| March 26, 2018 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
The Spread - Week of 3/19 to 3/23
JohnLothianNews.com
The JLN team is back in Chicago to bring you a more conventional episode of The Spread. Thank heavens our teleprompter was back in action - ad libbing a poolside chat was wicked difficult.
You are likely up to date on the potential Biden v. Trump title fight that was in the headlines this week, but are you up to date on the week's happenings in options? Watch the video here »
| | | | | | Lead Stories | | | Volatility Soars on Trade War Talk
Danny Riley - Nadex
These trade wars with China have not been good for the global equity markets. I know some people say it's not going to be a big deal, but Beijing did not like Trump's announcement of $60 billion in tariffs on Chinese products, vowing that if somebody imposes a trade war, China would "fight to the end."
bit.ly/2Gf0sVf
Milder Trade Winds Help Ease Chill as Last Week of Quarter Gets Underway
JJ Kinahan - The Ticker Tape
Better tidings on the U.S./China trade front this morning sent stocks up sharply in pre-market trading as investors hoped for some sort of reprieve. Still, the last week of Q1 begins with two of the three major indices needing a big rally to avoid posting quarterly losses.
On the trade front, media reports said China and the U.S. are negotiating to improve U.S. access to Chinese markets, firing up optimism among some investors that the countries could find a way to avoid a major trade war. Uncertainty around the potential impact of tariffs hit stocks last week after President Trump announced he'd levy tariffs on as much as $60 billion of imports from China. In turn, China announced higher tariffs on $3 billion in U.S. goods and threatened additional steps.
/goo.gl/isLRRg
U.S., China Quietly Seek Trade Solutions After Days of Loud Threats
Lingling Wei and Bob Davis - WSJ (SUBSCRIPTION)
China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets, after a week filled with harsh words from both sides over Washington's threat to use tariffs to address trade imbalances, people with knowledge of the matter said. The talks, which cover wide areas including financial services and manufacturing, are being led by Liu He, China's economic czar in Beijing, and U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer in Washington.
/goo.gl/2PfNFz
Getting a Read on Mexico's Election With Volatility Tea Leaves
Owen Minde - Bloomberg
Mexico's much anticipated presidential election, which is Âscheduled for July 1, is drawing attention to the currency as well as the candidates. If you happened to chart the term structure of foreign exchange volatility for the peso in mid-February, say, you might have noticed something interesting. With about five months to go before the voting, there was a pretty substantial peak at the six-month tenorÂwhich, of course, lay on the other side of the election.
/goo.gl/TKHPrU
ETFs win converts among institutional investors
Angus Peters - Financial Times
As head of investments and treasury management at Middlesbrough Council, Paul Campbell is not your typical investor in exchange traded funds. But the UK local authority scheme he oversees, the GBP3.3bn Teesside Pension Fund, is one of a growing number of institutional investors embracing ETFs.
Last year nearly half of institutional investors that use futures contracts to access passive index returns switched to ETFs, according to Greenwich Associates, the research provider.
/on.ft.com/2GbvpcG
Automated Trader Closes
Automated Trader
Automated Trader website will no longer be updated and #44, 2018-Q1 was the last issue published. This website will remain active and you still have access to all of our content under the "Digital Editions" section.
/goo.gl/5hRogo
Understand Taxes on Options Trading and Info on Your 1099-B
Danielle Erickson - The Ticker Tape
This article is intended for option traders. Please excuse the option jargon! But even the savviest option traders can need a little help at tax time, particularly with cost basis reporting. If that's you, listen up.
/goo.gl/R97qGc
Turning Sour on China's Oil Benchmark
David Fickling - Bloomberg Gadfly
Shanghai futures are off to a good start, but they're at the mercy of an illiquid currency.
/goo.gl/cKjwCA
****SD: "It's in market infrastructure that things really fall down. While Shanghai is offering 15 futures contracts with delivery dates stretching from September to March 2021, options trading -- a fundamental building block of most commodities markets -- is only in its infancy in China. It's barely a year since the first local commodity option, on soymeal, started trading on the Dalian exchange. That will make hedging far more difficult."
