How a Niche Fund Became the Biggest Active ETF

May 8, 2024

Observations & Insight

Eurex, in partnership with FTSE Russell, is set to launch futures on the FTSE All-World Index on June 3. This addition enhances Eurex’s growing range of FTSE derivatives, providing investors with a broad product suite that includes FTSE 100 Index Futures and Options, Total Return Futures, Dividend Futures, FTSE Bitcoin Index Futures and Options, and FTSE EPRA Nareit index futures. The FTSE All-World Index, featuring around 4,000 mid-to-large cap stocks, offers extensive diversification options.


Lead Stories

How a Niche Fund Became the Biggest Active ETF; The J.P. Morgan Equity Premium Income ETF uses covered call options to help boost a yield of 6.7% while allowing investors benefit from rising stock prices—but it has limits.
Ian Salisbury – Barron’s
You might think the king of actively managed exchange-traded funds would follow a popular, big-tent strategy like buying growth stocks or Treasury bonds. In fact, the $33.8 billion J.P. Morgan Equity Premium Income ETF has grabbed more dollars than any other active ETF by plying a niche: selling covered-call options.

US Election Risks Are Starting to Show Up in Foreign Exchange Markets; Yuan’s 6-to-3-month volatility spread surges to record high; JPMorgan to maintain long dollar exposure through options
George Lei – Bloomberg
Currency markets have started pricing in elevated foreign exchange volatility around the US vote on Nov. 5, even with election day almost six months away. That concern is particularly pronounced in options betting on the Chinese offshore yuan, with the spread between six- and three-month implied volatility for the currency soaring for a second day. The spread rose to 1.20 percentage point on Tuesday, up from 0.73 percentage point on Friday, the biggest increase since 2011 when that information first became available, according to data compiled by Bloomberg.

The real reason why Wall Street’s ‘fear gauge’ seems so low right now
Joseph Adinolfi – MarketWatch
Last month’s stock-market selloff ended seemingly as quickly as it arrived. And as one might expect, a short-lived pop in Wall Street’s “fear gauge” quickly faded as well.
The swift decline in the Cboe Volatility Index VIX, better known as the Vix, has helped revive chatter on Wall Street that the volatility gauge is “broken.” Some critics have blamed the growing popularity of so-called zero-days-to-expiry, or ODTE, options. Others have blamed the rise of exchange-traded funds that regularly sell options as part of a strategy…

China rally hasn’t been chased by options traders, Bank of America says
Steve Goldstein – MarketWatch
The rally in Chinese stocks may have legs because options traders have yet to chase it, say analysts at Bank of America.
The Hang Seng index HK:HSI is up 24% from its January lows, including 7% in just the last month. A popular U.S.-listed ETF investing in Chinese tech stocks, the KraneShares CSI China Internet ETF KWEB, is up 30% from its January lows.

The meme stock surge doesn’t appear to be the ominous signal it has been
Jared Blikre – Yahoo Finance
Household names that captured investors’ imaginations in 2021 – like GameStop (GME) and AMC Entertainment (AMC) – are surging higher (and lower, in some cases). And while the sudden appearance of meme stock volatility was once a contrary, risk-off warning for stocks in years past, the 2024 surges appear to be signaling a healthy risk appetite for investments.

Cocoa Gains Almost 20% in Two Days as Severe Volatility Persists; Low liquidity leaves prices more vulnerable to big moves; Huge supply shortages have roiled the market this year
Celia Bergin – Bloomberg
Cocoa climbed in New York – adding to its biggest rally since 1999 – as volatility continues to grip the market beset by severe shortages. Futures rose as much as 5.4% on Wednesday and are on course for a two-day advance of more than 19%, reversing last week’s huge slump from a recent record high. Prices are being whipsawed after cocoa’s surge this year raised margin calls, which prompted traders to exit positions and drained liquidity.

Cocoa’s Dizzying Volatility Is Spilling Into the Coffee Market; Robusta’s market moves are drawing comparisons to cocoa; Marex says both commodities may have drawn big margin calls
Ilena Peng and Dayanne Sousa – Bloomberg
Cocoa and coffee have become intertwined this year, with extreme weather and shortages fueling rallies of both commodities that test the limits of traders. Just like cocoa, the coffee market is facing severe shortages. And, like cocoa, coffee production is concentrated in two countries. More importantly, many major traders deal in both commodities, so soaring cocoa prices are squeezing those market players for cash and forcing them out of coffee trading.


HKEX To Introduce Weekly Stock Options
Hong Kong Exchanges and Clearing Limited
HKEX to introduce weekly contracts on 10 selected single stock option classes by the end of 2024. Spot week and next week contracts will be offered in addition to the existing monthly contracts. HKEX’s Weekly Hang Seng Index Options are among the fastest growing derivatives products with its ADV quadrupled since 2019. Hong Kong Exchanges and Clearing Limited (HKEX) is today (Wednesday) pleased to announce plans to launch weekly single stock options for 10 Hong Kong-listed equities, the latest derivatives market enhancement that will give investors even more choice to manage risks and execute trading strategies.

