Observations & Insight
JLN has hired a new contractor to contribute to The Spread, Alex Teng. Alex is a finance major at the University of Illinois-Chicago and a former student of Sally Duros, who is also a JLN contractor. Alex will be exploring options starting from the beginning and trying to help his fellow students and other young people understand derivatives better and not be afraid of them. He will start in a couple of weeks.
Rival Systems CEO Rob D’Arco Sees Traders Making the Jump to Professional Ranks
JLN interviewed Rob D’Arco, CEO of the software vendor Rival Systems, during the 2022 Options Conference in San Antonio, Texas, about the state of Rival and the industry. He was bullish on many of today’s retail traders making the leap to become professional traders in the future.
Cboe Global Markets Becomes Morningstar’s Preferred Index Distributor; Cboe to become the preferred third-party distributor of all Morningstar-branded indices; Agreement expected to help broaden access to Morningstar indices for investors globally; Cboe Global Indices Feed is publishing an initial 50 Morningstar-branded indices beginning July 1, with plans to offer the full index suite in the fourth quarter
Cboe Global Markets, Inc.
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, today announced it has entered into an agreement with Morningstar Indexes, a leading global index provider, to begin publishing real-time, intraday values for Morningstar-branded indices on its Cboe Global Indices Feed. With this agreement, Cboe will become the preferred third-party distributor of Morningstar’s full range of branded indices.
The Fed isn’t likely to pause its rate hikes anytime soon as the economy still has a lot of momentum, Vice Chair Lael Brainard says
Brian Evans – Business Insider
“Right now, it’s very hard to see the case for a pause,” Lael Brainard told CNBC.When asked if inflation has peaked, Brainard said she ideally would want to see consistent declines in core prices.
‘Brace yourself’: Jamie Dimon warns of a coming economic hurricane that will require preparation as the Fed shrinks its balance sheet
Matthew Fox – Business Insider
An economic hurricane is on the horizon, JPMorgan CEO Jamie Dimon said at a Bernstein conference on Wednesday.
“You know, I said there’s storm clouds but I’m going to change it… it’s a hurricane,” he said, adding that the potential for an imminent economic recession requires preparation by banks.
Hedge funds turn more bearish on stocks even after rough start to 2022
Laurence Fletcher – Financial Times
Hedge funds are growing increasingly pessimistic about the outlook for global equities, even though markets have already sold off sharply since the start of 2022.
Top-performing managers including Lansdowne Partners’ Peter Davies and BlackRock’s Alister Hibbert have become more bearish on the prospects for parts of the market or on stocks overall, with high-growth technology shares a particular area of concern.
Crypto’s Value Comes From Crypto’s Volatility
Tyler Cowen – Bloomberg
One of the most difficult challenges in finance is how to price crypto assets. Bonds pay interest. Stocks pay dividends. What exactly do crypto assets pay? Well, other people value them too, but what does that depend upon? How can crypto valuations be connected to something real?
OCC May 2022 Total Volume Up 19.7% Year-Over-Year, Highest May on Record
OCC, the world’s largest equity derivatives clearing organization, announced today that year-to-date average daily volume through May 2022 was 41.7 million contracts, up 6.0 percent compared to year-to-date average daily volume through May 2021. Total volume was 866.5 million contracts, up 19.7 percent compared to May 2021.
Cboe Global Markets Completes Acquisition of NEO, Strengthening Global Equities and Listings Offerings
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, today announced it has acquired NEO, a fintech organization comprised of a fully registered Canadian securities exchange (NEO Exchange) with a diverse product and services set ranging from corporate listings to cash equities trading and a non-listed securities distribution platform (NEO Connect).
Exchange-Recognized Eurodollar Options vs Three-Month SOFR Options UDS on CME STP
Effective this Sunday, June 5 (trade date Monday, June 6), a new exchange-recognized Eurodollar options vs Three-Month SOFR options UDS will be available for trading on CME Globex and submission for clearing via CME ClearPort.
