Scott Burrill - Market Notes

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Scott's notes
Scott's Notes

Levels For Monday

Dec 10, 2017

This is an eventful week with notable Central Bank Rate Announcements from the Fed, ECB and Bank of England, as well as Futures and Option Expiration Friday, and the anticipated launch of Bitcoin Futures tonight on the CBOE, and then next Sunday evening on the CME.

Last week saw a recovery notably in the Nasdaq 100 BigTech leaders, a reduction in Volatility and ultimately a close well within the option implied move for the week and upwardly biased on our Magnet Levels.

The Trends are Up, and we note the recovery in key groups such as Telecom, Industrials, Financials, and Health Care.

Closing out the week, Biotech was strong, likely in anticipation of the 89 presenters at the American Society of Hematology Meeting.

Through Friday's close, the option implied move is 29% lower from last week at + / - 25 points or 8.49% implied volatility in the SP500.

Interestingly, given the 98% probability the FOMC will raise rates on Wednesday, the market is assigning greater volatility to ECB President Draghi's Press Conference than outgoing Chair Yellen's.

As usual, we will look to the Magnets for clues to establish early bias.

Bias is Up > 2650.

Turning to Bitcoin Futures.  

Volatility remains high as I observed a -13% move last night only to see it recover, trading up 7%.

To note, the CBOE Bitcoin Future, XBT, will cash settle and one future will equal one bitcoin. This is material since margin will be 30% of the notional value. So, at current prices, margin will be approximately, $4,800 per contract. This will be attractive to Retail versus Institutional Speculators versus the CME's 5 bitcoins per future. This means the CME margin will likely be $28,000 per future contract.

Additionally attractive is the CBOE's single exchange auction settlement process at 4:00 PM EST, priced off of the Gemini Cryptocurrency Exchange.

Circuit breakers apply to both instruments.

I anticipate arbitrage to occur from automated market makers. Like any new instrument, liquidity and trading will improve given time.

This is a quick comparison from Reuters. http://reut.rs/2jCRCHx

We will watch with interest this new asset unfold.

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