GameStop Frenzy Puts Spotlight on Trading Giant Citadel Securities; Silver surges as retail investors take aim

Feb 1, 2021

$27,651/$300,000 (9.2%)

Observations & Insight

The Spread: Game Over

This week, one company’s stocks skyrocketed due to the coordinated trading of retail investors – and for once, I’m not talking about Tesla.

Momentum trading is when investors buy stocks whose prices are actively rising, and sell them when they think the stocks have peaked. This happened with Tesla’s stock more often than not last year. The most recent case of runaway momentum trading is GameStop, a large entertainment retailer that makes most of its money selling used video games and preorders for upcoming games. This week users in investment communities on Reddit, like WallStreetBets, bought shares and tons of options on struggling companies like GameStop, causing GameStop’s stock value to skyrocket and post year-to-date gains exceeding more than seventeen hundred percent. This resulted in market volatility that caused major losses across the board for a lot of hedge funds who had been short sellers of the stocks.

Watch the video »

Lead Stories

GameStop Frenzy Puts Spotlight on Trading Giant Citadel Securities; Firm owned by hedge-fund billionaire Ken Griffin executes orders for Robinhood customers
Alexander Osipovich – WSJ
Small investors banding together online to pump up stocks like GameStop Corp. say they are defying Wall Street. But one of the biggest players in global markets stands to benefit from their frenetic trading. Citadel Securities, the electronic-trading firm owned by hedge-fund billionaire Ken Griffin, has played a quiet but critical role in the frenzy of the last two weeks. The firm—an affiliate of Mr. Griffin’s hedge fund, Citadel—executes orders placed by customers of Robinhood Markets Inc., TD Ameritrade and other online brokerages that have enjoyed surging volumes during the coronavirus pandemic.

Silver surges as retail investors take aim; Asia equities advance with precious metal in Reddit forum’s crosshairs
Hudson Lockett – FT
The price of silver shot higher in Asia as retail traders turned their focus to the precious metal following their success in pushing shares of games retailer GameStop up to stratospheric levels, while equities across the region advanced in a less volatile start to the week. The spot price for silver climbed as much as 7.4 per cent to $28.99 per troy ounce in early trading on Monday, touching its highest level since August. The rally came after a user on Reddit’s r/WallStreetBets forum urged people to buy shares and silver options to put a squeeze on banks. BlackRock’s iShares Silver Trust, the world’s largest silver-backed exchange traded fund, drew inflows of almost $1bn on Friday.

What’s the DTCC and How Did It Stop GameStop Mania?
Annie Massa, Viren Vaghela, and Yalman Onaran – Bloomberg
Small investors and others watching the market gyrations around GameStop Corp. and other stocks have learned a long list of trading terms, including short squeeze, call options and gamma hedging. The decision by Robinhood Markets and other trading platforms to slam the door shut on the most volatile stocks is introducing them to two others, clearinghouse and collateral requirements. They’re parts of Wall Street’s infrastructure that are invisible, except when things get wild.

*****JJL: Sooner or later the plumbers get thrown into any controversy.

Canada’s Answer to Robinhood Warns Traders But Won’t Halt Stocks
Kevin Orland – Bloomberg
Wealthsimple deploys emails, notifications amid trading frenzy; CEO Katchen sees options, margin accounts as ‘highly risky’
Wealthsimple Inc., a commission-free Canadian online brokerage with more than 350,000 clients, is warning traders about the risks of investing in certain highly speculative stocks, but isn’t planning to halt trading in those shares. Wealthsimple, whose motto is “get rich slow,” doesn’t offer riskier investment choices such as options trading or margin accounts, and has sent clients emails reminding them about the dangers of speculation, Chief Executive Officer Mike Katchen said in an interview with BNN Bloomberg Television Friday. It also embedded in-app notifications for users looking at certain stocks.

“The Crowd is Here to Stay”
Dylan Ratigan – tastytrade
The crowd is here to stay and with it, extreme moves best illustrated by Gamestop’s move last week. Professional traders, like Tom Sosnoff, say the pros will not abide such madness. But unlike past crowd behavior, this time not only is the crowd larger than ever and growing every day — but modern communications technology allows a level of coordination that when combined with the crowd size makes their arrival a new and permanent market variable. Total new accounts in the past year on all platforms has grown exponentially. Chat rooms allow real-time coordination. Trading platforms are more prevalent and easily accessible than ever. So, what do we do?

Exchanges and Clearing

ICE Announces Record Activity in TTF and JKM Natural Gas Benchmarks as Participants Seek Transparent Price Discovery to Transfer Risk
Intercontinental Exchange
Liberalization of liquefied natural gas supporting rise of ICE TTF & JKM
Total Natural Gas Futures and Options OI +11% y/y
TTF Futures OI +40% y/y; JKM LNG (Platts) Futures and Options OI +48% y/y
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces record activity across its TTF and JKM LNG (Platts) natural gas benchmarks as participants responded to volatile market conditions set against the ongoing liberalization of liquefied natural gas.

HKEX Enhances Product Offering with Kuaishou Debut
Kuaishou Futures and Options to be introduced on 5 February; HKEX informed issuers they can list derivative warrants on Kuaishou shares when the shares debut on HKEX’s securities market; Kuaishou shares to be included in Designated Securities Eligible for Short Selling on 5 February
Hong Kong Exchanges and Clearing Limited (HKEX) is pleased to announce today (Monday) that it will offer investors more options on Kuaishou Technology (Kuaishou, stock code: 1024) shares on the debut date (5 February 2021).

