Observations & Insight
*****JJL: Do you have RMB exposure? Check out the HKEX’s Mini USD/CNH Futures, which are off to a strong start with more than 80,000 contracts traded since they launched two weeks ago. Click HERE for more information on the contract. Also, the open interest of Hang SengTECH Index options set a new record of 10,384 contracts on May 11, surpassing the 10,000 mark for the first time since the contract launched in January 2021. — LinkedIn
*****JJL: Paul Houston, the global head of FX products at CME Group, shared on LinkedIn that “CME FX Options have seen a 5x increase in block trades in 2021 YOY- with end users from the buy-side community taking liquidity from bank and non-bank liquidity providers.” — LinkedIn
Tom Sosnoff – Open Outcry Traders History Project
The CEO of tastytrade, Tom Sosnoff, was interviewed by John Lothian News for the Open Outcry Traders History Project. Sosnoff was a trader on the floor of the CBOE for 20 years after growing up in New York. He moved to Chicago at the behest of some co-workers at his first job at Drexel Lambert who wanted to start a fund and wanted Sosnoff to execute the trades on the CBOE floor for them. Sosnoff leveraged his experience on the floor into other ventures, some of which worked and some of which did not. Those ventures have included Thinkorswim and tastytrade.
Hedging Gets Frantic as Puts Soar Amid Stock Market Hammering
Vildana Hajric – Bloomberg
After this week’s selloff that erased more than $1 trillion in value from the S&P 500, investors are rushing to add to their bearish bets.
A Cboe put-to-call ratio that tracks the volume of options tied to everything from single stocks to indexes, including the S&P 500 and the VIX fear gauge, reached 0.99 this week in its highest level since November. Short bets against the largest S&P 500 ETF, ticker SPY, have also spiked, as have those on the tech-focused Invesco QQQ fund.
The Meme King of Wall Street Litquidity Capital is the anonymous banker chronicling our weird, get-rich-quick economy.
Jen Wieczner – New York Magazine
On November 9, the day that Pfizer announced its coronavirus vaccine was more than 90 percent effective, a video appeared on the Instagram and Twitter feeds of the Wall Street memelord known as Litquidity Capital. It was a fast-tempo mash-up of familiar GIFs from around the web, recaptioned to represent various forces in the markets. In the clip, ecstatic megachurch parishioners are labeled “MFs w/ hella calls”; an NFL player tagged as “the market” somersaults over a defender labeled “Fauci” into an end zone emblazoned ALL TIME HIGHS; a beat-up station wagon representing BEAR CUCKS goes over a cliff. This was market analysis as informative as anything you’d have seen on CNBC that day. The S&P 500 was rocketing to a record high, mom-and-pop traders were buying options with borrowed money, and investors were gambling hundreds of billions on SPACs. In this bulliest of markets, with prices popping on everything from stocks to bitcoin to corn futures, Litquidity has emerged as a giddy and astute observer of finance high and low, followed by Reddit day traders and private-equity sharks alike.
Archegos, Trade Repositories and Initial Margin
Amir Khwaja – Clarus Financial Technology
Amongst the many questions that standout from the huge losses suffered by prime brokers in closing out the positions of Archegos Capital Management, the two that interest me most are the first lack of transparency of the derivatives (total return swaps) used for these positions and second the in-adequate risk management by the prime brokers.
‘Transitory’ U.S. Inflation Pressures Seen Lasting for Months
Payne Lubbers – Bloomberg
The unexpected surge in U.S. consumer prices last month has economists and policy makers struggling to figure out just how “transitory” inflation pressures will be, with some flagging the possibility that readings will take at least several months to settle down.
Federal Reserve Atlanta Fed President Raphael Bostic said Wednesday that he expects bouts of volatility around inflation through September. Inside the White House, aides see the “transitory” period of inflation pressures lasting potentially through the end of the year, according to one White House official who spoke on condition of anonymity.
Opinion: The bears control the market now but it will be hard for them to hold it
Cam Hui – MarketWatch
The stock market’s bears finally have broken through and several factors have combined to spark this setback in stock prices.
First, retail investors are losing interest in stocks. Remember the retail frenzy as the Reddit crowd whipped up enthusiasm for meme stocks? Remember how flash mobs drove up selected issues with call-option buying which forced market-makers to hedge by buying the underlying stocks?