BitMEX launches options trading, offers zero fees for all users
Anna Kharton –
BitMEX has launched options trading, developed in partnership with PowerTrade, a crypto options platform. The cryptocurrency platform, known for its high-leverage perpetual swaps, offers crypto options margined in Bitcoin (BTC), USDT, or USDC.

Miami International Holdings Reports Trading Results for April 2024; YTD Options and Equities Volumes Reach Record Levels while MGEX Futures Volume Jumps 41.5%
Miami International Holdings, Inc. (MIH), a technology-driven leader in building and operating regulated financial markets across multiple asset classes and geographies, today reported April 2024 trading results for its U.S. exchange subsidiaries – MIAX , MIAX Pearl and MIAX Emerald (together, the MIAX Exchange Group), and Minneapolis Grain Exchange (MGEX).

CME Group Reaches Multiple Records Across U.S. Crude Oil Futures
CME Group
CME Group, the world’s leading derivatives marketplace, today announced that trading in its U.S. Crude Grade futures, which are Argus-settled and trade as a differential to the global benchmark WTI Crude Oil futures, reached several records in April 2024:

Nodal Exchange achieves second-highest trading volume ever in both power and environmental markets in April
Nodal Exchange
Nodal Exchange today announced new records in power and environmental futures. In power, Nodal set a calendar month record for April with traded power futures volume of 345 million MWh, up 13% from 306 million MWh in April 2023. This is the second highest month ever for Nodal Exchange, only surpassed by the 379 million MWh in February 2024. Nodal continues to be the market leader in North American power futures with 55% share of open interest at the end of April with 1.374 billion MWh open interest representing $128 billion of notional value based on both sides.

SGX Group reports market statistics for April 2024
SGX Group
Broad-based growth in derivatives volumes across equities, FX and commodities; Singapore’s equities market outperforms most Southeast Asian peers. Singapore Exchange (SGX Group) today released its market statistics for April 2024. Derivatives volume across equities, foreign exchange (FX) and commodities rose 36% year-on-year (y-o-y) in April to 24.1 million contracts as trading activity grew, while derivatives daily average volume (DDAV) climbed 23% y-o-y to 1.2 million contracts. Securities daily average value (SDAV) gained 24% y-o-y to S$1.2 billion, outperforming most Southeast Asian markets.

Regulation & Enforcement

JPMorgan Limits Segantii Exposure Amid Insider-Trading Case
Gillian Tan and Bei Hu – Bloomberg
JPMorgan Chase & Co. is limiting dealings with Simon Sadler’s Segantii Capital Management Ltd., the Asian hedge fund giant charged with insider trading by authorities in Hong Kong, according to people familiar with the matter. The New York-based lender won’t engage with Segantii on new block trades and initial public offerings globally, said the people, who asked not to be identified discussing a private matter. The bank will also refrain from activities such as adding new positions with the hedge fund or providing it with more financing.

Korean Regulator Asks for Investigation Into Hedge Fund Regal
Youkyung Lee – Bloomberg
South Korea’s prosecutors were asked to conduct an investigation into hedge fund Regal Funds Management Pty for alleged capital markets rules violations, according to people with knowledge of the matter. The Securities and Futures Commission referred the matter to prosecutors in December, who haven’t closed the case, the people said, asking not to be identified discussing the probe.

Bill Hwang, Whose Firm Archegos Collapsed in 2021, Is About to Go on Trial; The hedge fund is accused of borrowing money from banks to buy stocks.
Matthew Goldstein – The New York Times
Three years ago, a multibillion-dollar investment firm called Archegos Capital Management blew up with little warning, causing big losses for some Wall Street banks and leading to federal criminal charges against the firm’s founder, Bill Hwang. On Wednesday, Mr. Hwang, 60, who was charged with 11 counts of securities fraud, wire fraud, conspiracy, racketeering and market manipulation, is set to go on trial in Manhattan federal court. If convicted, he could spend the rest of his life in prison.


Lowest Levels
Cboe (Videos)
In #Vol411, Tim Biggam @delta_desk discusses market updates as we near the end of earnings season, the $VIX Index put/call ratio so far today and more.


9 Rules for Trading Options in a Changing Market; When the market trend seems higher but is hostage to an event-heavy calendar, one- to two-week options expiration cycles are ideal—and eight other principles.
Steven M. Sears – Barron’s
As a strength and conditioning coach once said, you can never be better than the fundamentals. If your fundamental form is wrong, you’ll hurt yourself and limit your progress.
The market’s strength coach, Federal Reserve Chair Jerome Powell, recently assuaged concerns that strong economic data had ruled out 2024 rate cuts. Animal spirits are once more bullish, but the market mob is as erratic as ever—and that makes it tough to have strong convictions about what happens next.


Hedge Fund Tycoon Loses Ruling Over $40 Million WWII Shipwreck Treasure; Marshall’s firm had sought share of treasure found on seabed; Argentum and South Africa state have since reached settlement
Jonathan Browning – Bloomberg
One of Britain’s top hedge fund managers lost a legal fight over the salvage of $40 million of silver from the wreck of a ship sunk by a Japanese submarine in World War II. The UK’s Supreme Court on Wednesday dealt a blow to a company controlled by Paul Marshall, ruling that South Africa, the silver’s owner, wouldn’t need to get embroiled in a case because it enjoys state immunity.

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