A Once-Booming Options Strategy on Wall Street Is Misfiring; Goldman Says Covid-19 Vaccine Approval Could Upend Markets

Aug 6, 2020

Lead Stories

A Once-Booming Options Strategy on Wall Street Is Misfiring
Yakob Peterseil – Bloomberg
The shuttering of a $75 million fund this week by Russell Investments will have bypassed many investors, but its demise is the latest sign of trouble for a once-hot Wall Street derivatives strategy.
The Seattle-based investment firm is liquidating a fund that follows what’s known as call overwriting, an options-selling strategy that critics warn may have become too popular for its own good.
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Goldman Says Covid-19 Vaccine Approval Could Upend Markets
Cormac Mullen – Bloomberg
Investors should consider the risk of a successful coronavirus vaccine unsettling markets by sparking a sell-off in bonds and rotation out of technology into cyclical stocks, according to Goldman Sachs Group Inc. The increased probability of an approved vaccine by the end of November is underpriced by equity markets, wrote strategists including Kamakshya Trivedi in a note Wednesday. Over the next few months, the ramifications of the U.S. election and the evolution of the virus — in part as schools reopen — are also likely to be key drivers of the market, they said.
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*****SR: “While the strategists suggested it may be too early for investors to position themselves aggressively for such a shift, they recommended options trades as a way to play the theme. For example, some call options on the S&P 500 still look attractive, and Goldman sees upside to around the 3,700 level should there be an early vaccine.”

A Bitcoin Bull Makes Her Case
Jack Hough – Barron’s
Bitcoin’s price is climbing again. The cryptocurrency started the year at about $7,000 and recently traded above $11,000. Barron’s spoke with Meltem Demirors, chief strategy officer at cryptocurrency investment advisor CoinShares, about what’s behind the rise, whether she expects it to continue, and what Bitcoin’s volatility means for its usefulness as a currency. Her edited comments follow.
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Bank of England Warns of Risk From Rise of Non-Bank Players
Rachel McGovern – Bloomberg
The Bank of England highlighted the potential risk of non-bank players in amplifying volatility following an analysis of the ‘dash-for-cash’ in financial markets in March as the Covid-19 crisis swept the globe.
The Financial Stability Report noted the rise of non-banks, including big investors like pension funds, investment funds like real estate investment trusts and money market funds, as holding key roles in financial stability. Had central banks not intervened in March, the outcome could have been much worse, according to the report.
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Exchanges and Clearing

Cboe Global Markets Reports July 2020 Trading Volume
Cboe Global Markets
ADV across Cboe’s four options exchanges up 33 percent from July 2019; U.S. Equities total ADV across Cboe’s four equities exchanges was up 48 percent from July 2019; Global FX ADNV up 9 percent from July 2019
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today reported July monthly trading volume.
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MIAX Exchange Group – Options Markets – Corporate Action Alert: OneMain Holdings Inc. (OMF)
MIAX Exchange Group
OneMain Holdings Inc. (OMF) has announced a Special Cash Dividend. Associated strike price adjustments will become effective on Friday, August 7, 2020. OMF options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in OMF will be canceled at the close of business on Thursday, August 6, 2020.
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CME Globex Notices: August 3, 2020
CME Group
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Regulation & Enforcement

NOTICE OF DISCIPLINARY ACTION # CBOT 18-0999-BC
CME Group
Pursuant to an offer of settlement in which R.J. O’Brien & Associates, LLC (“RJO”) neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on August 4, 2020, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“Panel”) found that between June 1, 2017, and June 6, 2018, RJO failed to diligently supervise its employee and futures broker who traded his personal trading account opposite RJO’s customers’ orders he worked in the Treasury Options pit. Specifically, RJO failed to adequately monitor the employee’s personal trading account despite permitting the employee to trade the personal account while working customer orders. Although RJO conducted an internal investigation, RJO failed to detect the employee trading opposite customer orders for one year, both before and after the internal investigation.
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Strategy

Betting That the Rush Into Gold Isn’t Over Yet
Steven M. Sears – Barron’s
As stock prices flirt with record highs, more investors are seeking shelter in gold, which is also at record highs. The interest reflects concerns about the state of economic affairs, such as governments debasing their currencies with more stimulus programs to offset the economic ravages of the coronavirus pandemic.
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A $14 billion asset manager says investors should prepare for a unique ‘J-shaped’ economic recovery, instead of the V-shape they want
Saloni Sardana – Markets Insider
Investors should brace for the economy to face a J-shaped recovery in Q3, a $14 billion asset manager said, as it has become increasingly clear that the V-shaped recovery markets were praying for is less and less likely.
This is according to Zehrid Osmani, manager of the Legg Mason Martin Currie US Unconstrained and Global Long Term Unconstrained Fund.
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Education

(Podcast) OBC 98: The Mysterious VIX
Options Boot Camp – Options Insider Network
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Miscellaneous

Robinhood investors are beating the stock market — and here’s the data that proves it
Nicholas Abe – MarketWatch
It is hard to go an hour without seeing another headline related to Robinhood cross the screen, as the investing world has been captivated by the motley crew of investors that call the Reddit stock and option trading community r/wallstreetbets home.
What piqued my interest was Hertz attempting to raise money by selling equity (later quashed by the Securities and Exchange Commission) after filing for bankruptcy, with the sole goal of selling worthless equity to Robinhooders.
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(Podcast) OPR 325: WMT FOMO Trade
Options Playbook – Options Insider Network
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