| November 07, 2022 | | | | | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | US stock hedging strategies backfire during market rout; Traders say the performance of put options this year calls into question their value
Nicholas Megaw and Eric Platt - Financial Times
Investors who poured money into funds aimed at protecting them from the sell-off in shares are finding many of the strategies have backfired, offering little or no safeguard from a drawdown that has sliced $13tn off the US stock market. Funds that focused on buying equity put options, which are often used as insurance against stock declines, have struggled to make gains even as the S&P 500 suffers its worst drawdown since the 2008 financial crisis. Those who prepared for violent swings by buying call options on the Cboe's Vix index - which would pay off if the market gauge of expected volatility spiked - have also been left wanting.
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High-Speed Trader Simplex Warned About Potentially Abusive Options Strategy; Finra notifies firm that 'signaling' may violate market rules, prompting it to pull back from handling individual investors' trades
Alexander Osipovich - The Wall Street Journal
Simplex, a Chicago high-speed trading firm, has pulled back from the lucrative business of handling individual investors' options orders after receiving a warning from a Wall Street regulator over a potentially abusive trading strategy. The Financial Industry Regulatory Authority notified Simplex that the strategyâwhich traders call "signaling"âappeared to violate market rules, people familiar with the matter said.
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The S&P 500 Hasn't Made This Many Daily U-Turns Since 2008
Eric Wallerstein - The Wall Street Journal
It's up! No, it's down! It's not just you: The stock market has taken a lot of 180-degree turns this year. So far in 2022, the S&P 500 has seen a reversal of at least 1 percentage point from the day's high or low on 162 trading days, according to Susquehanna International Group. That's the most daily U-turns since 2008. And it's already the highest annual total since 2009, with nearly two months still to go. The count represents 76% of all trading daysânot far below 2008's 80%. The Federal Reserve's dependence on new economic data has driven dizzying daily moves, and options traders are seizing the opportunity. Trading activity in short-term bullish call options, which give the right to buy a security at a certain price by a specific date, has taken off.
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Research: Bitcoin options traders expect price to hit $30,000 in Q4; Implied volatility stabilizes suggesting bullishness is brewing. Meanwhile, Bitcoin options traders pile into calls at $30,000.
Samuel Wan and James Van Straten - Cryptoslate
Options are financial derivatives in which two parties contractually agree to transact an asset at a stated price before a future date. Glassnode data analyzed by CryptoSlate suggests options traders are expecting Bitcoin and Ethereum to move higher in Q4. Bitcoin Implied Volatility Implied Volatility (IV) is a metric that gauges market sentiment toward the probability of changes in a particular asset's price - often used to price options contracts. IV usually increases during market downturns and decreases under bullish market conditions. It can be considered a proxy of market risk and is usually expressed in percentage terms and standard deviations over a particular time frame.
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Hong Kong is 'actively looking' at authorising crypto ETFs
Ernest Chan - Financial Times
Hong Kong's Securities and Futures Commission looks set to allow the launch of exchange traded funds tracking cryptocurrency futures for retail investors, citing the increasing sophistication of investor safeguards.
Julia Leung, deputy chief executive and executive director of intermediaries at the SFC, said the regulator was "actively looking to set up a regime to authorise ETFs that provide mainstream virtual assets with appropriate investor guardrails".
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Could Oil Prices Reach $200 a Barrel? Some Traders Are Betting on It.
Avi Salzman - Barron's
Oil hasn't yet climbed back to $100 per barrel, but options traders are increasingly setting their sights on another targetâ$200. The most actively traded Brent crude BRN00 - 0.51% options contract on Thursday was an option to buy Brent at $200 in March 2023.
About half of the contracts to buy oil at that price appeared to be placed by one buyer who spent about $810,000 on the options, according to Robert Yawger, the director of energy futures at Mizuho Securities USA. But that buyer isn't the only person making a bet that oil prices will hit $200, along with other bullish bets on where oil goes in 2023. "There have been people dipping their toes into those higher [options strike prices] over the last couple of days," Yawger said.
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Hedge funds tempted back into crude oil market by limited supply
John Kemp - Reuters
Prospective disruption to Russia's petroleum exports from the planned G7 price cap as well as the reduction of OPEC+ production targets are encouraging more hedge funds to build bullish positions in the crude oil market.
Hedge funds and other money managers purchased the equivalent of 35 million barrels in the six most important petroleum futures and options contracts in the week ending on Nov. 1.
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| | | | | | Exchanges | | | Cboe Launches Mini S&P 500 Index (XSP) Options Trading 24/5
Rick Steves - Finance Feeds
Cboe Global Markets, Inc. is preparing the launch of trading in Mini S&P 500 Index (XSP) options during global trading hours (GTH), to go live on December 11, 2022. This effectively means that Mini S&P 500 Index (XSP) options will be available for trading nearly 24 hours every business day. XSP options were first listed on Cboe with Tuesday and Thursday weekly expiring contracts to provide expirations on every business day of the week. By adopting the GTH session for XRP options, the derivatives giant goes one step further.
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Meet the new members of Eurex's successful MSCI product suite
Eurex
On 7 November 2022 Eurex has added MSCI World Factor Futures and MSCI ESG Screened Options to their already broad offer of MSCI derivatives. We spoke with Ralf Huesmann, Product Developer for the segment, about the background and the advantages of this launch. Ralf, tell us a bit about the background of the upcoming launch.
