Big $40 million options trade bets on near-term stock market tumble; London Whale lessons for Credit Suisse and Nomura

Apr 9, 2021

Observations & Insight

$34,126/$300,000 (11.4%)


Lead Stories

Big $40 million options trade bets on near-term stock market tumble
Reuters Staff
A massive trade in the U.S. options market on Thursday appears to be betting that the calm enveloping U.S. stocks in recent weeks will give way to a big rise in volatility over the next three months.
One or more traders laid out a roughly $40 million bet that the Cboe Volatility Index – often called Wall Street’s fear gauge – will break above the 25 level and rise towards 40 by mid-July, trading data showed Thursday.

*****JB: Also see Bloomberg’s video, Giant VIX Options Trade Bets on a Return to Volatility and/or the Bloomberg article, Giant VIX Options Trades Bet That Stock-Market Calm Won’t Last.

London Whale lessons for Credit Suisse and Nomura; After JPMorgan lost $6.2bn on credit derivatives, it recognised the necessity of a thorough public examination
Tom Braithwaite – FT
No large international bank has blown up since the financial crisis. There have now been two episodes, however, of self harm with costs running into the billions of dollars. The latest is Archegos Capital Management, the family office that borrowed heavily to fund disastrous bets using total return swaps. Lenders led by Credit Suisse and Nomura have lost billions after the bets soured last month.

Fairlead’s Katie Stockton on What’s Ahead for the VIX: Video
Bloomberg (Video)
In this edition of “Options Insight,” Fairlead Strategies founder Katie Stockton examines current stock market volatility. She speaks with Bloomberg’s Abigail Doolittle on “Bloomberg Markets: The Close.”

Credit Suisse Tightens Hedge Fund Limits After Archegos Hit
Erik Schatzker and Sonali Basak – Bloomberg
Credit Suisse Group AG is tightening the financing terms it gives hedge funds and family offices, in a potential harbinger of new industry practices after the Archegos Capital Management blowup cost the Swiss bank $4.7 billion.
Credit Suisse has been calling clients to change margin requirements in swap agreements so they match the more restrictive terms of its prime-brokerage contracts, people with direct knowledge of the matter said. Specifically, Credit Suisse is shifting from static margining to dynamic margining, which may force clients to post more collateral and could reduce the profitability of some trades.

Opinion: Why a pickup in both insider selling and share buybacks is a red flag for stocks
Mark Hulbert – MarketWatch
Corporate insiders are aggressively selling with one hand what they’re buying with the other and that’s not a good sign for bullish investors.
That’s because insiders are selling from their own personal accounts, and when they’re betting with their own money they are more right than wrong. And, via share repurchases, they’re buying with other peoples’ money — their corporate cash. Companies historically have been wrong more than right in timing stock buybacks.

Exchanges and Clearing

Fill-or-Kill Orders will no longer be supported on the MIAX Options Exchange
This Regulatory Circular is to inform MIAX Exchange Members that fill-or-kill (“FOK”) orders will no longer
be available for use on the Exchange.

Euronext announces volumes for March 2021
Euronext, the leading pan-European market infrastructure, today announced trading volumes for March 2021.

Q1 2021 Options Review
NYSE – Traders Magazine
After an extraordinary 2020, the pace of trading activity in the options markets accelerated at the start of 2021. Out of the gate, January multi-list options volume averaged a record 42.1 million contracts per day. Prior to 2020 there had never been a single day with options volume of 40+ million contracts.

Cboe extends options trading to almost 24 hours a day
Annabel Smith – Traders Magazine
Cboe Global Markets has extended the trading session on its options exchange to almost 24 hours a day for certain index options as a means for investors to better cope with market volatility. The exchange will extend its global trading hours for S&P 500 index options (SPX) and Cboe volatility index (VIX) options, in the fourth quarter of this year subject to a regulatory review. SPX and VIX options currently trade from 3.00am ET to 9.15 am ET, but under the new timeline, trading will commence at 8:15 pm ET and run until 9:15 am ET the following morning. The extended session will not impact regular trading hours on the Cboe Options Exchange trading floor in Chicago.

Regulation & Enforcement

Crypto Options ‘Ponzi Scheme’ Operator, Firm Ordered to Pay $32M
Kevin Reynolds – Coindesk
A U.S. district court entered a default judgment against an Australian citizen residing in the U.S. and a Nevada corporation for a cryptocurrency fraud and misappropriation scheme, the Commodity Futures Trading Commission said Thursday. Circle Society and its operator David Gilbert Saffron were charged by the CFTC with fraudulently soliciting and misappropriating investor funds, as well as registration violations. Through his firm, Saffron offered binary options on forex and cryptocurrency pairs and is alleged to have fleeced investors for $11 million in dollars and bitcoin (BTC, +3.25%) since 2017.


Fundamentals of Futures & Options (also applicable to Series 3 Exam)
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lectures from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books – Futures and Options and the Guide to U.S. Futures Regulation.
Date May 10, 2021 12:00 p.m. – May 14, 2021 2:00 p.m.
Location: Virtual Live. 2-hour sessions over 5 days.
Early-bird $495
Fee $595
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.


Q1 2021 ETD Volume
This webinar will highlight the main trends in trading activity in Q1 2021 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings. The webinar also will feature two guest speakers from UBS discussing the rise of retail participation in the U.S. ETD markets.

A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in its history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.

DOJ enforcement priorities in commodities & derivatives markets: A discussion with DOJ leadership
April 13, 2021 • 1:00 p.m. – 2:00 p.m. ET
During this discussion, James McDonald, Sullivan & Cromwell Partner, will interview Robert Zink, U.S. Department of Justice, Acting Assistant Attorney General (and Chief of the DOJ Fraud Section from January 2019 to August 2020), regarding DOJ’s enforcement priorities in the commodities and derivatives markets and white collar area more generally.


‘You can’t ignore’ bitcoin anymore, warns Morgan Creek’s Mark Yusko
Christine Idzelis – MarketWatch
A time may be coming when ignoring bitcoin will be seen as irresponsible.
“We really believe that we’ll look back five years from now, and it will be deemed fiduciarily imprudent to have zero exposure to digital assets,” Mark Yusko, founder, chief executive officer and chief investment officer of Morgan Creek Capital Management, told MarketWatch in a phone interview late afternoon Wednesday. Some institutional investors are “dabbling” in cryptocurrency while many others have been “evaluating” it, a “euphemism for doing nothing,” said Yusko.

(Podcast) TWIFO 244: The Mysteries of Small Delta Calls
TWIFO – Options Insider Media Group
Host: Mark Longo, The Options Insider Media Group
CME Hot Seat: Matt Amberson, ORATS
This Week In Futures Options – Options Insider Radio Network

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