Elon Musk’s $1.5 billion bet on bitcoin has exposed Tesla to ‘immense’ risk that could wipe out its profits, analysts say

Feb 9, 2021

$28,101/$300,000 (9.4%)

Observations & Insight

Explosion in Retail Options Trade Not a Short-Term Blip, Cboe’s Schwartz Says
Suzanne Cosgrove – John Lothian News

In the current options market environment of rapid retail trading growth, data on who is trading what — customer buyers versus firm buyers, that is — is a hot topic right now. In fact, Henry Schwartz, senior director and head of product intelligence at Cboe Global Markets, formerly president of Trade Alert LLC until it was acquired by Cboe in 2020, contends that information about customer flows has become more important than ever to market makers.

Quantitative analysis and how to properly value stocks and options remains critically important, he said, but customer activity and flows have taken over in some sectors, at least for the time being. A traditional valuation of GameStop, for example, would not have explained why its shares rallied in the last two weeks or how implied volatility exploded. “It’s not normal options flow,” Schwartz said in an interview with JLN on Monday, “it tends to focus on hot names.”

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Lead Stories

Elon Musk’s $1.5 billion bet on bitcoin has exposed Tesla to ‘immense’ risk that could wipe out its profits, analysts say
Harry Robertson – Markets Insider
Tesla’s decision to buy up $1.5 billion of bitcoin exposes Elon Musk’s electric car company to “immense” risks that could wipe out its annual profit if the cryptocurrency’s price plunges, a Saxo Bank strategist warned on Tuesday.
Musk’s company revealed in a regulatory filing on Monday that it had invested around $1.5 billion in bitcoin and intended to start accepting the currency as payment.

A crypto ‘fear and greed’ indicator is flashing a warning signal that shows investors are being extremely greedy as top cryptocurrencies hit record highs
Shalini Nagarajan – Markets Insider
As the price of top cryptocurrencies hit all-time highs on Tuesday, a key sentiment index showed that crypto investors are displaying extreme greed.
A “crypto fear and greed” index, a metric published by Alternative.me, rose from 83 to 95 on Tuesday, suggesting a level of “Extreme Greed.” Similar to other gauges that track fear on traditional stock markets, this crypto index uses a number of metrics to measure investor sentiment from a scale of zero to 100, ranging from “Extreme Fear” to “Extreme Greed”.

How the parting of two market forces helped spur the equity rally
Michael Mauboussin – Financial Times
The year 2020 will forever be associated with Covid-19 and the ills it caused to people and economies around the world.
The outbreak of the pandemic led to the greatest contraction in global economic activity in decades and a precipitous fall in stock markets. More surprising to most was the extent of the sharp rally from March lows.
The interplay of two forces that drive valuations, the cost of capital and the volatility of markets, might explain some of that counterintuitive behaviour.

Funds rotate from gasoline to diesel as epidemic lingers: Kemp
John Kemp – Reuters
Hedge funds have increased their exposure to diesel and moved away from gasoline amid fears the lingering epidemic and slow vaccination programmes will depress personal travel and the services sector for many more months.
Hedge funds and other money managers purchased the equivalent of 8 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 2.

U.S. farmers eye range of good planting options after biggest grains rally in years
Mark Weinraub – Reuters
Illinois farmer Fred Helms is so eager for his next soybean crop he invested in a faster-maturing variety of soy seeds in hopes of beating other farmers to harvest the crop in mid-September, more than a month earlier than usual.
Other U.S. farmers told Reuters they are signing contracts to sell the corn and soy crops they will harvest in autumn, months before they have even planted them, looking to take advantage of boom times after years of oversupply, trade wars and low prices. Some are waiting to sell, betting on even higher prices.