Cboe Options Exchange to List Mini-Russell 2000 Index Options (MRUT) Beginning March 1
Cboe Global Markets, Inc., a market operator and global trading solutions provider, today announced plans to launch trading in Mini-Russell 2000 Index options on Cboe Options Exchange beginning Monday, March 1, pending regulatory approval. New Mini-Russell 2000 Index options (ticker symbol: MRUT) are designed to provide direct exposure to the Russell 2000 Index in a more manageably sized and cost-effective contract. The mini options will share the same contract terms as standard Russell 2000 Index options (ticker symbol: RUT) but will be one-tenth the size of the standard contract, making them comparable to ETF options that similarly provide U.S. small-cap equity exposure. With a smaller notional value, Mini-Russell 2000 Index options help to offer investors potentially greater flexibility and precision when managing U.S. small-cap equity market risk or allocating among accounts.

Dividend Derivatives: Assessing the Impact of Covid-19
In 2020, an unusual year, pre-announced dividends were slashed or cancelled. Antoine Deix, Equity Derivatives Strategist at BNP Paribas, discusses the pandemic’s impact on short, medium and long-term maturities and what the dividend market may look like as a recovery gets underway.


Interactive Brokers Lifts All Trading Restrictions on Options
Businesswire via Yahoo! Finance
Interactive Brokers Group, a global brokerage firm, announced today that on Friday it lifted all trading restrictions on options in AMC, BB, EXPR, GME, KOSS and other options that experienced recent market volatility. The options, as well as the underlying stocks, are currently subject to increased margin requirements, which are subject to change depending on market conditions. The firm continues to monitor these volatile markets.

Robinhood Narrows Trading Restrictions to Eight Companies
Yueqi Yang – Bloomberg
Robinhood Markets Inc. reduced the number of companies with trading restrictions to eight from 50, ahead of Monday’s trading session, according to an update on its website. The current list includes GameStop Corp., AMC Entertainment Holdings Inc., BlackBerry Ltd., Express Inc., Genius Brands International Inc., Koss Corp., Naked Brand Group Ltd. and Nokia Oyj. Opening new positions in these securities is limited, according to Robinhood’s website, which listed the maximum number of shares and options contracts each user can hold. For those whose current holdings already exceed the limits, their positions won’t be sold or closed.


Selling GameStop Short Was a Flop. Options Are No Slam Dunk.
Andrew Bary – Barron’s
Thinking of betting against GameStop ? It won’t be easy to do it safely. The prospect is tempting, given its run-up this month. The stock finished Friday at $325, up $131.40, or 68% on the day, while earlier this month it was around $18. Given the high risks and difficulty in shorting the highflying stock, investors have gravitated towards the options market. The problem is that GameStop put options are very expensive, which can make it hard to profit on them. At the same time, it can be difficult to trade GameStop options. Some firms are restricting their clients’ ability to initiate new positions.


Following the Crowd: Investing and Social Media
With zero commissions on trades and online trading platforms at our fingertips wherever we go, many investors are making investing and saving part of their routine. Investors have access to a variety of online sources to gather information to make investment decisions, from the news media to independent social media platforms to platforms associated with investment firms, among many others. No matter where you get your trading insights, and whether you are following a recommendation to buy stocks, bonds, options or something else, know this: where there is opportunity, there is also risk.

What is a buffered ETF?
Steve Johnson – FT
Buffered, or defined outcome, ETFs, which aim to protect investors from the worst stock market ravages, do not own any underlying shares. Instead they build a package of derivatives of “flexible exchange”, or flex, options. These are customisable, non-standard options that allow the writer and purchaser to negotiate the terms, such as the strike price and expiration date. The options were created by the Chicago Board Options Exchange in 1993, although they now trade on other US exchanges as well. These options give the buyer the right, but not the obligation, to buy or sell the underlying index, say the S&P 500, at a set price at a future point in time.


Registration is open! – FIA Boca 2021

GFF Summit: A cordial invitation and some valuable information
Frank Ghast – Eurex
I hope you are all safe and sound and that I will see many of you at Clearstream and Eurex’s joint Global Funding and Financing (GFF) Summit 2021 from Tuesday, 2 February, to Thursday, 4 February 2021 – even if, unfortunately, only virtually this year. In the ramp-up to the summit, let me take the opportunity to quickly recap 2020 and take a look at what’s ahead.

Save the Date – April 28 & 29
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.


Our Cboe: Women’s Initiative Hosts Guests to Discuss Male Allyship in the Workplace
David G. Smith and W. Brad Johnson – Cboe
The Cboe Women’s Initiative recently hosted a fireside chat with David G. Smith, Ph.D. and W. Brad Johnson, Ph.D., authors of “The Good Guys,” which focuses on how men can be better allies for women in the workplace. Cboe’s Chief Financial Officer Brian Schell and Chief Human Resources Officer Jen Browning hosted the chat, taking turns asking their own questions and those submitted from Cboe associates.

(Podcast) Volatility Views 432: The Great GME Volatility Epoch
Volatility Views – Options Insider Radio Network
GME options traded >1000% implied volatility this week. So you better believe we’re going to talk about that on this episode of Volatility Views.

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Pin It on Pinterest

Share This Story