Capstone hedge fund CEO warns of ‘wickedly dangerous’ volatility risk as raging bull market tops 600%

Jan 10, 2022

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Capstone hedge fund CEO warns of ‘wickedly dangerous’ volatility risk as raging bull market tops 600%; Paul Britton says a raging bull market has led to some long-term investors ignoring volatility risks in their portfolios
David Ricketts – Financial News
A raging bull market that has lasted more than a decade has blindsided some long-term investors to volatility risks in their portfolios, according to one hedge fund boss. Paul Britton, chief executive of New York-based Capstone Investment Advisors, said some investors are too focused on achieving certain investment returns without factoring in the volatility they might experience in the process.

U.S. Treasury Options Suggest Calm After Rout, Market Maker Says
Anchalee Worrachate – Bloomberg
The bond selloff that pushed 10-year Treasury yields to their highest in two years may not lead to a full-on taper tantrum, according to one of the biggest Treasury options market makers.
Bets in the options market suggest yields won’t go far above current levels, with investors positioned for the 10-year yield to rise modestly to 1.9% in the near term, despite hawkish Federal Reserve minutes last week, said Harm Backx, a trader at Optiver Holding BV in Amsterdam. Bearish bets also lost steam after data on Friday showed a mixed picture of the U.S. jobs market.

The stock market has been flipped upside down in 2022. Here’s why, and what it means for you.
Matthew Fox – Markets Insider
The new year is off to a rocky start for investors amid a sharp rotation out of high-risk growth and into safer value stocks.
The S&P 500 is down about 4% year-to-date, reversing part of its 27% gain in 2021. The sell-off has been even worse for the Nasdaq 100, which is down 7% year-to-date as of Monday morning, erasing a quarter of last year’s gain.

Billionaire ‘Bond King’ Jeff Gundlach rings the recession alarm, says bitcoin is hugely overvalued, and warns against investing in China
Theron Mohamed – Markets Insider
The billionaire investor Jeff Gundlach rang the recession alarm, touted emerging-market stocks, and said bitcoin was massively overvalued during a Yahoo Finance interview that aired on Saturday.
The DoubleLine Capital boss — whose nickname is the “Bond King” — also cautioned against investing in China, argued that US house prices are less heady than they seem, and explained why he was staying away from nonfungible tokens, or NFTs.

Oil bulls increasingly confident as Omicron risk fades
John Kemp – Reuters
Oil markets attracted a new wave of interest from investors at the end of 2021 and start of 2022, as the threat of widespread economic and aviation disruption from Omicron seemed to recede.


LME’s Metal Trading Hit Lowest Since 2010 Despite Record Prices
Mark Burton – Bloomberg
Trading activity fell 4.7% last year on top base metals bourse; But volumes bounced in October amid frenzied trading in copper
The London Metal Exchange’s trading volumes dipped to the lowest in more than a decade last year, marking a further slowdown in activity on the top industrial metals bourse even as prices hit record highs. Volumes declined for a third year, extending a slump seen in 2020 amid falling industrial output and the closure of its open-outcry pit in the wake of the Covid-19 pandemic. Fee-payable trading volumes in futures and options slipped 4.7% to 138.65 million contracts last year, the LME said by email.

CME Group to Launch 20-Year U.S. Treasury Bond Futures on March 7
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will expand its benchmark U.S. Treasury futures and options offering with the addition of 20-Year U.S. Treasury Bond futures on March 7, pending regulatory review.

Regulation & Enforcement

SEC Derivatives Disclosure Plan Could Prevent Archegos Redux
Editorial Board – Bloomberg
Back in March, an investment fund called Archegos Capital Management collapsed after building up vast derivatives bets on several stocks, precipitating billions of dollars in losses for its lenders. The incident raised a troubling question about the country’s financial early-warning system: How could regulators have remained unaware of such a large concentration of risk until it was too late?
Now the Securities and Exchange Commission has a plan to ensure that such dangers won’t go unnoticed. It should proceed as quickly as possible.


Options Traders Circle Apple Stock After Market-Cap Milestone
Lillian Currens – Schaeffer’s Investment Research
Apple Inc (NASDAQ:AAPL) started the year off with a bang, making waves on Wall Street after becoming the first U.S. company to rise above the $3 trillion market-cap level on the first trading day of 2022. The stock has cooled considerably since this milestone, however, as investor concerns over the tech sector weigh on the FAANG name. The stock was last seen down 1.7% to trade at $169.01, though this hasn’t stopped options traders from targeting AAPL to the hilt.


Expecting the Unexpected: Options for 2022
Cboe Options Institute
Air Date: Wednesday, January 12, 2022
Start Time: 12:00 PM ET
Duration: 75 Minutes
This 60-minute webinar explores the subject of Expecting the Unexpected: Options for 2022.
Speakers: Mandy Xu, Chief Equity Derivatives Strategist, Credit Suisse; Matt Moran, Head of Index Insights, Cboe Options Institute


Trading VIX Options: Taking the Fear Out of the Fear …
Jayanthi Gopalakrishnan – TD Ameritrade
Markets crash. And when they do, it can be fast. So, it’s a good idea to study the Cboe Volatility Index—or more affectionately, the VIX—to help you guess when that next market sell-off might happen.
Often, the VIX is inversely correlated with the S&P 500 Index (SPX). When the SPX goes up, the VIX typically goes down. But there’s more to the VIX than this relationship. In addition to it being the market’s “fear gauge”—investors tend to be more fearful when market volatility (vol) is high, and less so when vol is low—the VIX measures the market’s expectation of future volatility implied by SPX options prices.

How Xi Jinping is taking control of China’s stock market

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First Read Hits & Takes John Lothian & JLN Staff In a keynote address at the World Federation of Exchanges (WFE) General Annual Meeting in Bermuda, CFTC Commissioner Kristin Johnson delivered a thought-provoking speech highlighting the challenges and...

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Lead Stories Gambling on Options Is Fun; Also a Sculptor lawsuit, Jamie Dimon on bank capital rules and a 2x levered Bitcoin ETF. Matt Levine - Bloomberg There was just a very strong case that, if you wanted to make long-term retirement investments, buying stocks was...

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