Big Options Bet Is Positioning for More Gains in Chinese Stocks

Jun 22, 2022

Observations & Insight

LME’s Georgina Hallett Talks LME Passport, Responsible Sourcing and More in JLN IDX Interview

In London at FIA’s IDX, or International Derivatives Week, conference at The Brewery, John Lothian News interviewed LME’s Chief Sustainability Officer, Georgina Hallett, about the LME’s Passport, the electronic certificates of analysis (CoA) and digital credentials register.

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Lead Stories

Big Options Bet Is Positioning for More Gains in Chinese Stocks
Elena Popina – Bloomberg
Chinese stocks have been a spot of resilience in this month’s global equity rout, and one options trader is making a big bet that the rally will last.
Options volume in the Xtrackers Harvest CSI 300 exchange-traded fund, ticker ASHR, lit up on Tuesday as somebody conducted a so-called bullish risk-reversal strategy, which is a bet that the fund has high odds of rallying and a slim chance of falling. More than 200,000 contracts changed hands in the trade that had two legs and involved the buying and selling of contracts with different strikes.

Retail Traders Bet Against Stocks, Signaling Deeper Downturn
Isabelle Lee – Bloomberg
As the first half of 2022 shapes up to be one of the worst on record for financial markets, retail investors have been boosting their bets on a further downturn in US equities.
Metrics to gauge retail activity in the options markets, including small-lots trading and put buying, suggest that not only are small investors sticking to the sidelines as shares slump, but have been loading up on wagers that benefit should they continue to decline.

Short Sellers Are Having a Field Day Betting Against Crypto Stocks
Vildana Hajric – Bloomberg
Traders betting against stocks have generally done well this year, with bearish wagers against crypto shares proving to be a major standout.
Short sellers in digital-asset stocks have gained an average of 130% in 2022, according to Ihor Dusaniwsky, head of predictive analytics at S3, a technology and data-analytics firm. By comparison, wagers against the automobile and software sectors have returned about 50%, while retailing, media and entertainment have seen gains of about 46% each.

Forgotten ETFs That Hedge Currency Risk Are Making a Comeback
Emily Graffeo – Bloomberg
The wild swings racing through foreign-currency markets are turning an obscure group of exchange-traded funds into a bulwark against the full brunt of the stock losses piling up worldwide.
The currency-hedged ETFs sat relatively unnoticed in recent months, seeing little cash flow in to those run by the likes of BlackRock Inc., even as the widening gap between interest rates worldwide has touched off one of the biggest surges in foreign-exchange rate volatility of recent decades.

Citi sees a 40% chance of US recession going into next year and expects the Fed’s policies to take up to 18 months to take effect
Zahra Tayeb – Business Insider
The bank’s head of capital markets thinks it could take up to 18 months for the Fed’s policies to take effect.The risk of recession is rising as high interest rates and inflation weigh on the economy.

Why stock-market volatility may rise Friday due to Russell rebalancing
Christine Idzelis – MarketWatch
Investors are bracing for a heavy day of trading Friday due to the rebalancing of the Russell U.S. equity indexes, an annual reconstitution that comes amid elevated volatility in the stock market.
Global index provider FTSE Russell kicked off the rebalancing process on May 6, or so-called rank day, to ensure the indexes accurately reflect the U.S. stock market. The reconstitution, scheduled to take place after the market’s close on Friday, tends to be among the biggest trading days of the year, Steven DeSanctis, an equity strategist at Jefferies, told MarketWatch last month as the process was getting underway.

****JB: Also see the Reuters story, Friday’s Russell rebalance may stoke more volatility in nervous stock market.


OCC Board of Directors Appoints Andrej Bolkovic as CEO-Elect
OCC, the world’s largest equity derivatives clearing organization, today announced that its Board of Directors has appointed Andrej Bolkovic, currently CEO of Akuna Capital, LLC, as its next Chief Executive Officer, replacing John P. Davidson who will retire in the first half of 2023. Bolkovic will officially join OCC as CEO-Elect on October 3, 2022, and will work closely with Davidson, the Board of Directors and Management Committee to facilitate a smooth transition of responsibilities.

Cboe Global in Licensing Agreement With Validus Macro Strategy
Chris Wack – MarketWatch
Cboe Global Markets Inc. said it has signed a licensing agreement with Validus Macro Strategies, a provider of rule-based options-based solutions for institutional investors, that calls for Cboe and Validus to collaborate on the development of new indexes and solutions.
Under the agreement, Cboe said it will have exclusive rights to develop and offer a range of derivatives-based indices and associated investable financial products using Validus’s proprietary methodologies.