Exchanges and Clearing

CME Group Expands CVOL Suite of Implied Volatility Indexes to Include Energy, Metals and Agricultural Benchmarks, Adds Additional Fixed Income Indexes
PR Newswire
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the publication of 11 additional implied volatility benchmark indexes to its suite of CME Group Volatility Indexes (CVOL). Clients can now access two years of historical implied volatility data on CME Group’s CVOL indexes on WTI Light Sweet Crude Oil, Henry Hub Natural Gas, Gold, Silver, Corn, Soybeans and Wheat, along with the addition of both 5-Year and 30-Year Treasuries. Together with the previously introduced indexes on 10-Year Treasuries and FX currency pairs, CME Group now offers 19 CVOL Indexes across five asset classes. “Our clients continue to demand additional im

SGX reports market statistics for January 2021
SDAV posts 12th consecutive month of gains; Derivatives volume across multiple asset classes rises to four-month high
Singapore Exchange (SGX) today released its market statistics for January 2021. Securities daily average value (SDAV) gained year-on-year (y-o-y) for a 12th straight month as investors weighed the outlook for a post-pandemic global economic recovery. Derivatives volume across multiple asset classes rose to a four-month high.

Miami International Holdings Completes Follow-on Investment in MidChains Along with Co-investors Mubadala and ADQ
Miami International Holdings
Miami International Holdings (MIH), the parent holding company of MIAX, and MidChains, an upcoming virtual asset trading platform, today announced that MIH has completed a follow-on equity investment in MidChains’ parent holding company, MEEG Holdings Limited. The parties previously announced MIH’s initial investment and intent to pursue joint technology licensing and product listing opportunities. Based in Abu Dhabi Global Market (ADGM), MidChains is seeking to provide one of the world’s first fully regulated and supervised ecosystem infrastructures for virtual asset trading under the Financial Services Regulatory Authority (FSRA) regulatory framework. MidChains is expected to launch trading operations in Q1 2021, subject to FSRA approval.

Cboe EDGX Equities Exchange To Introduce Early Trading Hours, Beginning March 8
PR Newswire (press release)
Cboe Global Markets, Inc., a market operator and global trading solutions provider, today announced plans to introduce early trading on Cboe EDGX Equities Exchange beginning at 4:00 a.m. ET, with order acceptance beginning at 3:30 a.m. ET, starting Monday, March 8, pending regulatory approval. Currently, Cboe EDGX commences its early trading session at 7:00 a.m. ET and begins accepting orders at 6:00 a.m. ET. The move to expand early trading hours on Cboe EDGX, beginning March 8, aims to meet growing customer demand particularly among retail investors throughout the world, who seek to execute their trading strategies on Cboe’s U.S. equities markets during global trading hours.

Product Modification Summary: Reduction of Block Trade Minimum Quantity Threshold Levels for the Random Length Lumber Futures and Options on Random Length Futures Contracts
CME Group
Reduction of Block Trade Minimum Quantity Threshold Levels for the Random Length Lumber Futures and Options on Random Length Futures Contracts.

Regulation & Enforcement

SEC Urges Company Disclosures on Fundraising During Market Frenzy
Mark Maurer – WSJ
The Securities and Exchange Commission on Monday urged companies to provide specific disclosures if they plan to sell equity during periods of extreme market volatility.
The move came as U.S. regulators evaluate actions to take in response to the recent surge in the share prices of GameStop Corp. and certain other companies. The SEC last month vowed to stamp out any wrongdoing and the Treasury Department last week held a meeting with financial watchdogs to discuss the recent trading volatility.

More Time to Prepare for LIBOR’s End? Yes and No – Risk & Compliance Journal
The global regulatory community is expected soon to finalize earlier stated intentions with respect to extending the life of a key reference rate underpinning a significant volume of debt-related contracts in the United States. U.S. banking regulators have also issued guidance, however, indicating the pronouncements do not suggest organizations can defer efforts to prepare for reform.


DASH Financial Technologies Announces Agreement to be Acquired by ION Investment Group
DASH Financial Technologies
DASH Financial Technologies (“DASH”), the leading options technology and execution provider in the U.S., today announced that ION Investment Group (“ION”) has entered into a definitive agreement to acquire the company from Flexpoint Ford, LLC (“Flexpoint Ford”).

