to ratings is hard to come by; however, general figures are known. Prior to the fall of LTCM in 1998, about 20% of the $3 trillion corporate debt market was comprised of lower quality issuances (BBB or Baa or lower). Since then, the corporate debt market has consistently increased its risk profile and currently, it's estimated that about 50% of the $5 trillion corporate debt market is comprised of the same BBB or Baa or lower issuances.
jlne.ws/2AZo0tQ
| | | | | | Miscellaneous | | | Bitcoin price at $8,000: Institutional money poised to enter the market
Joon Ian Wong - Quartz
Bitcoin's seemingly unstoppable bull run continued as it passed $8,000 for the first time around 6pm UTC yesterday (Nov. 19). The price has been flirting with $8,000 for days, probably because several signs point to the long promised arrival of institutional money in the cryptocurrency markets.
jlne.ws/2AWI0gY
Goldman Sachs sees Fed raising rates four times in 2018
Reuters
Goldman Sachs said it expects a tight U.S. labor market and more normal inflation picture will lead the Federal Reserve to hike interest rates four times next year.
reut.rs/2hOwnEZ
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