The MSCI World Index is used by many funds as the global benchmark for developed markets. Futures on this index are performing very well at Eurex, even in two different product versions: in USD, the standard for most MSCI indices, and in EUR, which is frequently used by European end customers. The open interest in these products is increasing and at the same time hundreds of trades are executed daily in the order books. Therefore, "World" seems to be the right region for adding additional product variants.
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TAIFEX to Launch TXO and MTX Bi-Weekly Contracts and Applies DPBM to ETF Options
TAIFEX
On November 9, Taiwan Futures Exchange (TAIFEX) will launch bi-weekly contracts for TAIEX Options (TXO) and Mini-TAIEX Futures (MTX). The TXO and MTX bi-weekly contracts are listed every Wednesday and expire on the second Wednesday from the listing date. With introduction of bi-weekly contracts, TAIFEX provides weekly, bi-weekly, monthly as well as quarterly contracts of TXO and MTX on each trading day, enabling market participants to implement strategic and arbitrage trading with more accuracy and flexibility.
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Howson on steering Cboe past potholes and traffic cops; Head of world's largest options exchange discusses SEC regulation and SPX appeal
Bernard Goyder - Risk.net
David Howson, who became global president of Cboe in May, likens market infrastructure to a motorway. "It's like joining a queue at a toll booth," says the head of the world's largest equity options exchange, which has a market capitalisation of $12.3 billion. "You've got some clerks that are faster at taking the money and doing things, and others that are slower. "It's about choosing the queue that is going to burn quickest. It's not always the shortest queue - sometimes it can be the longest
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| | | | | | Regulation & Enforcement | | | How the Chips Act Could Benefit Tech Stocks and Investors; Semiconductors and other tech stocks have taken a beating. Is it time for a second look?
Bailey McCann - The Wall Street Journal
This has been a rough year for tech stocks-but there could be reason to hope for long-term growth. Market volatility, supply-chain issues and rising inflation have all contributed to the selloff. Morningstar research also suggests that big tech companies could see a significant hit to third-quarter earnings as a strong dollar eats into profits from abroad. Many exchange-traded funds that focus on tech-stock themes have had an equally rough go. The two largest semiconductor ETFs, iShares Semiconductor ETF (SOXX) and VanEck Semiconductor ETF (SMH), were trading near 52-week lows at quarter's end.
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| | | | | | Technology | | | OCC Receives No Objection Notice from SEC on Cloud Infrastructure Proposal November 07, 2022
OCC
On October 20, 2022, the U.S. Securities and Exchange Commission (SEC) issued a 'Notice of No Objection' regarding OCC's Advance Notice filing in connection with our Cloud infrastructure proposal. OCC is the first Systemically Important Financial Market Utility (SIFMU) to request regulatory approval to use the Cloud for our new clearing, risk management and data management applications launching in 2025. "The SEC's 'Notice of No Objection' represents the culmination of several years of collaborative work with our regulators and marks a critical milestone in our transformation," said John P. Davidson, Chief Executive Officer. "With it, we can move forward with our plans to leverage the capabilities of a Cloud service provider while continuing to meet our regulatory requirements as a SIFMU. We appreciate that our regulators acknowledge the value and benefits of this important step."
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TMX Group Announces Acquisition of Wall Street Horizon; TMX Datalinx extends global reach with listed company corporate action and event data offering
TMX Group Limited announced today it has agreed to acquire Boston-based Wall Street Horizon, Inc. (WSH), a leading provider of global market-moving action and corporate event data. "TMX Group is committed to serving the evolving needs of our clients across the marketplace and connecting investors to the information they need to gain a competitive investment edge and manage market risk," said Jay Rajarathinam, Chief Operating Officer, TMX Group. "The acquisition of Wall Street Horizon, an established provider of high-quality and unique market-leading solutions, is another important step forward for TMX Datalinx as we work to expand and enhance the content we provide to clients around the world."
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| | | | | | Moves | | | Terry Hollingsworth Joins Marex as Global Futures Clearing Sales Head
Arnab Shome - Finance Magnates
Marex Group has strengthened its leadership by appointing Terry Hollingsworth as the Global Head of Futures Clearing Sales. In the role based in London, he will be responsible for business generations globally. Take Advantage of the Biggest Financial Event in London. This year we have expanded to new verticals in Online Trading, Fintech, Digital Assets, Blockchain, and Payments. The appointment came as a part of Marex's acquisition of the financial services unit of ED&F Man Group. The two companies initially agreed on the deal in August for a reported price of $220 million. Hollingsworth is one of around 125 London-based ED&F Man Capital Markets employees who either joined or will be joining Marex.
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| | | | | | Strategy | | | The FOMO Trade Is Still Alive
Gunjan Banerji - The Wall Street Journal
Traders say the volatile week in markets has been dotted with heavy trading in call options at times, a sign that some investors are wary of missing out on potential market gains. "There is still a FOMO demand for calls in this market even after the hawkish Fed meeting," wrote Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald, in a note to clients Friday.
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| | | | | | Miscellaneous | | | FX: Triennial BIS survey has market players mulling settlement risk and attractions of listed products
Paul Golden - Euromoney
Turnover in over-the-counter (OTC) FX markets averaged $7.5 trillion per day in April, according to the latest triennial survey by the Bank for International Settlements (BIS), an increase of 14% from its April 2019 survey. The period of data collection coincided with heightened volatility due to changing expectations about the path of future interest rates in advanced economies, rising commodity prices and geopolitical tensions after the Russian invasion of Ukraine. It is also possible that the actual figure was even higher, since pandemic restrictions were in place in several reporting jurisdictions, including China and Hong Kong.
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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| | | Jeff Bergstrom
Editor
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