First New York chooses Eventus Systems for trade surveillance
Eventus Systems
Multi-asset class investment firm deploys Validus platform to meet complex needs
Eventus Systems, Inc., an award-winning global provider of multi-asset class trade surveillance and market risk solutions, announced today that First New York, a multi-asset class investment firm, has deployed the Validus platform to meet its global trade surveillance needs. The firm has begun using the cloud-based version of the platform for futures and will soon leverage Validus to surveil all of its equities and equity options trading activity as well.


JP Morgan executive appointed CEO of HKEX; Nicolas Aguzin joins Hong Kong Exchanges and Clearing as chief executive officer after 30 years at JP Morgan.
Annabel Smith – The Trade
The chief executive of JP Morgan’s private bank business, Nicolas Aguzin, is set to become the new CEO of Hong Kong Exchanges and Clearing (HKEX). Aguzin will serve a term of three years, from 24 May this year until 23 May 2024, subject to the approval from the Securities and Futures Commission. He replaces former HKEX chief executive officer, Charles Li, who confirmed in May last year that he will retire early after 12 years leading the exchange group. Aguzin joins HKEX as chief executive officer after 30 years at JP Morgan, most recently serving as chief executive officer of its international private bank. Prior to this role, he was chief executive officer of JP Morgan Asia Pacific for eight years where he oversaw the investment bank’s growth into China.


Marijuana Legalization Is Now in Sight. Here’s How to Play It With Options.
Steven M. Sears – Barron’s
A trio of U.S. senators has given investors the green light to invest in marijuana stocks, an endorsement that suggests the volatile sector might finally blossom into something as acceptable and regulated as alcohol.
More details will emerge when Sens. Cory Booker (D., N.J.), Ron Wyden, (D., Ore.), and Chuck Schumer (D., N.Y.) introduce legislation to legalize and tax marijuana.


Webinar: The Foundations of Options Pricing
Date/time: Feb 10, 2021 3:30 – 4:30 PM CST
Any time you’re buying or selling a financial asset, it’s critical to understand the pricing characteristics of the market you’re in – and the options market certainly has its own unique specifications. That’s why The Options Industry Council (OIC) wants to help you build your knowledge of option pricing.


Registration is open! – FIA Boca 2021

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.

Mini Index Options & Futures – Uses and Strategies
Air Date: Wednesday, February 10, 2021
Start Time: 12:00 PM EST
Duration: 60 Minutes
Panelists include: Joe DeSipio, Arin Risk Advisors; Joe (JJ) Kinahan, TD Ameritrade; Daniel J. Powers, Vector Wealth Management; and Matt Moran, Cboe Options Institute.
This 60-minute webinar explores the uses of mini index options and futures as well as strategies for portfolio management.


The SEC Wants Reddit Meme Stocks to Admit They’re Dangerous
Matt Levine – Bloomberg
In the last few weeks some stocks went up a lot for weird reasons. People on Reddit liked them, there were short squeezes, there was buying pressure driven by call-option hedging, Elon Musk was tweeting, stuff like that; they went up for reasons unrelated to any changes in the business prospects of the underlying companies. Often these were somewhat beaten-down companies: A lot of people had shorted their stocks because they were in bad shape, and the Reddit crowds buying them were moved by nostalgia or irony or a desire to defend the underdog or take revenge on evil short-selling hedge funds.

Quant Fund Offering Job to WallStreetBets Traders
Brandon Kochkodin – Bloomberg
Are you a WallStreetBets member with good karma looking to make the move from trading your own account to working for the establishment? If so, Cindicator Capital, an offshoot of alternative data provider Cindicator, has the job for you.
The New York-based quantitative fund posted a job opening on LinkedIn four days ago seeking applicants for a sentiment trader position.

FIA letter to President Biden highlights priorities and opportunities
Walt Lukken – FIA.org
Dear Mr. President: On behalf of FIA’s membership, we wish you all the success as you begin your work as the 46th President of the United States. Policies affecting financial markets are sure to feature prominently in your agenda, particularly in light of the recent volatility in securities markets. We look forward to collaborating with your administration on this important area of economic policy, and we would like to take this opportunity to introduce our organization, priorities, and support for well-regulated markets.

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