| February 28, 2024 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | The YouTube channel Veritasium posted a video, The Trillion Dollar Equation (31 minutes long). The video details the history of the math that led to the Black-Scholes/Merton equation that made options trading mainstream. It will not teach you to trade options or use the equation (which I suspect most reading this already know). What it does do is show the fascinating line between physics and the trading we do today - more broadly, how math jumped disciplines. It's a fun history lesson (did you know the earliest options were bought around 600 BC on the use of olive presses?). The video is well worth watching. ~JB
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Term of the Week - To Be Paid By the Buyer to the Seller
JohnLothianNews.com
In addition to their potential intrinsic value, options also have another element of value: the option premium. The premium has to be paid by the buyer, which is then transferred to the option seller. To a certain extent, the purchase of an option contract can be compared to the acquisition of an insurance policy, where a premium is charged by the insurance seller. The insurance buyer pays the premium in advance of the period during which the insurance agreement is valid. The contract embeds a potential claim, which will only be lifted if certain conditions are met.
Watch the video »
| | | | | | Lead Stories | | | Traders Rush to Hedge Against Euro Losses as ECB Day Nears; Options traders add euro bearish exposure up to six months
Vassilis Karamanis - Bloomberg
Traders are betting on a weaker euro and greater price swings ahead of the European Central Bank's policy meeting next week, where a dovish tilt or weaker economic projections risk knocking the currency further.
The euro fell on Wednesday to its lowest in a week versus the dollar, and options markets signal investors are now hedging against further losses. One-week risk reversals, a barometer of positioning and sentiment, show traders have turned the most negative on the euro in more than three weeks.
/jlne.ws/49x9TN4
Crypto Traders Hedge Bitcoin Rally After 40% Rise in 4 Weeks, Options Data Show; Some traders have started buying puts to protect against a potential correction, according to Greeks.Live.
Omkar Godbole - CoinDesk
Bitcoin's (BTC) recent near-vertical rise has some traders seeking protection against a potential leverage washout and price pullback.
The leading cryptocurrency by market value topped $59,000 on Wednesday, marking a 40% rise in four weeks and outpacing a 31% rally in the CD20, a gauge of the wider crypto market. The advance is consistent with the cryptocurrency's record of chalking out impressive rallies in the weeks leading up to the mining reward halving. The Bitcoin blockchain's fourth halving, due in April, will reduce the per-block emission to 3.125 BTC.
/jlne.ws/48AR8XO
Traders amass big bet on falling grain prices after bumper harvests; Biggest short bet in 20 years in corn, wheat and soy futures suggests market slump could continue
Susannah Savage and George Steer - Financial Times
Commodity traders have increased their bets on a slump in grain prices as bumper harvests lead to a global supply glut of corn, wheat and soyabeans. Hedge funds and other speculators have accumulated a net short position of 546,000 futures contracts across the three crops, the largest negative bet in nearly 20 years, according to the latest figures from the US Commodity Futures Trading Commission.
/jlne.ws/3IeA4fJ
| | | | | | Exchanges | | | How Index Evolution propels further growth of Derivatives
Eurex
Ahead of the Eurex Derivatives Forum in Frankfurt next week, we sat down with Axel Lomholt, Head of Index Business and STOXX General Manager at ISS-STOXX, for an update on the continuing advances in index development and the path ahead for sustainability investment. What is the current state of play in indices? Are you seeing a rise in the popularity of customizable indices?
What we are seeing from our clients, and across the industry, is an increase in appetite for custom index products. This is a secular trend and one of the main reasons behind it is an incredible advancement in technology, which is enabling investors to create very precise exposures.
/jlne.ws/48vCzov
Position Limits - Government Of Canada Bond Listed Products (Spot Month)
TMX
The applicable position limits for the Government of Canada bond futures and options on the Government of Canada bond futures have been updated and are reflected in the position limit file. The position limit file is retrievable here. The position limits will apply as follows:
/jlne.ws/49O7rlc
| | | | | | Regulation & Enforcement | | | How the CFTC Stays on Top of Financial Market Innovations; The U.S. Commodity Futures Trading Commission has fostered collaboration with other financial industry regulators while maintaining its independence.
Wharton School of the University of Pennsylvania
The rapid evolution of the financial industry with advanced technologies has demanded increased agility from regulatory agencies to adapt, and also govern cohesively between themselves. The U.S. Commodity Futures Trading Commission (CFTC), which regulates the derivatives markets, including futures, swaps, and select options, has risen to the challenge, according to three former CFTC chairmen - J. Christopher Giancarlo, Heath Tarbert, and Timothy Massad.
/jlne.ws/49vGXoS
CFTC Seeks Comments on Use of AI in Derivatives Markets
Alexander Holtan, Douglas Youngman - Holland & Knight LLP via JDSupra
The Commodity Futures Trading Commission (CFTC) has issued a request for comment (RFC) seeking public input on the use of artificial intelligence (AI) in CFTC-regulated markets. The RFC - distributed jointly by the CFTC's Divisions of Market Oversight, Clearing and Risk, Market Participants and Data, along with the Office of Technology Innovation - was issued partially in response to an Executive Order issued by the White House on Oct. 30, 2023, encouraging federal agencies to "consider using their full range of authorities to protect American consumers from fraud, discrimination and threats to privacy and to address other risks that may arise from the use of AI." The RFC will remain open for submission of comments until April 24, 2024.
/jlne.ws/3P1HlTL
| | | | | | Strategy | | | Is There an AI Bubble? The Nifty Fifty Show It Isn't That Simple; Investors need a new term for a market that isn't in a bubble but still carries a higher-than-normal risk of disappointment
Jon Sindreu - The Wall Street Journal
Is artificial intelligence blowing a bubble? Probably not, but the rally is still risky.
Nvidia has become the undisputed leader in a stock market powered by AI hopes. Valuations are lofty for both the U.S. chip maker and the technology giants that are buying its products to train their AI modelsâa group dubbed the Magnificent Seven. Some investors worry a bubble may be inflating.
/jlne.ws/42Xolvx
| | | | | | Events | | | Cboe Global Markets to Present at the Raymond James Institutional Investors Conference on March 4
Cboe
Cboe Global Markets, Inc. (Cboe: CBOE), the world's leading derivatives and securities exchange network, announced today that Fredric Tomczyk, Chief Executive Officer, Jill Griebenow, Executive Vice President and Chief Financial Officer, and David Howson, Executive Vice President and Global President, will present at the Raymond James Institutional Investors Conference in Orlando, Florida on Monday, March 4 at 8:05 a.m. ET. The live webcast and replay of the presentation will be accessible at www.cboe.com in the Investor Relations section, under Events and Presentations. The archived webcast is expected to be available within an hour of the presentation.
/jlne.ws/3UWe6pp
| | | | | | Miscellaneous | | | It turns out the U.S. is one of the least concentrated stock markets in the world
Steve Goldstein - MarketWatch
For all the talk about the Magnificent Seven and the ultra-reliance of just a handful of companies to drive stock-market returns, it turns out the U.S. is in fact one of the least concentrated markets in the world.
That's according to the latest findings of the global investment returns yearbook, by Paul Marsh and Mike Staunton of London Business School and Elroy Dimson of Cambridge University, now being published at UBS after Credit Suisse's untimely demise.
/jlne.ws/3T3B77k
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