Index Futures Net Changes and Settlements:
Foreign Markets, Fair Value and Volume:
Today’s Economic Calendar:
Today’s economic calendar includes MBA Mortgage Applications 7:00 AM ET, EIA Petroleum Status Report 10:30 AM ET, 2-Yr FRN Note Auction 11:30 AM ET, 5-Yr Note Auction 1:00 PM ET
S&P 500 Futures: #ES Down 102.50 Handles In Four Days
Monday the markets were weak because of the rising yield on the 10 year note and weakness in Apple (NASDAQ:AAPL). Yesterday the ES sold off sharply as the FANG stock dropped, the 10 year yield crossed over the 3% threshold and a round of disappointing earnings reports from big industrial companies (CAT -3%).
At 7:38 CT the ES traded up to 2688.75, up 17.50 handles but pulled back before the open. On the 8:30 open the ES traded 2681.00, up 10.25 handles. After the open the ES dropped and then popped up to 2684.00 and in came the sell programs. The ES sold off down 2665.75, rallied up to the 2675.00 area, made a lower low at 2660.50, pushed back up to 2673.00 at 10:40 am and just after 1:00 traded down to 2616.25 down 56 handles on the day and down 72.50 handles from its Globex high. The ES rallied up to 2629.75, sold back off and made a new low by one tick at 2616.00 at 2:15 traded up to 2636.50 as the MiM went from sell $99 million to sell $202 million. After a pull back down to 2629.25 the ES traded 2636.75, one tick above the previous high. As the MiM increased to $436 million to sell the ES sold back off down to 2619.75. On the 2:45 cash imbalance the MiM ‘flipped’ to buy $34 million and the ES traded back up to the 2636.00 area. On the 3:00 cash close the ES traded 2634.50 and then went on to settle at 2635.25 on the 3:15 futures close, down 37 handle or -1.38% on the day.
We could have done more of the ‘pops and drops’ but in the end, the day was one mammoth sell program. Like I said yesterday, some traders thought a 3% 10 year note yield didn’t matter but the markets over the last few days have proved them wrong. In the end, it was a big day in terms of the trading range and volume, 2.29 million ES traded.
Standing Up for the CBOE :
I have always been viewed things as a conspiracy theory. I, like the PitBull complain about how the algorithmic and high-frequency trading programs manipulate the futures markets. I really think it’s unfair that there are headline news algos that get the news before the public. The systems pay for faster speed from the news source and the exchanges. There is no way anyone can tell me that a level ‘playing field’ I also think the $10 million dollar hit our S&P desk took in the FLASH CRASH was wrong. There should have been late day ‘limits’ that prevented the DOW from dropping so much so late in the day but I also understand there is nothing we could have done about it.
That said the story below about the VIX allegations of manipulation are 100% false. How can it be that the short gamma option players ( premium sellers0 could make so much money for so long and no one says it’s not manipulated? The long gamma guys lost for several years but you didn’t hear them complain. Before the VIX rallied sharply there were a few big players like the ‘VIX Elephant’ that made bets the VIX was going to increase in price. He rolled the position several times and lost millions in the process. We never heard him complain that the VIX was ‘fixed’ He stuck with his trade and got paid for sticking with it. For months the VIX was trading at historical, all time lows. Most traders knew this could not go on forever and I wrote about it several times that the ‘longer the VIX stay low the greater the chance it goes up’ And it did! Just like the S&P, it could not go up forever! So for all you ‘traders’ that continued to bet against the VIX all I have to say is go read about Victor Niederhoffer, the short premium sellers that made millions of dollars and got blown out.
Everyone knows the short premium sellers make and make and make and then get blown up and lose all their money in one day. While I commend the CBOE for working to improve the VIX settlement process I also have to say that the lawsuits against the exchange for ‘VIX Manulaption’ are totally false. It’s not up to the exchange to warn an account that has made millions of dollars to change their strategy. It’s up to the trader to react and know when things are changing and take the appropriate action to avoid big losses. I started on the floor over 40 years ago and I have seen a lot of big wins and big losses but what happened at the beginning of February was long overdue. Here is a story on the lawsuits, all I gotta say is good luck on that! https://hacked.com/is-the-vix-being-manipulated/
From Bloomberg
CBOE Working to Improve VIX Settlement Process After Wild Swing
VIX 5 Day Chart
*Exchange says allegations of manipulation have no merit
*Buy-order imbalance responsible for last week’s swing
Cboe Global Markets Inc. said it is looking at ways to improve the settlement process for its Cboe Volatility Index, whose swings before expiration have been looked upon with suspicion in the market.
Allegations of manipulation are “without merit,” the Chicago-based exchange operator said in a letter to customers and traders that was included in a filing Monday. “If our regulatory efforts were to uncover any manipulation, it would be rooted out, swiftly and decisively.”
Last week, claims that the VIX is sometimes rigged were revived when the index swung just as derivatives on it were expiring. The concern is that traders may try to push the market around to make their positions pay off at settlement time. The VIX, which derives its price from S&P 500 options, is a closely watched market barometer.
A buy-order imbalance of 114,000 SPX options affected the final VIX settlement value on April 18, the Chicago-based exchange operator said. The auction process went the way it was supposed to, “notwithstanding that the final settlement value was higher than what market participants may have otherwise expected,” Cboe said.
“We are assessing steps that Cboe can take to enhance the VIX settlement process and attract more liquidity to our settlement auction,” the company said in the letter signed by Chairman and Chief Executive Officer Ed Tilly and Chris Concannon, president and chief operating officer.
VIX Allegations
Allegations about the VIX’s vulnerability to manipulation aren’t generally taken seriously by market professionals. Still, University of Texas researchers published a study last year that claimed to find evidence the process had been gamed, possibly by people holding derivatives.
“We reiterate that we believe these claims are without merit, and that the academic paper’s analysis and conclusions are based upon a fundamental misunderstanding about how VIX derivatives are traded and settled,” Cboe said in the letter. “The trading behavior the author considered suspicious is consistent with normal and legitimate trading behavior.”
In February, an anonymous whistleblower alleged to federal authorities in a letter that the VIX was somehow being manipulated. Cboe blasted the letter, stating that it was full of mistakes and misconceptions and its conclusions weren’t credible.
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