CME Group Reports May 2022 Monthly Market Statistics
Highest-ever May ADV; 18% increase in ADV year-over-year; 49% growth in Equity Index ADV, driven by record Micro E-mini S&P 500 futures volume; Record SOFR options ADV and OI, and record SOFR futures OI
CME Group, the world’s leading derivatives marketplace, today reported its May 2022 market statistics, showing average daily volume (ADV) increased 18% to 24.3 million contracts during the month. Market statistics are available in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
Regulation & Enforcement
SEC Obtains Final Judgment Against Tech Employee Charged with Insider Trading
On May 27, 2022, the Securities and Exchange Commission obtained a final judgment against former Snap Inc. engineer Mohammed “Mo” Pithapurwala and his wife Alifiya Kutiyanawalla. The SEC’s complaint, filed on December 3, 2021 in federal district court in Los Angeles, alleged that Pithapurwala unlawfully tipped his brother-in-law, Ammar Kutiyanawalla, who purchased Snap options on the basis of material nonpublic information ahead of the company’s February 6, 2018 earnings announcement. As alleged in the complaint, Pithapurwala and Alifiya funded Ammar’s Snap trading by transferring $20,000 to Ammar through intermediaries, and Ammar and Pithapurwala agreed to share the profits. The SEC charged Alifiya, who is Ammar’s sister, with aiding and abetting the insider trading.
Derivatives associations unite in call for exemptions under CSDR over buy-in concerns; Trade bodies say the current settlement discipline provisions under CSDR have not been drafted with derivatives transactions in mind and call for a revision.
Jonathan Watkins – The. Trade
The two leading trade associations representing the derivatives market have called on the European Commission to include exemptions in its settlement regulation. The Futures Industry Association (FIA) and the International Swaps and Derivatives Association (ISDA) responded to the European Commission’s proposal to review the Central Securities Depositories Regulation (CSDR), in particular with respect to reforms of the mandatory buy-in regime (MBI).
We’re All Value Investors Now. Here’s How to Play It.
Steve Sosnick – Barron’s
Rumors of the death of value investing, fueled by the spectacular outperformance of growth stocks during the recent bull market, have proved to be premature. Since the lows of March 2020, the performance of the S&P 500 Value index is now almost identical to that of its Growth index counterpart.
One might say that the value-stock tortoise has caught the growth-stock hare. Yet it would be equally premature to give up on growth stocks altogether. This year’s selloff has resulted in various growth names trading at attractive valuations. In other words, they’re now value stocks. Investors can use options to capture the values that some fallen growth stocks might be offering.
Bearish Bets Soar on Biggest Junk ETF (HYG) as Rate Hedges Reloaded
Katherine Greifeld – Bloomberg
Investors are bracing for more pain for the largest junk-bond ETF, piling into bearish wagers on the heels of the fund’s best weekly rally since April 2020.
Nearly 994,000 put contracts on the $14.3 billion iShares iBoxx High Yield Corporate Bond ETF (ticker HYG) traded Wednesday, data compiled by Bloomberg show. That’s the third-biggest daily volume since March 2020 and more than double HYG’s 20-day average for puts.
Opinion: Don’t trust this rally in the S&P 500 –it’s unlikely to be a new leg of a bull market
Lawrence G. McMillan – MarketWatch
The S&P 500 index has finally launched a strong, oversold rally. There is always the chance that this is the beginning of a new leg in a bull market for stocks, but that seems unlikely. In any case, we will follow the indicators without trying to make a “guess.”
Oversold rallies typically carry to a level slightly above the declining 20-day moving average. In the case of the S&P, that MA is at about 4040 and has already been surpassed. SPX rallied into resistance at 4150 and seems to have stalled there for now. The next resistance level is at 4300 – the double tops from early April.
What Traders Need to Know About the Stock Price Volatility Index Known as the VIX
As Piero Cingari, Analyst at Capital.com explains: “The VIX is a forward-looking indicator of expected volatility in the stock market. Specifically, it estimates the projected 30-day volatility of the S&P 500 index by monitoring options prices’ liquidity every day.”
Simply put, the VIX tells us the level of expected volatility for the next 30 days.
So, by observing the VIX, investors can judge the level of risk or uncertainty they can expect in the near term.
Don’t Insider Trade NFTs
Matt Levine – Bloomberg
A famous fact of US securities law is that there is no law against insider trading. What there is is a law against securities fraud: It is illegal “to employ any device, scheme, or artifice to defraud” someone in connection with a securities trade. 1 For a long time courts have interpreted that to include insider trading, and there is a Securities and Exchange Commission rule clarifying that in fact insider trading counts as a scheme or artifice to defraud. But there is no law against insider trading specifically; instead, insider trading is a type of fraud.