VIX Speculators Boosted Their Bullish Bets This Week
Investing.com
Large volatility speculators lifted their bullish net positions in the VIX futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
/goo.gl/Dkj1gE
Equity derivatives now biggest consumer of initial margin; Fragmented product set is 1.3% of OTC notional but attracts more margin than rates and forex
Helen Bartholomew - Risk.net (SUBSCRIPTION)
Equity derivatives are said to have become the over-the-counter market's largest consumer of initial margin (IM), despite representing just 1.3% of the market by total notional. The growing burden could prompt banks to turn some trades away, dealers warn, and two rival services - Quantile Technologies and TriOptima - are now vying to help the industry cut its costs.
/goo.gl/awY7Xz
Brexit, #MeToo and data protection put risk managers on guard
Oliver Ralph - FT
Brexit, #MeToo and GDPR were unfamiliar terms in the aftermath of the financial crisis but are some of the newer additions to risk managers' agendas, as the regulatory upheaval that followed 2008 begins to relent. New rules that emerged from the crisis are bedding down or even easing, and the steady stream of fines for misconduct has slowed. But risk managers at big financial companies say that there is no shortage of things to fret about. Top of the list are changing financial risks.
/goo.gl/G4q5vz
Weekend Review of VIX Options and Futures March 16th 2018
Russell Rhoads - Cboe
VIX gained a bit (about 8%) last week as the S&P 500 was under pressure. The curve shifted in a pretty uniform manner with March adding just over 3% as contango was fairly steep on Friday the 9th. As a friendly reminder, March contracts settle on the open this coming week.
bit.ly/2GcgtuJ
****JB: Also see - Weekend Review of Russell 2000 Options and Volatility
| | | | | | Exchanges and Clearing | | | An exchange giant lays out its defense of a bitcoin product that could transform the cryptocurrency
Frank Chaparro - Business Insider
Cboe Global Markets president Chris Concannon addressed the SEC's concerns about a bitcoin exchange-traded fund in a letter out Monday. A bitcoin ETF has long been viewed as a natural next step for bitcoin after the launch of futures.
/goo.gl/cJs4c2
Long-delayed derivatives market launch expected this year
Business Daily Africa
The Nairobi Securities Exchange (NSE) expects the six banks it signed up as clearing houses for the planned trade in derivatives will get regulatory approval this year, after a two-year delay. Co-operative, Barclays, Stanbic, NIC, Commercial Bank of Africa Bank and Chase Bank (in receivership) are yet to be cleared by the Central Bank of Kenya, two years after they were contracted.
/goo.gl/qFUwjU
Cboe Europe Signs Saxo Bank As New Indices Customer
Mondovisione
Cboe Global Markets, Inc., one of the world's largest exchange holding companies, today announced that Saxo Bank, the online trading and investment specialist, has signed a licence agreement to utilise 15 Cboe European national benchmark indices, including its FR 40, DE 30 and CH 20 indices. Saxo Bank plans to utilise the Indices for benchmarking against European markets and the creation of original products. Cboe's indices are also expected to be available in real-time and with historical charts to clients via the online Saxo Trader platform.
/goo.gl/d9bc6m
| | | | | | Regulation & Enforcement | | | America's Libor Replacement Is Ready for Its Debut
Alex Harris - Bloomberg
Regulators around the globe began work on replacements for Libor, the London interbank offered rate, well before the U.K.'s Financial Conduct Authority set to put the beleaguered interest-rate benchmark out of its misery. In the U.S., enter the Secured Overnight Financing Rate, or SOFR, a new reference rate being introduced next week by the Federal Reserve Bank of New York in cooperation with the U.S. Treasury Department's Office of Financial Research. The debut of SOFR is a critical step in a quest to wean more than $350 trillion of securities off Libor.
/bloom.bg/2GeqjMI
ECB inspectors find 10 billion euro problem in banks' loan book
Francesco Canepa - Reuters
European Central Bank inspectors found shortcomings and miscalculations worth more than 10 billion euros when going through euro zone banks' loan books last year, the ECB said on Monday.
/reut.rs/2GeksqT
****SD: It's what is not in the report that is relevant - Italian banks have been "complaining that risks associated with derivatives held by their competitors in France and Germany have been overlooked."
| | | | | | Moves | | | This bank quietly made some huge cuts to its prime brokerage business
eFinancialCareers
Credit Suisse has taken an axe to its U.S. prime brokerage business. Two weeks after we predicted a round of redundancies following the departure of global head of prime brokerage, Indrajit Bardhan, around 20 people in the front office have disappeared, many of them very senior.
