| September 27, 2023 | | | | | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | The story "Reddit User Risks And Loses $600,000 Inherited Home That Didn't Fully Belong To Him In High-Stakes Options Gamble: 'My Life's Over, Here's My Final Advice'" had a broken link yesterday (actually, the link worked but the website moved the story). Here is a link that works.
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Ask and thou shall receive. And boy did Cboe Global Markets deliver on my ask, and then some, and then some more. The request I refer to is Cboe's position on the Spikes lawsuit in which it sued the SEC (Cboe Futures Exchange, LLC v. SEC). Cboe has prevailed in court and the U.S. Court of Appeals Monday denied MIAX's request for a rehearing in the case. There were actually two orders from the Court; one denies a panel rehearing, and the other one denies "a rehearing en banc."
To address the issue of not explaining its position on the case, for which I had taken Cboe to task, Cboe issued a blistering reply, "Cboe Position Regarding Court Decision Striking Down SPIKES Exemptive Order", which point by point explains why they are right and MIAX is wrong. (Question for a friend: What wine is best served with crow?)
The Cboe's blistering response is broken down into key sections, with the first and longest titled "Cboe Supports Competition." The others are "Existing Products Compete with VIX Futures," "The SPIKES Product Can Be Offered for Trading Without an Exemption," "The SEC Found that the SPIKES Product Is a Security Future," "VIX Futures Are Not Security Futures,"
"The SEC Has No Authority to Change the Tax Treatment for Security Futures" and "The Court Has Denied MGEX's Request for Rehearing."
The first three points Cboe makes under Cboe Supports Competition are: 1. As the industry's leader in product innovation, Cboe supports fair competition and welcomes new products that contribute to the development of the financial markets. 2. Cboe believes that the SEC must exercise exemptive authority in conformity with applicable law to ensure all new products come to market within a uniform and consistent framework. 3. The now-vacated SEC exemptive order issued for the SPIKES product is directly contrary to fair competition
All I can say is that based on this case, it is going to be a lot harder to get an exemptive order out of the SEC in the near future. They have to be a little gun shy after getting this ruling from the Court of Appeals. ~JJL
| | | | | | Lead Stories | | | Cboe S&P 500 Dispersion Index (DSPX) Pushes Hot Options Trade Into Mainstream
Lu Wang - Bloomberg
An under-the-radar options trade beloved by hedge funds pouncing on stock dislocations is entering the mainstream.
The Cboe S&P 500 Dispersion Index (ticker DSPX), created to capture the difference in prices of options between the equity gauge and its underlying constituents, made its debut Wednesday. Cboe Global Markets says it aims to list a futures product tied to the new offering by the second quarter of next year.
/jlne.ws/3taiPI3
S&P 500 Options Quirk Mints Billions, Stirring Manipulation Talk
Justina Lee and Lu Wang - Bloomberg
The fate of stock options with a face value of trillions of dollars is being influenced by unusual trading activity in the S&P 500 outside regular market hours, new research has found.
A monthly pattern sees key prices jump just before the expiration of derivatives tied to the benchmark US gauge, directly affecting which contracts will pay out, according to a study posted online last week. The phenomenon is generating profits of roughly $3.8 billion per year for bullishly positioned investors, it said.
/jlne.ws/3PUmKlj
JPMorgan Hedged Equity Fund's (JHEQX) Options Raise Worries as Stocks Fall
Lu Wang - Bloomberg
To Wall Street worrywarts, a large options position owned by a JPMorgan Chase & Co. equity fund has the potential to add fuel to this sweeping US stock selloff.
The $16 billion JPMorgan Hedged Equity Fund (JHEQX), a long-stock product that uses derivatives to protect its portfolio from declines and volatility, holds tens of thousands of protective put contracts expiring Friday with a strike price not far below the current level of the S&P 500.
