Observations & Insight
Options Basics For Newbies: Mind Your Greeks, Professor Says
Suzanne Cosgrove – John Lothian News
The well-documented influx of new retail investors into equities and options on equities in 2020 and 2021 has boosted derivatives volume, but it also has unleashed traders who may not be prepared for high rates of volatility if and when the market falters.
In an interview with JLN, finance professor Edward Szado urged novice traders to learn the ins and outs of options trading and investing before they dive into the market. “The first step before trading a single option is to go to the free websites of the OCC and OIC (Options Industry Council) and learn more about them,” he said.
Szado, who teaches finance at Providence College in Rhode Island, is also the research director for the Institute for Global Asset and Risk Management (INGARM), an educational foundation.
“Options are fabulous, but (there are) so many characteristics that you need to know about them,” he said. “You need to understand their non-linear nature and the Greeks (which are ways to measure the factors that impact options prices), particularly delta and gamma,” he said.
To read the rest of this story, go here.
Debt-laden world, rising bond yields – a toxic taper tantrum combo
Dhara Ranasinghe and Karin Strohecker – Reuters
In May 2013, bond investors threw a tantrum after hints the U.S. Federal Reserve might slow the money-printing presses. A similar selloff now, with another $70 trillion added to global debt, could prove to be far more vicious.
A 2013-style “taper tantrum” was named as one of the top market risks in BofA’s February poll of fund managers who fear a pick-up in inflation expectations might soon persuade central banks to start withdrawing or “tapering” stimulus.
BlackRock has begun to ‘dabble’ in bitcoin because investors are hunting for ‘storehouses of value,’ according to fixed-income boss Rick Rieder
Shalini Nagarajan – Markets Insider
The world’s largest asset manager entered the bitcoin space due to its growing respectability as an asset class, investment chief Rick Rieder told CNBC on Wednesday.
While bitcoin’s volatility is extraordinary, he said on “Squawk Box,” investors are still hunting for storehouses of value.
The Great Stock Rally of 2021 Seen Powering Ahead in Europe
Michael Msika – Bloomberg
A vaccine-fueled economic recovery and investors’ surging appetite for risk mean that the European equity rally can keep going in 2021, according to strategists.
After strong gains since the start of the year, the bull case for Europe has now partially played out. Still, on average, the 21 strategists surveyed by Bloomberg are positive on European equities, seeing about 2% upside for the Stoxx Europe 600 Index this year, and nearly 3% for the Euro Stoxx 50, compared with Tuesday’s close. The biggest bear in the poll sees the Stoxx 600 falling less than 5%.
Exchanges and Clearing
The Real Battle for the City of London; Clearing is an important business, but the loss of EU “equivalence” elsewhere is potentially devastating.
Elisa Martinuzzi – Bloomberg
Britain’s departure from the European Union has left a visible mark on the City of London. Almost overnight at the start of January, the world’s preeminent financial center lost about half of the share trading it used to handle, and a chunk of the buying and selling of derivatives. Next could be clearing, the market plumbing that guarantees the smooth matchmaking of buyers and sellers. Clearing is a vital piece of financial infrastructure in which London dominates. Its sheer size — trillions of dollars of derivatives are cleared every day — make it an even grander political target for the EU than share trading. But it would be a mistake to consider this the most valuable chip still on the table.
Citi clears first CDS index options through ICE Clear Credit; ICE Clear Credit launched its clearing services for CDS index options last year and expects to add options on iTraxx instruments to its offering in 2021.
Annabel Smith – The Trade
US Investment bank Citi has cleared the first client-executed credit default swaps (CDS) index option trades in the US through ICE Clear Credit following its launch in November.
How Amsterdam is stealing a march on rivals as Brexit trading hub
Tommy Wilkes, Toby Sterling, Abhinav Ramnarayan, Huw Jones – Reuters
All the talk was of Frankfurt or Paris luring London’s financial business as Britain peeled away from the EU. Yet it is Amsterdam that is proving the most visible early winner. Data last week showed the Dutch capital had displaced London as Europe’s biggest share trading centre in January, grabbing a fifth of the 40 billion euros-a-day action, up from below a tenth of trading pre-Brexit. Yet that is just one of several areas the city has quietly stolen a march on its rivals as it attracts businesses from Britain, evoking memories of its history as a global trading powerhouse in the 17th century.
MIAX Exchange Group – Options Markets – 1G LL Shared Extranet Switch Infrastructure Upgrade
MIAX Options, MIAX Pearl Options and MIAX Emerald Options Exchanges will upgrade the 1G Low Latency (LL) shared extranet switch infrastructure in July, 2021. All existing 1G LL cross connects must be migrated to the upgraded 1G LL shared extranet switch infrastructure.
Cboe Global Markets to Present at the Credit Suisse Financial Services Virtual Conference Wednesday, February 24
Cboe Global Markets, Inc., a market operator and global trading solutions provider, announced today that Chris Isaacson, Executive Vice President and Chief Operating Officer, and Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, will present at the Credit Suisse Financial Services Virtual Conference on Wednesday, February 24 at 1 p.m. ET. The webcast and replay of the virtual presentation will be accessible at www.cboe.com in the Investor Relations section, under Events and Presentations. The archived webcast is expected to be available within an hour of the presentation.
SGX and Euroclear Bank to launch Orchid bond structure
Asia’s leading international fixed income marketplace Singapore Exchange (SGX) and Euroclear Bank (Euroclear), the Brussels-based international central securities depositary (ICSD), today announced the launch of the Orchid bond structure in Singapore, combining domestic bond issuance with global distribution channels. International investors will be able to purchase bonds issued by Singapore-based issuers directly on SGX’s wholly-owned subsidiary, The Central Depository (CDP) via Euroclear, and will benefit from real-time, multi-currency delivery versus payment (DVP) settlement with any counterparty within Euroclear’s network. SGX and Euroclear will look to extend the offering beyond Singapore to other regional issuers.
