Global futures and options trading reaches record level in 2020
FIA today released yearly statistics that show the total number of futures and options traded on exchanges worldwide reached a record level of 46.77 billion contracts in 2020, up 35.6% from 2019. Total futures trading rose 32.7% to 25.55 billion. Total options trading rose 39.3% to 21.22 billion. Open interest, which measures the number of outstanding contracts at a point in time, also reached a record high, reaching 987.3 million contracts at year-end, up 9.7% from December 2019.
Nasdaq Sets Record as Big Tech Stocks Outperform
Caitlin McCabe and Caitlin Ostroff – WSJ
The Nasdaq Composite rallied to a record close Thursday as investors showed renewed interest in megacap technology companies ahead of their earnings reports in the weeks ahead.
The technology-heavy index climbed 73.67 points, or 0.5%, to 13530.91, propelled higher by shares of Apple , Facebook and Amazon.com . The day marked the Nasdaq’s third consecutive day of gains and its fourth record close of the year.
Analysis: Wall Street hedges against possible bumps in U.S. vaccine rollout
April Joyner and Sinéad Carew – Reuters
As U.S. stock prices have marched to record highs, futures contracts for Wall Street’s “fear gauge” show some investors are buying insurance against market turbulence that could erupt if surprise glitches hit the U.S. rollout of COVID-19 vaccines.
This hedging can be seen in futures on the Cboe Volatility Index expiring in March and beyond, which are trading well above the index’s current levels.
BofA Warns U.S. Policy Is Fueling a Bubble in Wall Street Prices
Michael Msika – Bloomberg
Strategists note risk of taper tantrum, volatility events; BofA forecasts a market correction in the first quarter
Bank of America Corp. strategists warned the “extreme rally” on Wall Street that has pushed stocks to record highs, fueled by strong U.S. policy stimulus, is forming a bubble in asset prices. “D.C.’s policy bubble is fueling Wall St’s asset price bubble,” strategists led by Michael Hartnett wrote in a note on Friday. “When those who want to stay rich start acting like those who want to get rich, it suggests a late-stage speculative blow-off.”
US emerges as early winner of shift in derivatives trading from London; Netherlands also picks up business as Brexit pushes dealing away from UK
Philip Stafford – FT
The US and the Netherlands have emerged as early winners of the shift in derivatives trading out of London following the UK’s exit from the EU. Data released on Thursday by IHS Markit highlight the move in trading this month from the City that came after a financial services agreement was omitted from the UK and EU’s post-Brexit deal.
The Hedge Fund Rollercoaster Ride Got Even Wilder in 2020
Mark Gilbert – Bloomberg
It’s time to bury three myths about the hedge fund industry. First, that any investor can tell in advance which manager will produce superior returns. Second, that active management outperforms in volatile markets. And third, that the most popular funds are more loss-proof than their smaller rivals.
Warren Buffett’s right-hand man flags a ‘speculative frenzy’ in the stock market and bemoans the lack of bargains in a new shareholder letter
Theron Mohamed – Markets Insider
Warren Buffett’s right-hand man has flagged a “speculative frenzy” in the stock market and signaled he doesn’t expect share prices to climb much higher.
Charlie Munger, the vice-chairman of Buffett’s Berkshire Hathaway conglomerate, is also the chairman of Daily Journal Corporation, a newspaper publisher and software developer.
Here’s another sign that markets have gone nuts and everyone is chasing everything
Steve Goldstein – MarketWatch
It doesn’t take a rocket scientist to discern that financial markets are full of juice at the moment, with the S&P 500 ending Thursday at its fourth record high of the young year and up 72% from the lows of March 2020. The last 12 weeks have seen the largest inflows to stocks ever, according to Bank of America.
Here’s another sign. Margin debt tracked by member firms of the Financial Industry Regulatory Authority has spiked over the last two months. “We don’t know how much total stock market leverage there is, but margin loans indicate the trends, and we had another WTF moment,” says Wolf Richter, author of the Wolf Street blog.
Exchanges and Clearing
Brexit: London’s Big Derivatives Loss Is a Victory for New York
Elisa Martinuzzi and Marcus Ashworth – Bloomberg
The latest scrap over London’s post-Brexit finance business has a clear winner. Britain and the European Union might have been hoping to fight over the juicy bone of derivatives trading, but a third dog is running off with the prize: New York.
New trading limits between the U.K. and the continent have prompted a large chunk of this lucrative work to move across the Atlantic. Clawing back the trillions of dollars of activity that’s leaving London, quite literally overnight, could be a long slog.
