Block Trades in Options Markets

Journal of Futures Markets, forthcoming

  • CME reduced the block threshold for crude oil options in 2012.

  • This paper evaluates the effect of this change on the trading activity and the execution costs of large pit, electronic and block orders. 

  • The proportion of block and electronic trading increased, while trading at the pit declined prior to its eventual closure in 2016.

  • Block orders are mostly liquidity driven and currently represent about 30% of the volume in crude oil option trading strategies.

U.S. Experience with Futures Transactions Taxes: Effects in a Highly Intermediated Market

  • A tax imposed on U.S. futures transactions in the 1920s and 1930s sharply reduced trading volume but had no apparent effect on market quality, volatility, or open interest.

  • The tax had the greatest impact on market makers but did not dramatically affect longer-term positioning by other market participants.

  • In the long-run, exchange members doubled the minimum tick size in order to offset the impact of the tax.

Speed and Latency in Treasury and e-Mini Futures Contracts – Part 1

  • This paper the speed of trading in select treasury futures markets.

  • Speed of trading is defined as the intensity of messages sent by a trader in a specific time interval.

  • The paper divides up the speed measure by different market participant groups.

  • The paper finds that hedge funds, proprietary funds, and non-bank dealers have the fastest trading strategies.

Macro News Announcements and Automated Trading

  • The paper analyzes how manual and automated traders respond to expected news events by taking a detailed look at BLS unemployment announcements.

  • Automated traders generally reduce activity prior to the announcement, but quickly return to the market, both providing and taking liquidity, once the news has been made public.

  • Automated traders also generally have shorter holding periods, closing out most positions within minutes of the announcement, and tend to trade in anticipation of short-term price moves.

Dividend Swaps and Dividend Futures: State of Play

The Journal of Alternative Investments Winter 2017, 19 (3) 27-39
https://doi.org/10.3905/jai.2017.19.3.027

  • Index dividend swaps are derivatives based on the dividends paid on stocks in an index such as the S&P 500.

  • We find that swaps between dealers predominate for the S&P 500 (for which dividend futures did not exist); swaps between dealers and clients predominate for European indexes (for which dividend futures do exist).

Volatility Derivatives in Practice: Activity and Impact

NEW TITLE: Derivatives Pricing When Supply and Demand Matter: Evidence from the Term Structure of VIX Futures
Journal of Futures Markets, Volume 39, pp. 1035-1055
https://doi.org/10.1002/fut.22035

  • Derivatives based on the volatility of certain market prices have become extremely active since 2008, but part of the market is traded via swaps and exhibited little transparency before the advent of regulatory data.

The Lifecycle of Exchange-traded Derivatives

Journal of Commodity Markets, Volume 10, June 2018, Pages 47-68
https://doi.org/10.1016/j.jcomm.2018.05.007

  • This paper uses a Bayesian analysis to study volume and lifecycle patterns of exchange-traded futures contracts during the 20th and early 21st centuries.

  • The paper finds that the advent of electronic trading at the beginning of the 21st century coincided with a shift in volume and lifecycle patterns.

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