CME equity micro contracts coming

[MoneyMatthew]

It is not 'retail' that drives full size and e-mini index markets.

I don't think anyone here said it did. A quick glance at the Commitments of Traders (COT) Report shows the majority of trade/volume in these contracts are hedgers and spec funds.

The question is, why would the CME decide to make a micro contract for the emini-s&p? And why now? I personally think it is because they know Tom Sosnoff is planning to introduce a similar product on his "Small Exchange". The CME could careless about retail traders. They just don't like the idea of Sosnoff making his own futures exchange so they are taking away the one thing that could make it a hit.

My understanding is the "Small Exchange" will be geared almost exclusively to retail traders. Institutional access may even be limited. This is part of its selling point. It will be sold as a safe haven to trade smaller contracts and not get picked off/manipulated by institutions. I think the IEX Stock exchange is offering a similar "safe haven" from HFT by putting enforced consistent timing/speed delays on all trades.

Being shielded from the "big bad institutions" sounds like a nice idea, but there is always someone smarter and better equipped to take advantage of these types of things.

There is actually someone here on ET who is living proof of this. He has done it more than once in his life so far. I am talking about Atticus/Destiero. He took rules focused on retail trade execution and found ways to use it to his advantage with the options RAES Arb. Also, not too long ago he somehow learned that venues that cater solely to low-end retail like Oanda FX and a number of other binary options brokers were mispricing their digital touch options. He then proceeded to be such a consistent winner that his profitability led to most if not all of these places shuttering their retail options products and operations.

 

[vanv0029]

I think the new micro contracts are aimed at 3x ETFs. Maybe shorting companies that offer ultra ETFs is now a good idea. The 3x ETFs all have tracking error and decay that is at least easier to deal with using futures.

 

[destriero]

There is actually someone here on ET who is living proof of this. He has done it more than once in his life so far. I am talking about Atticus/Destriero. He took rules focused on retail trade execution and found ways to use it to his advantage with the options RAES Arb. Also, not too long ago he somehow learned that venues that cater solely to low-end retail like Oanda FX and a number of other binary options brokers were mispricing their digital touch options. He then proceeded to be such a consistent winner that his profitability led to most if not all of these places shuttering their retail options products and operations.

Primarily COMS options prior to the PALM spinoff, but a lot of other tickers as well. Over 100K contracts (I) moved through PSE alone. PHLX was the other mark. Absurd that they were allowing unlimited 20-lots to fill at $25-50 in edge, but they couldn't exploit it as pros. The OCC linked the exchanges and locked any crossed/inverted market on (my) sixth week. I had it automated for two weeks. Received a subpoena from OCC's lawyers, but TimberHill/IB provided all legal and the case was dropped. They were looking for $8MM (sic).

Trinitas Capital (betsfortraders.com) was pricing 1W WMT and (to a lesser extent) JNJ DNTs at 35-40/100 when they were worth 85-90/100. They had setup shop to cross their OTC lookback calls with retail, but of course no retailers would be buyers of lookback calls. The DNT markets were not their bread and butter, but c'mon. They were smart enough to cut it off after ~($300K).

The Oanda arb was comical. They had just received $150MM in vcap and were white-labeling the box option platform to RBS and others.

They were pricing simple touches as digitals so the bets were essentially half of theo. That was fairly easy to spot (so you'd think) but it went on for a while. Then they were pricing these fwd-starts at 30-35/100 when they were range digitals worth >80. At one point they were paying out on the hour. Something like 58/58 wins.

The pricing with the fwd-starts was complicated by spot trading outside the range prior to the start (gamma flip). No issue as you could construct the fwd-start as deep (on time) as you liked with little to no change in payoff. You could construct an 8-hour, 120-pip EURUSD digital range (inside) for forty cents. It was so good that I stopped in an attempt to be discrete, but quickly realized that I had to rape them before they wised up. The caveat was that it was constrained by the $20K per account BO-limit... so I recruited people to trade them in their accounts. A few people from ET traded it. There is a thread on here that I posted hours before they killed Box Options for *regulatory concerns*.

They closed the account with no explanation and wired the balance without a request on my end.

I recently got a call from an Oanda AI-sales guy asking if I'd like better rates. Yeah, sure, but bring back Box Options.