SoftBank Pulls Back From Funding ‘Nasdaq Whale’
Phred Dvorak – WSJ
SoftBank Group Corp. is pulling back from an investment unit it set up last year whose bets on publicly traded technology stocks were so large they earned the Japanese investor the nickname “Nasdaq whale.”
The unit, named SB Northstar, had been investing billions of dollars in stocks like Facebook Inc. and Amazon.com Inc., sometimes using derivatives called options to increase the size of its bets. For a time, SoftBank Chief Executive Masayoshi Son personally directed the trades himself, using a $20 billion pot of cash.
Traders not betting on a quick U.S. market rebound as tech stocks tumble
Saqib Iqbal Ahmed – Reuters
Traders have been placing more bearish bets on equity derivatives in recent days, data showed on Wednesday, indicating less confidence in U.S. stocks rebounding from a sharp sell-off which has particularly hit high-flying tech names. Investors’ tendency to look past minor wobbles in stocks as the S&P 500 rallied about 90% over the past year or so has been a key feature of the equity market since it rebounded from March 2020 pandemic lows and has helped make market pullbacks shallow and brief. That, however, may be changing.
Amid Nasdaq Rout, Big Facebook Options Play Catches Trader Eyes
Katherine Greifeld – Bloomberg
While the stock market was having its worst day since February, someone was getting fancy with options on one of the rout’s higher profile casualties: Facebook Inc. A trader Wednesday paid $26 million for 39,000 call spread contracts comprised of March 2022 calls with a $400.01 strike price and March 2022 calls with a $480.01 strike. Facebook has tumbled nearly 7% in May to $302.55 as inflation fears have battered tech shares. The exact intent of the position, which bears a slight resemblance to some of the so-called Nasdaq whale trades that made headlines last summer, is open to interpretation. One analyst, Chris Murphy of Susquehanna, sees it as a strategy to amplify the payoff of a rally in the social media giant, for someone who may or may not already own the stock.
Exchanges and Clearing
CME Group Announces Record Copper Options Volume on May 10
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that a record 25,010 Copper options contracts were traded on May 10, 2021, surpassing the previous record of 16,029 contracts set on November 7, 2019.
Bermuda Stock Exchange Joins United Nations Sustainable Stock Exchanges Initiative as Partner Exchange
BSX to collaborate with peers to promote sustainable business practices and corporate transparency
Launch of BSX ESG Guidelines for issuers is a priority
The Bermuda Stock Exchange (BSX) has announced that it has joined the United Nations (UN) Sustainable Stock Exchanges (SSE) initiative as a Partner Exchange. The Sustainable Stock Exchanges (SSE) initiative is a peer-to-peer learning platform for exploring how exchanges, in collaboration with investors, regulators, and companies, can enhance corporate transparency – and ultimately performance – on ESG (environmental, social and corporate governance) issues and encourage sustainable investment.
Sydney-based Morrison Securities turns to Eventus Systems for trade surveillance;
Continued uptake of Validus platform in Asia-Pacific region as Eventus signs first Australian client
Eventus Systems, Inc.
Eventus Systems, Inc., a leading global provider of multi-asset class trade surveillance and market risk solutions, announced today that Sydney-based Morrison Securities, a major Australian stock brokerage firm, will deploy its Validus platform for trade surveillance in equities, equity options and warrants. Morrison is the number one broker in the Australian Securities Exchange (ASX) equity derivatives market by volume and value and a leading provider of execution and clearing services to Australia Financial Services Licence (AFSL) holders.
New Director Joins ISDA Board
The International Swaps and Derivatives Association, Inc. (ISDA) has today announced the appointment of a new director and the election of eight others at its virtual Annual General Meeting. The new director is: Hideki Ushida, Managing Director, Global Markets Compliance Office, MUFG Bank, Ltd.
MEMX appoints head of market structure as it grabs market share; Adrian Griffiths joins MEMX as head of market structure after the new US equities exchange increased its market share significantly last month.
Annabel Smith – The Trade
US equities exchange MEMX has hired the assistant general counsel at rival markets operator Cboe as head of market structure after gaining market share throughout April.