/goo.gl/jjv8vh
Barclays just made a major technology hire for its equities business
eFinancialCareers
Barclays has got itself a senior technologist as it looks to reinvigorate its equities business. Eric Anderson, the former global head of equities and prime technology at Nomura Securities, joined the British bank as a managing director in its New York office earlier this month. Anderson has over 18 years of experience and specializes in algorithmic trading, equities execution, low latency applications, and derivatives.
/goo.gl/NVqRhy
| | | | | | Strategy | | | What to Make of the Unprecedented VXX Action in 2018
Bernie Schaeffer - Schaeffer's Investment Research
We haven't quite put a full calendar quarter in the books yet for 2018, but it's not too early to observe that the action this year in the iPath S&P 500 VIX Short-Term Futures ETN has been unprecedented.
bit.ly/2GbTL67
Good Luck Trying to Beat This Market
Mark Hulbert - Barron's
Stock-picking is difficult regardless of whether it's a "stock market" or a "market of stocks." I'm referring to the age-old distinction between periods in which individual stocks are highly correlated with each other and times when stocks march to the beat of their own individual drummers. When they become more highly correlatedÂas they have been during the correction that began in late January and which continues to gather steamÂanalysts proclaim that it's a monolithic "stock market" and conclude that stockpickers will have a particularly hard time beating the overall market.
/goo.gl/NgmUpw
The VIX Is Back, But For How Long?
Victor Dergunov - Seeking Alpha
With tensions rising between Beijing and Washington the VIX came roaring back over the past few weeks, surging from a close under 15 to a level of over 25. The current correction that seemingly won't end has brought a significant uptick in volatility, the likes of which has not been witnessed in years. Also, due to the increased volatility contango has largely disappeared from the VIX equation. This phenomenon has enabled certain long VIX products such as iPath S&P 500 VIX ST Futures ETN (VXX) to perform better than they usually would have under more normal market conditions.
bit.ly/2Ge58un
Stocks Continue To Face Volatility
Andrew Hecht - Seeking Alpha
The great bull market in stocks that began in 2016 after an 11.5% drop in the S&P 500 ran into some trouble into a speed bump during the first quarter of 2018.
The VIX volatility index was trading at the lowest level in history late last year before it exploded to over 50 earlier this year as stock prices found a top. The VIX has not returned to levels below 10 which had become commonplace last year. The measure of volatility on equity options has only made it down to just below the 15 level since early February and has spent much of the time trading between 15 and 20.
bit.ly/2GdCTMh
JPMorgan has identified the perfect Tesla trade to protect against Model 3 'production hell'
Joe Ciolli - Business Insider
Tesla is expected to provide an update to its Model 3 production schedule sometime in early April. The derivatives team at JPMorgan says the risks around the event aren't adequately priced into the market right now, and offer a trade recommendation.
/goo.gl/jKRd1s
| | | | | | Miscellaneous | | | Market jitters accentuate M&A regulatory risk
Robert Cyran - Reuters
Market swoons are bad news for dealmakers. Stock-market plunges can erode the value of bids involving acquirers' stock, make bankers reluctant to lend, and change the outlook violently. Recent market tumult, with the S&P 500 Index down 6 percent last week, doesn't qualify as an extinction event - at least not yet. It does, however, make it harder to overlook regulatory dangers attached to certain possible deals, like the combinations of CVS Health and Aetna and AT&T and Time Warner.
/reut.rs/2Ge7s4D
Wall Street Bankers' Average Bonus Jumps to Highest Since 2006
Jennifer Surane - Bloomberg
Wall Street's average bonus jumped 17 percent in 2017 to $184,220, the highest since 2006, according to estimates by New York State Comptroller Thomas DiNapoli.
/goo.gl/VYRqeG
JPMorgan Brings Amazon's Alexa to Wall Street Trading Floors
Hugh Son and Katherine Chiglinsky - Bloomberg
Voice-activated assistant can now send reports from analysts; Other firms such as New York Life using it to help employees
/goo.gl/uCi9S3
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