US Exchanges to Close in Observance of Independence Day
In observance of Independence Day, the New York Stock Exchange, NYSE American Equities, NYSE Arca Equities, NYSE Chicago, NYSE National, NYSE American Options, NYSE Arca Options, and NYSE Bonds markets will be closed on Monday, July 4, 2022.

Cboe Global Markets To Launch FLEX Micro Options on June 27
Will have a one-multiplier instead of the standard 100; Available for key broad-based index options including SPX, XSP, RUT, DJX, MXEA and MXEF; Smaller notional contract will allow greater precision when hedging portfolios

MGEX to Provide Clearing-as-a-Service to Intelligent Medicine Exchange (IMX)
Minneapolis Grain Exchange (MGEXTM), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), and Intelligent Medicine Exchange (IMXTM), developer of the first dedicated futures marketplace based on multiple aspects of the health care economy, today announced that they have entered into an agreement for MGEX to provide clearing services to IMX for certain cash-settled futures and options on futures contracts. The services will include managing exposures, clearing trades, and collecting and maintaining performance bonds and security deposits for participants.

CME Group Chairman and Chief Executive Officer Terry Duffy to Appear Before U.S. House of Representatives Agriculture Committee
PR Newswire
CME Group Chairman and Chief Executive Officer Terry Duffy will appear at a hearing of the House Agriculture Committee on Thursday, May 12 to review an FTX proposal to launch an altered clearing model that could inject significant systemic risk into the U.S. financial system. “FTX’s proposal is glaringly deficient and poses significant risk to market stability and market participants,” Duffy said. “FTX proposes to implement a ‘risk management light’ clearing regime that would significantly increase market risks by potentially removing up to $170 billion of loss-absorbing capital from the cleared derivatives market, eliminating standard credit checks, and destroying risk management incentives by limiting capital requirements and mutualized risk. Under false claims of ‘innovation,’ FTX’s proposal is nothing more than cost-cutting measures that would come at the expense of risk management best practices, market integrity, customer safety and, ultimately, financial stability.”


Daniel Fields named as TP ICAP’s new CEO of Global Broking division – The DESK
Dan Barnes – Markets Media Group
TP ICAP, the interdealer broker, electronic trading, data and market infrastructure, has appointed Daniel Fields as CEO of its Global Broking division, reporting directly into group CEO, Nicolas Breteau.


Inside Volatility Trading: Breaking Down the VIX Index and its Correlation to the S&P 500 Index
Scott Bauer – Cboe
The VIX Index is a financial benchmark designed to be an up-to-the minute market estimate of expected volatility in the S&P 500 Index and is calculated by using the midpoint of real-time S&P 500 Index (SPX) option bid/ask quotes. The VIX Index generally tends to have an inverse relationship with the S&P 500 Index and historically when the S&P 500 Index declines the VIX Index generally tends to increase. Simply put, the VIX Index tells us the level of expected volatility of the S&P 500 Index for the next 30 days, with a 68% confidence level, or a one standard deviation of the normal probability curve.


Analyzing A VIX Butterfly Spread
Steven Baster – Barchart
Market volatility remains elevated as measured by the CBOE Volatility (VIX) Index. VIX is a real-time index that represents the market expectation for near-term volatility in the S&P500 index. Investors and traders have long used VIX as a measure of the level of risk, fear or stress in the market. Today, we’re going to look at a long call butterfly using VIX options as a way to profit if volatility continues to rise.

Crypto Lender BlockFi, in Talks With FTX, Also Gets Ledn Offer

Crypto Lender BlockFi, in Talks With FTX, Also Gets Ledn Offer

First Read Hits & Takes John Lothian & JLN Staff Monday is the 4th of July holiday in the U.S. and you can expect to see JLN's annual sharing of the Declaration of Independence edition of the John Lothian Newsletter. We will resume our normal publication...

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The Spread

Bears Picked Right Stocks to Short With Declines Twice the S&P’s

Observations & Insight Editor's Note: The JLN Options Newsletter will not be published on Monday, July 4 in observation of the Independence Day holiday. Have a great weekend! Lead Stories Bears Picked Right Stocks to Short With Declines Twice the S&P's Lu Wang...

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