Regulation & Enforcement
Robinhood, Citadel, Others Prepare for the GameStop Spotlight in Washington
Paul Kiernan and Peter Rudegeair – WSJ
Top executives of Robinhood Markets Inc. and other firms that played a role in the GameStop Corp. saga will face questions from lawmakers Thursday after a group of online traders helped send shares of the videogame retailer surging earlier this year before the firm’s stock then crashed.
Who Are Keith Gill and Other Key Players at the GameStop Congressional Hearing? Panel to focus on recent volatility in shares of GameStop and other companies
Eliza Collins – WSJ
The House Financial Services Committee is calling several witnesses in a hearing Thursday, including individual investor Keith Gill, to find out what happened during the retail-investor-led run-up of GameStop Corp.
‘Roaring Kitty’ Sued for Securities Fraud Over GameStop Rise
Christian Berthelsen – Bloomberg
Keith Gill, one of the most influential voices that pushed GameStop on the WallStreetBets Reddit forum, was hit with a lawsuit that accused him of misrepresenting himself as an amateur investor and profiting by artificially inflating the price of the stock.
The proposed class action against Gill, who adopted the YouTube nickname “Roaring Kitty,” was filed Tuesday in federal court in Massachusetts. The suit said Gill was actually a licensed securities professional who manipulated the market to profit himself. Gill touted GameStop shares through an extensive social media presence on Youtube, Twitter and Reddit, where he used a more profane alias.
GameStop: Regulators Should Focus Less on “Solving the Problem”; More on “Improving the Situation”
Cadwalader Cabinet – TABB Forum
The GameStop Saga: Here’s a chronology of the story as it unfolded, plus in-depth analysis of the events and the issues that are at the very heart of what regulators and Congress will be looking at in the coming days and weeks. In this commentary, provided by the legal minds at Cadwalader Cabinet, issues relating to Wall Street research are also examined.
FIA highlights CCP margin procyclicality concerns to European Regulators
Washington, DC–FIA today presented to the European Securities and Markets Authority (ESMA) on the issues experienced in the spring of 2020 when high volatility and procyclicality of margin requirements were experienced in the global clearing system. During this period, the high number and the large size of margin calls drove demand for liquid assets, just as those assets were scarce due to market stresses. Such a drive for liquid assets can contribute to the stress in the financial system. FIA’s presentation consisted of an analysis of data on margin requirements at several major derivatives clearinghouses, and it contained a set of recommendations aimed at mitigating the procyclicality of margin requirements. FIA first issued these recommendations in a white paper published in October 2020.
How to Forge a More Sustainable Path for the Future of Market Data
William Mitting – TABB Forum
A new report by Acuiti examines the challenges that market data fee schedules are placing on firms and the potential market-led solutions to avoid regulatory intervention. The path of the commercialisation of market data by exchanges is becoming unsustainable. A new report from Acuiti has found that costs for the average firm have increased by between 50 – 100% over the past five years, almost half of sell-side organisations now spend more than $3m per year on market data fees and the cost and complexity of market data fees is having a detrimental impact on firms’ abilities to grow.
Robinhood’s Trading Limits Send Users Into Small Brokers’ Arms
Kamaron Leach – Bloomberg
Robinhood Markets’ stock-trading clampdown sent outraged retail investors scurrying to find other trading platforms. Small-scale brokerage firms were waiting with open arms. In the three days following Jan. 28, when Robinhood limited trading of heavily shorted stocks, Acorns Advisers LLC gained 100,000 new customers, according to a company spokesperson, a pace that signals sharp increase over the 258,000 verified accounts it added in all of January 2020. New brokerage accounts at M1 Finance LLC at one point topped 20,000 a day — nearly triple its average sign-up rate, according to a spokesperson. And a company representative said that the number of Public Holdings Inc.’s trading app clients grew 20-fold.
Worried About Rising Inflation? Consider This Options Move.
Steven M. Sears – Barron’s
One of the greatest satisfactions of investing is finding a stock that is overlooked, undervalued, and about to take off.
Yet it is increasingly difficult to find any stock that hasn’t already turned higher, buoyed by the allure of another massive government stimulus package and a belief among investors that there is little risk to owning stocks when Uncle Sam is willing to spend trillions to support the economy.
Keep riding the stock market’s momentum — cautiously
Lawrence G. McMillan – MarketWatch
The S&P 500 index continues to plow ahead, having made new intraday and closing all-time highs on Feb. 15 and Feb. 16. The Nasdaq-100 did so on the same dates. The Dow Jones Industrial Average just made its new all-time on Feb. 17. The Russell 2000 is a little weaker than those, having made its latest all-time highs a week ago, on Feb. 9 and Feb. 10.
In any case, these are all at or very near all-time highs, and their charts are trending higher: moving averages and “modified Bollinger Bands” are sloping upward. That is the main thing: the trend of the market is upward, and thus we are bullish as long as that is the case, but we are also on the lookout for signs of weakness, as evidenced by confirmed sell signals from our indicators.
Registration is open! – FIA Boca 2021
The SEC’s new derivatives rule: practical implications for funds
25 February 2021 • 10:00 AM – 11:00 AM EST
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.
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 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.
Peterffy Says Markets Almost Broke During GameStop Mayhem
Annie Massa – Bloomberg
Interactive Brokers Group Inc. Chairman Thomas Peterffy said financial markets came “frighteningly close” to breaking during last month’s Reddit-driven volatility.