/jlne.ws/3RASi0C
Cboe Position Regarding Court Decision Striking Down SPIKES Exemptive Order
Cboe
Cboe is issuing this statement in response to public statements that contain misinformation with respect to Cboe's successful challenge of an exemptive order issued by the Securities and Exchange (SEC) to Minneapolis Exchange, Inc. (MGEX) regarding its SPIKES product. As detailed below, Cboe brought this
case against the SEC because it failed to comply with applicable law when it granted an exemption to a single exchange for a single product listed on that exchange.
/jlne.ws/3t9d7pX
Why stocks are likely to be especially volatile this October
Mark Hulbert - MarketWatch
The U.S. stock market has been volatile in September. Brace yourself for October.
September has the reputation of being the worst month for the stock market, but October far and away is the most volatile month of the year â as you can see from the accompanying chart. So if this October follows the historical averages, the stock market won't lose as much as it has so far in September but investors will still feel whipped around.
/jlne.ws/3Q4tg9j
| | | | | | Exchanges | | | Wall Street-Backed Options Exchange Kicks Off Amid Peak Volumes; MEMX, which started in equities, is moving into options market; The launch makes MEMX the 17th options exchange in the US
Carly Wanna and Katherine Doherty - Bloomberg
A stock exchange backed by some of Wall Street's biggest players is making its official entry into options as investor interest in the asset class surges to all-time highs. The Members Exchange, or MEMX, will offer options trading on its new venue starting Wednesday, bringing the total number of US options exchanges to 17. Backers of the platform include a suite of legacy financial institutions, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., as well as market makers Citadel Securities and Virtu Financial Inc.
/jlne.ws/3PSNu5v
CME Group to Launch Micro Henry Hub Futures and Options on November 6
CME Group
CME Group, the world's leading derivatives marketplace, today announced that it will launch Micro Henry Hub futures and options on November 6, pending all relevant regulatory reviews. These new micro contracts will be one-tenth the size of the company's benchmark Henry Hub futures and options and cash-settled.
/jlne.ws/3EXkyTP
CME Group on the evolving FX futures and options landscape
The TRADE (Video)
The TRADE catches up with Paul Houston, global head of FX products at CME Group, to discuss the drivers behind increased usage of FX futures, how hedge funds and asset managers are interacting with FX futures liquidity and future plans for the company.
/jlne.ws/46s7e5C
FIA EDT Volume August 2023 Highlights
FIA
Worldwide volume of exchange-traded derivatives reached a record 13.96 billion contracts in August. This was up 24% from July 2023 and up 91.2% from August 2022. Options continue to gain in popularity. Global trading of options reached 11.11 billion contracts in August, up by more than 135% from last year, with most of that trading taking place in the Asia-Pacific region. Global trading of futures reached 2.85 billion contracts in August, up 10% from the same month last year.
/jlne.ws/3LIZzb1
Data Spotlight - Open interest in top crypto derivatives hit new highs in 2023
Katie Raymond - FIA
At the end of 2017, CME Group and Cboe Global Markets received regulatory approval to list futures on bitcoin. A lot has happened in the intervening years, including the so-called "crypto winter" of 2022.
But an FIA data analysis shows that, despite recent challenges, crypto derivatives markets are going strong.
/jlne.ws/3ESCrTG
| | | | | | Regulation & Enforcement | | | CFTC Charges Florida Man with Forex and Binary Options Fraud and Misappropriation
CFTC
The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Middle District of Florida against Patrick Wonsey of Riverview, Florida. The complaint charges Wonsey with fraud and misappropriation related to a trading scheme involving, among other things, leveraged or margined retail foreign currency (forex) and binary options traded on and off CFTC-regulated exchanges. Wonsey solicited at least $3.4 million from at least 50 individuals.