It Takes Guts to Bet on ARK Innovation Now. Options Can Make It Easier.
Steven M. Sears – Barron’s
Cathie Wood and her ARK Innovation exchange-traded fund personify the market’s recent travails.
The fund rose 153% in 2020 as it held many of the hottest stocks, including Tesla (ticker: TSLA). It’s down 20% this year, compared with an 8% rise for the S&P 500 index.
ARK Innovation’s (ARKK) weakness has been exacerbated by the market mob turning away from the growth stocks Wood favors, while maniacally buying equities that might benefit from the seeming end of the Covid-19 pandemic and the reopening of the U.S. and global economies.
Rising Star Teaches Me How to Trade Options with a Small Account | Rolling Trades Series
Vonetta Logan – tastytrade
Ever hear the phrase, “Champagne wishes on a beer budget”? I feel like that sometimes when I click on Tom’s trades on the tastyworks follow page and see how much buying power they use. I had a good chortle once when I wanted to see if I could replicate one of Tom’s crazy 5×9 ratio spreads in a high priced stock that had buying power that was more than my mortgage. Okay not quite but close. But what about “good things come in small packages”? This week’s episode is all about maximizing smaller accounts. We’re here, we’re small, get used to it!
(Podcast) OBC 134: Leverage, Diagonals and the Wrong Way To Start Trading Options
Options Boot Camp – Options Insider
On this episode, Mark and Dan answer your questions about:
Option leverage vs. stock leverage, diagonal vs. vertical put spread follow up, the right vs. the wrong way to start trading options, selling covered calls to avoid margin calls, and more…Mark and Dan also field your options boot camp reviews – good, bad and…confusing?
Asset Management Derivatives Forum 2021; Co-hosted with SIFMA AMG
8 June 2021 – 9 June 2021 • 10:15 AM – 1:30 PM ET Daily • VIRTUAL
FIA and SIFMA AMG are bringing you a virtual take on the Asset Management Derivatives Forum in 2021. Join us for virtual programming on June 8 and 9, during which market participants from all sides of a trade and leading regulators will examine the latest developments impacting the use of derivatives by asset managers, including business, clearing, regulatory and operations issues.
With keynote speakers and panels, this virtual Forum presents a unique opportunity to gain insights into how investors, sell-side firms and market structure operators view the landscape for derivatives activity by the asset management community, attracting attendees from the joint membership of FIA and SIFMA Asset Management Group.
Anti-money laundering considerations for security and commodity derivatives
Part of the L&C webinar series
May 13, 2021 • 10:00 a.m. – 11:00 a.m. ET
In 2018, the CFTC Division of Enforcement established a Bank Secrecy Act task force dedicated to investigating and enforcing AML regulations. In October 2019, the CFTC, the SEC and FINCEN issued a joint statement highlighting the importance of AML compliance in matters involving securities, commodities, derivatives and digital assets. Since then the CFTC, SEC, FINCEN and DOJ have initiated numerous investigations of alleged AML deficiencies, and pursued civil and criminal actions enforcing AML compliance. In this webinar, we will discuss recent AML enforcement investigations and actions, cooperation among the various U.S. and foreign agencies, best practices and compliance considerations for security- and commodity-based instruments and digital assets, and risk mitigation measures.
Clearing 101: Exchanges, Clearinghouses and CCPs
Dates: Sep. 15, 2021 12:00 p.m. – Sep. 16, 2021 1:30 p.m. ET.
Location Virtual Live. Two 90-sessions over 2 days.
Instructor: Marti Tirinnanzi
Registration is limited to approximately 20 participants to promote student participation and interaction.
Join us for a short program (90 minutes each day for 2 days) that explains the multilateral systems that provide the infrastructure for transferring, clearing and settling payments, derivatives and other financial transactions among financial institutions and end users. Following Dodd Frank, clearinghouses became designated as Systemically Important Financial Market Utilities, vital to the operations of the financial markets and subject to heightened regulatory scrutiny. Buyers and sellers in exchange transactions rely on clearinghouses to intermediate transactions and to manage credit risks between trading parties. As such, clearinghouses promote transparency, efficiency, and stability by providing market-based pricing, daily settlement, and ensuring adequate capitalization for markets to function.