Hefty options ‘disaster hedges’ draw buyers as US stocks extend rally

Nov 17, 2023

Lead Stories

Hefty options ‘disaster hedges’ draw buyers as US stocks extend rally
Saqib Iqbal Ahmed – Reuters
A string of hefty bets on a doubling of Wall Street’s best known volatility index is raising eyebrows in the U.S. equity options markets, though analysts say they are probably not wagers on a market crash.
Some 100,000 January call options on the Cboe Volatility Index (.VIX) changed hands on Friday, with a strike price of 27. That is nearly twice the current level of the VIX, which has fallen close to a two-month low of 13.69 following a rally that has seen the S&P 500 advance to within 2% of its year high.

Echoes of Bitcoin’s 2021 Record Run Emerge in the Derivatives Market
Sidhartha Shukla, Akshay Chinchalkar, and Suvashree Ghosh – Bloomberg
A burst of activity in Bitcoin derivatives has evoked memories of the period in late 2021 when the token surged to an all-time high.
Variables such as the cost of perpetual futures trades and options open interest point to a revival in speculative gusto for Bitcoin, which has more than doubled in price this year in a partial rebound from a 2022 rout.

‘Big Short’ hedge fund pulls out of $1.6bn bets against US market; The wagers against SPY and QQQ ETFs were built up in the second quarter before the ETFs suffered losses of about 3%
Will Schmitt – Financial Times
Michael Burry, the hedge fund manager whose successful bets against the US housing market during the subprime crisis were immortalised in the 2015 movie The Big Short, has pulled out of $1.6bn in wagers against two exchange traded funds tracking the US market.

Why Markets Suddenly Moved Into Happy Mode
The Wall Street Journal
The swings in the monthly inflation readings that investors care about have been wild. So have the reactions, or as James Mackintosh argues, the overreactions, to them in markets. Read more about the factors he thinks are driving the three-week rally in stocks and bonds.

A $100 Billion ETF Flood Offers Little Solace to Active Managers
Katie Greifeld – Bloomberg
At first blush, a record $100 billion flood into actively managed exchange-traded funds this year raises a tantalizing prospect: A revival of stockpicking even as only Big Tech names outperform the market. Yet, a look under the hood of popular ETFs shows the boom is almost entirely taking place in passive-looking trades.
Active strategies have attracted nearly 25% of the $423 billion that’s flowed to US ETFs so far in 2023 — a record share. Meanwhile, active ETFs are launching at a record pace, making up 96% of October’s new debuts as issuers race to stake claim to a quickly growing corner of the $7.5 trillion industry, Bloomberg Intelligence data show.

Bloomberg Surveillance: ‘Enormous Volatility’ in the Bond Market
Bloomberg (Audio)
Mohamed El-Erian, Bloomberg Opinion Columnist, guests hosts the show and says the ‘enormous volatility’ in the bond market needs to be corrected in order to restore the Fed’s credibility. Stephanie Kelton, Stony Brook University Professor of Public Policy & Economics, says the Fed has effectively put fiscal policy on autopilot.

Hedge fund Qube takes GBP670mn short bet against HSBC; London-based firm’s position is one of biggest shorts against a big four UK bank on record
Costas Mourselas and Stephen Morris – Financial Times
London-based hedge fund Qube Research & Technologies has taken a GBP670mn bet against HSBC shares, in one of the biggest short positions on a big four UK bank recorded by regulators. The position, which equates to 0.57 per cent of HSBC’s market capitalisation, comes after a strong run for the bank’s shares, which have gained about 18 per cent so far this year. The position was taken on Tuesday, according to data reported to the Financial Conduct Authority.


Lots of VIX Puts Trading
Cboe (Video)
In #Vol411, Dan Deming @djd551 updates us on $VIX futures term structure, activity in the roll market and large trades in $VIX #options.


Zero-Day is Here to Stay: A 0DTE Breakdown With Cboe; The ODTE is incredibly close to a one-to-one put/call ratio
Patrick Martin – Scaheffer’s Investment Research (Audio)
The following is an excerpt from our latest episode of our Schaeffer’s Market Mashup podcast, featuring an insightful conversation with Cboe Global Markets’ Henry Schwartz. Henry unpacks everything you ever wanted to know about zero day to expiration options, or 0DTE, a strategy that is taking the industry by storm.

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