Negative Oil Prices

In the wake of a drop-off in the demand for oil, prices went negative for the first time in history. What does this mean? Like any asset, the price of oil is driven by supply and demand. With high supplies and effectively no demand, suppliers are now having to pay users to take oil off their hands since they have too much and nowhere to store it. In fact, on April 20, some oil prices actually closed at -$37.63. So, if you have any place to put it, you could get paid to takes some oil. See article here, Forbes.

European Derivatives Market

The European Securities and Markets Authority (ESMA) just reported that the European derivatives market has an outstanding notional value of over 450 million euros, representing 33 million open positions. See article here, Luxembourg Post.

An Update on Levered ETFs

Levered ETFs are designed to track a particular benchmark, but in an exaggerated fashion. For example, the Pro Shares Ultra S&P500 (SS0) is a 2X fund, meaning its performance should be twice the level of the index. However, this performance only matches short term. In particular, since volatility reduces compounded returns, levered funds "lose" performance through time. In fact, some funds may actually produce a negative buy-and-hold return during even if the underlying benchmark was positive. Unfortunately, many retail investors are flocking to these funds without understanding their risks. (See article here, Reuters.) In recent events, the SEC just announced approval of a quadruple-leveraged ETF, which will further exaggerate the issues described above. (See article here, Reuters.)

Massive Futures Trade

On December 7, 2016, a single trader apparently took a position of $1.8 billion in S&P500 futures. This was the largest trade of the year, more than doubling the size of the next largest trade. There is speculation regarding the reason behind the trade, but the result was an increase in buying across other traders, driving the market to high levels. See article here, WSJ.

Nasdaq to Acquire ISE

Nasdaq is set to acquire the International Securities Exchange (ISE). The combined firm will manage six exchanges, representing 38 percent of US options trading. This will surpass the CBOE, which manages about 27 percent of the option trading market. See article here, Bloomberg.

Covered Calls

A Covered Call is created by purchasing stock and simultaneously writing a call on that stock. The position limits upside, as the stock will be called away if the price rises above the exercise price. But, the premium from selling the call provides extra income, which is the primary reason for executing such a strategy. See the article here, WSJ.

Snow Futures?

Futures contracts are typically viewed as speculative investments; however, much of the activity in such contracts is the result of hedging. For example, insurance companies use weather derivatives to hedge exposure to natural disasters, while farmers and food producers would transact in agricultural futures. The most recent addition to such categories is snow futures. See article here, CME Group.

Rogue Trader

On June 30, 2009, the price of oil jumped $1.50 per barrel during the night. This was curious since no major political event had taken place. Well, the Financial Services Authority just released a report that a drunk trader purchased futures contracts on 7 million barrels, which pushed the price up. Even more ironic, the trader was so drunk he didn't even remember doing it. See article here, CNBC.

Futures Exchanges

Most people are familiar with the primary futures exchanges, such as the CBOT, CME, and the NYMEX (all part of the CME Group). However, there are some more specialized (and interesting) exchanges. For example, check out Intrade, which is a futures market based on political outcomes. Also, you can invest based on Hollywood movies (Hollywood Stock Exchange).

Weather Derivatives

Most people are aware of stock options or futures contracts on commodities such as gold and oil. However, the derivatives market is very diverse, including such things as weather derivatives. With hurricane season upon us, you may want to do some research on hurricane futures and options (http://www.cmegroup.com/trading/weather/hurricanes/hurricane.html). Essentially, these contracts allow insurers to transfer risk to other parties, such as hedge funds. See the article here, CME Group.