A notoriously bearish hedge-fund manager is more convinced than ever that a crash is coming; ‘Giant Risk Event’ Makes Hedging a Good Bet in 2020, TD Says

Nov 20, 2019

Lead Stories

A notoriously bearish hedge-fund manager is more convinced than ever that a crash is coming — and has pushed his short bets to a record
Ben Winck – Markets Insider
The hedge-fund manager Russell Clark stands to win big from a market crash. But record-setting stocks haven’t been kind to his bearish investments.
The Horseman Global Fund manager raised his portfolio’s net short position to 111% of gross assets, Bloomberg reported on Tuesday, citing an investor letter sent Monday. Clark has been regularly shorting stocks since 2012, according to Bloomberg.

‘Giant Risk Event’ Makes Hedging a Good Bet in 2020, TD Says
Vivien Lou Chen – Bloomberg
Traders should brace for heightened volatility in 2020 as the U.S. presidential election becomes one more reason for investors to hedge, according to TD Securities.
The firm calls next year’s vote “a giant risk event,” and expects President Donald Trump to become the first American leader to be impeached by the House while running for re-election. A surge in volatility would shatter the recent market tranquility that’s been driven by signs of a rebounding economy and progress in U.S.-China talks. In a report released Tuesday, TD outlines 10 ways in which its outlook deviates from consensus expectations.

Singapore Poised to Allow Crypto Derivatives on Approved Venues
Chanyaporn Chanjaroen – Bloomberg
Singapore’s financial regulator has proposed green-lighting crypto-token derivatives to list and trade on approved domestic exchanges.
Under the proposal, trading of derivatives on common cryptocurrencies such as Bitcoin and Ether will be subject to the Securities and Futures Act, the Monetary Authority of Singapore said Wednesday in a statement. The plans are in response to interest from hedge funds and asset managers that trade such products, the MAS said.

****JB: There is an options angle here.

Hedge funds struggle as stocks keep behaving like bonds
Robin Wigglesworth – Financial Times
Shalin Madan is nervous. After his investment firm Bodhi Tree Asset Management had a tough October, he pored over the market runes. What he saw scared him enough to switch off his automated trading models.
Fort Lauderdale-based Bodhi is a small quantitative firm with just $12m under management that invests in exchange traded funds according to the signals its computer models spit out. Its bearish bets on the global economy were hit hard as markets picked up last month, pushing the fund’s returns into negative territory for the year.

****JB: “Cats and dogs sleeping together…” (hat tip to Bill Murray in “Stripes”)…and not strictly an options story but worth a read I think.

Exchanges and Clearing

Nigerian Bourse Plans to Start Derivatives Trading Next Year
Mahmoud Habboush and Emele Onu – Bloomberg
The Nigerian Stock Exchange, Africa’s second-largest bourse, plans to introduce trading in financial derivatives next year as it seeks to deepen the market.
“We will launch with equity index futures and then grow the list from there,” Chief Executive Officer Oscar Onyema said in an interview in Abu Dhabi Tuesday. The exchange plans to introduce futures and options to enable investors to hedge and manage risks, he said at the Africa Investment Summit organized by the Abu Dhabi Investment Authority.

Regulation & Enforcement

OCC Comments on Decision by Federal Bank Regulatory Agencies to Finalize Rule to Update Calculation of Counterparty Credit Risk for Derivatives Contracts
OCC (press release)
OCC, the world’s largest equity derivatives clearing organization, today issued the following statement from Executive Chairman Craig Donohue regarding the decision by the federal bank regulatory agencies to finalize the rule to update the calculation of counterparty credit risk for derivatives contracts.


Race is on to build quantum-proof encryption
Adam Green – Financial Times
When Google said it had achieved “quantum supremacy” by eclipsing the performance of classical supercomputers, experts reacted with both excitement and concern about how next-generation computing could affect everything from medicine to financial portfolio optimisation.
In October, the tech group said its Sycamore quantum processor had, in 200 seconds, performed a task that would take the world’s best supercomputer 10,000 years to complete, although the magnitude of this claim is disputed by the likes of IBM.

****JB: There is no options angle here beyond this affecting everything someday. This is me indulging my inner nerd. Interesting stuff.


One Strategy Wins for Yen Traders as Losses Pile Up Elsewhere
Robert Fullem – Bloomberg
Yen traders looking for an edge this year would have done well to focus on an obscure technical indicator that can help predict the direction of currencies based on their recent movements.
Since the start of the year, the clear winner of the 22 trading strategies featured on Bloomberg’s basic backtesting function has been the KBand, or Keltner Band.

Experts are preparing for a choppy market ahead of the 2020 election. Here are the 6 themes UBS says investors should be watching.
Carmen Reinicke – Markets Insider
Heading into 2020, the U.S. presidential election is top of mind for investors asking how it might impact their portfolios.
While national elections generally don’t substantially affect global investors, the U.S. election “is an exception” to that rule, said Mike Ryan, UBS chief investment strategist for Wealth Management Americas, at a press event Tuesday.

Is It Best To Value Your Options Using Mid-Point?
ORATS blog
No, valuing your options positions using the mid-point between the bid and ask can be misleading. Especially for thinly traded options you should use a theoretical value. What about using the last trade? The last trade of an option could have been days away when the stock price was much different. Bid-ask quotes are often very wide and meaningless. A theoretical value based on a smart smoothing process of the implied volatility is far better than the other two methods.


What Markets Looked Like Just Ahead of Last Two Stock Downturns
Luke Kawa – Bloomberg
Stocks are up in 16 of the last 20 sessions, the S&P 500 has jumped 8% in seven weeks and Peloton Interactive just closed above its IPO price. Nervous investors want to know: is this the top? They’re worried the good times can’t last when stocks surge past all-time highs, even though history suggests there’s no particular danger in betting on fresh records.

Hedge funds grow bored of Trump’s tweets after a barrage of ‘rhetoric that didn’t pan out’
Yusuf Khan – Business Insider
Hedge funds are paying less and less attention to the president’s tweets.
“I don’t think we really trade on Donald Trump’s tweets, for the most part,” Said Haidar told Financial News. Haidar’s namesake fund Haidar Capital Management manages $550 million in assets. “The problem is, if Trump tweets he wants a weaker dollar and the dollar sells off, unless he’s doing something about it, it doesn’t really matter that this is what he wants,” Haidar told the news outlet.

****JB: President Trump’s tweets are never boring. Boorish maybe but not boring.

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