A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades; Nobel laureate Myron Scholes says his models show the smart money is pessimistic

Oct 17, 2019

Lead Stories

A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades
Brandon Kochkodin – Bloomberg
Before he became famous for the big short in the 2000s, Michael Burry discussed stock trades on online message boards. Burry’s posts were thoughtful, well-reasoned and showed deep research. The sub-Reddit WallStreetBets, with the tagline “Like 4chan found a Bloomberg terminal,” is rarely any of those things.

Nobel laureate Myron Scholes says his models show the smart money is pessimistic
Yun Li – CNBC
“Right now for the smart money, the way ahead is pessimistic,” says Scholes. Scholes won a Nobel Prize in economics in 1997 with Robert Merton for research into the pricing of options and derivatives that formed the basis for the widely used Black-Scholes pricing model. Scholes is bullish on inflation assets such as natural gas, oil, gold, silver and agricultural commodities.

Exchange Landscape Gearing Up for Expansion in 2020
Ivy Schmerken – Traders Magazine
As a sign of the evolving U.S. equity trading landscape, two startups and one options exchange operator plan to launch as many as three new exchange platforms in 2020, and a fourth could be waiting in the wings. Members Exchange (MEMX), Long Term Stock Exchange (LTSE), and Miami International Holdings, operator of the MIAX Exchange Group, plan to compete with incumbent stock exchange operators, according to speakers at the SIFMA Equity Market Structure Conference held Sept. 19 in New York City.

Negative U.S. Interest Rates? Options Traders Say Yes
Gunjan Banerji – WSJ
Derivatives traders are betting on something once considered inconceivable: zero or negative interest rates in the U.S. They are scooping up options that would pay out if interest rates fell below zero. The number of bullish contracts outstanding on Eurodollar futures that pay out if interest rates hit zero or fall below has increased to about 1.2 million, according to CME Group data through September.

Pound Traders Turn Cautious as Rally Stalls on Brexit Deal Risk
Vassilis Karamanis – Bloomberg
The pound’s rally is stalling on the impasse over Brexit talks and options traders have started protecting themselves from the risk of the currency sliding. Only a few days ago, traders were the most bullish on record over the pound’s short-term prospects. The tide has turned, however, after the U.K. currency hit a five-month high on Wednesday and as a Brexit deal has yet to be announced.

Wall Street Goes ‘Where the Growth Is’ on Wealth Advice, Not 0%
Lananh Nguyen, Jennifer Surane, and Hannah Levitt – Bloomberg
The biggest U.S. lenders aren’t ruffled by the push among discount brokers to cut commissions to zero. Wall Street firms from Bank of America Corp. to Morgan Stanley said they’re focused on longer-term client relationships instead of just boosting stock-trading activity. Discount brokers Charles Schwab Corp., TD Ameritrade Holding Corp. and E*Trade Financial Corp. announced this month that they would cut fees to trade U.S.-listed stocks, ETFs and options to zero, sending shares plunging and fueling speculation about potential mergers.

Exchanges and Clearing

CME Globex Notices: October 14, 2019
CME Group

SFE plans to introduce crude oil options
Shi Jing – ChinaDaily USA
The Shanghai Futures Exchange will introduce crude oil options and index futures to meet the growing demand for futures products and tools in China, bourse officials said on Tuesday. The yuan-denominated crude oil futures were unveiled on March 26, 2018 at the Shanghai International Energy Exchange – the wholly owned subsidiary of Shanghai Futures Exchange. It was the first of its kind open to overseas investors.

*****Interesting timing.~MR

Regulation & Enforcement

Securities and Exchange Commission Form 19b-4
A proposal to amend certain sections of the The Nasdaq Options Market LLC Rules at Chapters VI and VII.

CFTC Launches Enforcement Action Against Company Relating to Binary Options on Forex and Cryptocurrency Pairs
JD Alois – Crowdfund Insider
The U.S. Commodity Futures Trading Commission has filed a civil enforcement action against David Gilbert Saffron and Circle Society Corporation, based in Nevada. The CFTC alleges fraudulent solicitation, misappropriation, and registration violations relating to an $11 million binary options scheme Saffron operated through Circle Society.

*****You can read the official court order HERE.~MR


Early Results from Q3 Earnings Season: Volatility Sellers Taking The First Week
With only 2% of firms we track reported, volatility sellers are doing better than buyers for the earnings announcement trade. We measure the implied earnings move from the straddle and compare it to the actual move. Currently, 13 stocks have reported of the 739 we are tracking. The return to options traders is 74% with 100% being break even. 46% of the stocks have been profitable.

Prosafe SE: Operational update Q3 2019
Globe Newswire
The fleet utilisation rate in the third quarter of 2019 was 48.2 per cent (Q3 2018: 48.1 per cent). Safe Caledonia completed a four-month contract for a major oil and gas operator in the UK sector on 18 August 2019 and is currently laid up in the UK. On 31 July 2019, Prosafe signed a contract with Total for the Safe Caledonia to provide accommodation support at the Elgin complex in the UK sector of the North Sea. The firm duration of the contract commencing mid-April 2020 is 162 days with one 30-day option.

Amazon Earnings Are Coming. Here Are the Best Ways to Play It.
Steven M. Sears – Barron’s (Subscription)
There’s one thing that everyone seems to agree on in this angst-driven market: Event-driven trading is looking increasingly attractive. By wagering on the outcome of earnings or economic reports, investors generally have, at minimum, a 50/50 chance of being right—pretty good odds, considering that everyone is struggling to understand what’s going on at a time when a presidential tweet could at any moment prove to be the iceberg that sinks the Titanic.

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