Brazil’s B3 overtakes CME Group in rankings for largest derivatives exchange; CME Group had previously been ranked second largest in terms of trading volume, losing first place to the National Stock Exchange of India last January.
Annabel Smith – The Trade
US derivatives exchange CME Group has dropped to third place in a ranking of the largest derivatives exchanges globally, losing second place to Brazil’s B3, statistics from the Futures Industry Association (FIA) have revealed.
Regulation & Enforcement
FIA statement on the change of administration and new acting chairman of the CFTC
Washington, DC – FIA President and CEO Walt Lukken made the following statement on the change of administration and change of leadership at the CFTC: “FIA congratulates President Biden and Vice President Harris on their swearing-in and welcomes the peaceful transfer of power to the newly elected leaders of the US. On behalf of FIA’s worldwide membership, we look forward to working with the incoming administration on the challenges before us.
TradeStation Group Subsidiaries Rated “#1 Platform Technology” for the Ninth Consecutive Year and Inaugural “#1 Crypto Technology” in StockBrokers.com’s 2021 Online Broker Review; TradeStation Securities Also Continues “Best in Class” Winning Streak in Active Trading, Platform & Tools, Options Trading, Commissions & Fees and Futures Trading
TradeStation Group, Inc. (PRNewsfoto/TradeStation Group, Inc.)
TradeStation Group, Inc. (“TradeStation”), a Monex Group company, today announced two #1 rankings for its subsidiaries in StockBrokers.com’s 2021 Online Broker Review. TradeStation Crypto, Inc. (“TradeStation Crypto”), which offers a cryptocurrency brokerage platform, was the inaugural winner of “#1 Crypto Technology.” TradeStation Securities, Inc. (“TradeStation Securities”), an award-winning* broker-dealer and futures commission merchant and TradeStation Group’s principal operating subsidiary, was awarded the title of “”#1 Platform Technology” for the ninth year in a row, all while achieving “Best in Class” accolades in five categories.
Call Stock Option Activity Is Booming. Why Ford Is a Focus.
Andrew Bary – Barron’s
Call option volume on individual stocks has surged in January to record levels amid growing investor enthusiasm for stocks. Former laggard Ford Motor was the focus of options activity on Thursday as its stock added to recent gains.
January call volume has averaged 20.1 million contracts a day, up from 16.8 million contracts in December and fewer than 10 million in January 2020. Calls give investors the right to buy a stock at a given price and amount to a bullish bet.
No One Knows If the Market Is Too High—But Your Emotions Probably Are; A few simple rules can help you stay on track when it seems like there are bubbles everywhere.
Suzanne Woolley – Bloomberg
Signs of bubbly markets are everywhere. Commission-free apps have encouraged home-bound speculators to try their hand at trading tech stocks and options. Bitcoin soars—and plunges—on a daily basis. Gen Z and millennial investors have turned to the viral video app TikTok, where the hashtag #stocktok has 351 million views and everybody seems to be on the verge of becoming a “Teslanaire.”
Your Guide to Understanding Volatility and ‘The Greeks’: QuickTake
Michael P. Regan – Bloomberg
A lot of people picked up a hobby to pass the time during the Covid-19 pandemic. Some learned how to bake bread; others dusted off musical instruments. For many, however, it was something a little less folksy: equity derivatives. As trading volumes for options exploded, newbie investors have been encountering concepts such as volatility that make sourdough seem simple. Here’s a guide to some of them.
Futures vs options: what are the key differences?
Callum Cliffe – IG.com
Futures and options are both popular trading methods for those who want exposure to financial markets without owning underlying assets. Read on to learn about the differences between them and the pros and cons of each.
Fundamentals of Futures & Options Virtual Course
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies.
This instructor-led virtual course includes lecture from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books – Futures and Options and the Guide to U.S. Futures Regulation.
Presenter: Marti Tirinnanzi, Board of Director of ICE Mortgage Services
Time: January 25-29, 12:00 – 2:00 p.m. ET; 2 hours per day for five consecutive days
2020 Annual Trends in Futures and Options Trading
Description: This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Presenter: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
Time: Jan 27, 2021 10:30 AM in Eastern Time (US and Canada)
The SEC’s new derivatives rule: practical implications for funds
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.
Presenters: Kenneth Holston, Partner, K&L Gates; Stephen Humenik, Partner, K&L Gates; Michael McGrath, Partner, K&L Gates; Fatima Sulaiman, Partner, K&L Gates
Time: Thursday, 25 February 2021 | 10:00 a.m. – 11:00 a.m. EST