/jlne.ws/3LDf44c
Re: Commodity Futures Trading Commission's Notice of Proposed Rulemaking on Derivatives; Clearing Organizations Recovery and Orderly Wind-down Plans; Information for Resolution Planning
CCP Global
The Global Association of Central Counterparties ("CCP Global") is the international association for central counterparties ("CCPs"), representing 42 members who operate over 60 individual CCPs across the Americas, EMEA, and the Asia-Pacific region. CCP Global appreciates the opportunity to respond to the Notice of Proposed Rulemaking on Derivatives Clearing Organizations Recovery and Orderly Wind-down Plans; Information for Resolution Planning ("the Proposal" or "NPR") proposed by the Commodity Futures Trading Commission ("CFTC" or "Commission"). All systemically important derivatives clearing organizations ("SIDCOs") and Subpart C derivatives clearing organizations ("SCDCOs"), which would be subject to the Proposal, are members of CCP Global.
/jlne.ws/3rsQgFo
| | | | | | Strategy | | | A Government Shutdown Threatens the Stock Market. Moves to Make Now.
Steven M. Sears - Barron's
Volatility is what happens to you when you're busy making other plans.
Investors have just been reminded of this, and many seem less confident that the Federal Reserve will soon lower interest ratesâor conquer inflation without triggering a recession.
With oil prices surging, and some banks predicting that this key inflationary driver could soon rise above $100, the market mob has finally heard Fed Chairman Jerome Powell's warning that he has made for multiple months in multiple forums: Reducing inflation to 2% is hard, and more interest-rate hikes might be needed.
/jlne.ws/3t8GcBZ
5 Stocks to Buy for Big Upside by Halloween: 15-Year Market Veteran
James Faris - Business Insider
Technical analyst John Salama has loved markets ever since he discovered stock options in high school.
Once a hobby, flipping options has become Salama's career. In the last 15 years he's gone from brokering equity derivatives to trading them at Maverick Trading, a firm that issues capital to qualified traders in exchange for a chunk of the profits their investing models generate.
Straightforward investing strategies often work best, Salama said in a recent interview with Insider. He built his investing model based on a handful of technical indicators â including momentum-driven indicators like the relative strength index (RSI), money flow, and options flow as well as seasonal signals, which fluctuate based on the time of year.
/jlne.ws/3rtAaLG
Key stock-market volatility gauge surges to 4-month high as S&P 500 slumps
William Watts - MarketWatch
A closely watched measure of expected stock-market volatility jumped to its highest reading since May on Tuesday, as the S&P 500 renewed a selloff to trade at its lowest since early June.
The Cboe Volatility Index VIX, known by its ticker symbol "VIX," was up more than 2 points near 19.33 late Tuesday. That would surpass its Aug. 17 closing high of 17.89 and mark its highest finish since May 24, according to FactSet.
/jlne.ws/3PVpW04
Seasonality & Interest Rates
Cboe (Video)
In #Vol411, Joe Tigay @JoeTigay shares that volatility is increasing, seemingly making it right on schedule since September is seasonally the worst month in the year, lets us know that October volatility typically turns into a rally and more.
/jlne.ws/3PxwhgQ
| | | | | | Miscellaneous | | | Who is Sam Bankman-Fried, whose fraud trial starts next week?
Luc Cohen - Reuters
A few years after graduating college, Sam Bankman-Fried grew worried he was not taking enough risks. So the son of two Stanford Law School professors quit his Wall Street job and in 2017 started a cryptocurrency hedge fund, setting off a sequence of events that culminate next week in his trial for what federal prosecutors have called one of the biggest financial frauds in U.S. history.
/jlne.ws/46KtIPx
***** Here is a profile of Sam Bankman-Fried without the trip to the Bahamas.~JJL
Trading Firms Make Contrarian Bets on Downtown Chicago Offices
Isis Almeida - Bloomberg
Chicago's top trading firms are questioning their commitment to the city in the face of proposed taxes and rising crime. That's not stopping some of them expanding their footprint.
Optiver, a market maker employing about 400 people in the city, has just moved into new offices at One Prudential Plaza in downtown Chicago. The space â a third bigger than its previous office â can house as many as 600 people, allowing the Dutch firm to grow and host 70 interns in the city every year.
/jlne.ws/3RCxiqp
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