How Robinhood Cashes In on the Options Boom

Nov 1, 2021

Observations & Insight

The OCC and the U.S. options exchanges are making a splash this morning with a new streamlined options disclosure document for investors.


U.S. Growth Slows, But Tesla Options Rev Up; Cboe Goes Nanos For Retail; John’s Take Previews Expo; Strategizing with Butterfly Spreads – The Spread – October 29, 2021

– The U.S. economy sputtered to a 2% growth rate in Q3, but Tesla traders are unfazed; Cboe expands S&P 500 Index options offerings for retail with smaller options; ethereum gets a boost from new ETF expectations;

– John’s Take previews next week’s in-person return of FIA Expo;

– Catching up with long butterfly spreads in the Term of the Week with Jermal Chandler.

Watch the video »

Lead Stories

How Robinhood Cashes In on the Options Boom; Brokers can profit more from options than stocks, thanks to payment for order flow
Alexander Osipovich and Gunjan Banerji – WSJ
High-speed trading firms are paying brokers billions of dollars a year to execute options orders, leading them to promote the risky trades whose popularity has boomed among small investors. The practice, called payment for order flow, has made options a cash cow for brokerages such as Robinhood Markets Inc. HOOD -1.41% and TD Ameritrade. They can make twice as much or more from selling customers’ options orders as they do from selling order flow for stocks.

Dan Loeb Wants a Clean Shell and a Dirty Shell; Also billionaire tax, Twitter pump-and-dumps and nano options.
Matt Levine – Bloomberg
We talked yesterday about the somewhat strange possibility that public investors might be too focused on the long term. At a conference in Saudi Arabia, Blackstone Group’s Steve Schwarzman and BlackRock Inc.’s Larry Fink both suggested that oil prices are high because investors have become so jazzed about funding a future transition to green energy that they are no longer willing to fund oil drilling. I wrote:

Trading Technologies to be acquired by 7RIDGE; Enables continued expansion of its industry-leading technology platform to become the operating system of capital markets, preserving TT’s independence
Trading Technologies International, Inc.
Trading Technologies International, Inc., (TT), a global provider of high-performance professional trading software, infrastructure and data solutions, today announced that the company has agreed to be acquired by 7RIDGE, a specialized growth equity firm invested in transformative technologies. 7RIDGE will fuel Trading Technologies’ organic growth and enable the firm to make targeted strategic acquisitions in the future. Cboe Global Markets, Inc. (Cboe: CBOE) and Singapore Exchange (SGX), who are among the limited partners of the fund managed by 7RIDGE, have voiced their support of the transaction. Terms of the transaction, expected to close before year-end subject to regulatory approvals, were not disclosed.

Cboe Global Markets to Invest in Acquisition of Trading Technologies
Cboe planning to support continued development and expansion of the Trading Technologies platform globally; Cboe backs Trading Technologies’ vision of delivering a seamless trading, connectivity and data network powered by cutting edge technology to the global trading community; Cboe to be limited partner in acquisition, Cboe’s investment not material from its financial perspective
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, announced it has entered into an agreement as a limited partner to invest in the planned acquisition of Trading Technologies International, Inc. (TT), a global provider of next-generation professional trading software, connectivity and data solutions.

Biggest derivative exchanges back ex-Deutsche Börse chief’s fintech buyout
Philip Stafford – Financial Times
Two of the world’s biggest derivatives exchanges have backed a private equity buyout of US fintech group Trading Technologies by Carsten Kengeter, the former Deutsche Börse chief, in a deal that resolves the future of a critical software supplier to the global futures market.
Singapore Exchange (SGX) and CBOE Global Markets are among the limited partners that will invest in 7Ridge, a London private equity fund owned and run by Kengeter, that will buy Trading Technologies.
The deal announced late on Sunday values TT at slightly less than $500m, according to a person involved in the talks.

Maturing Bitcoin ($BTC USD) Means Rallies With Less Volatility
Crystal Kim – Bloomberg
Volatility has always been a defining characteristic of Bitcoin, with price swings usually increasing when new highs are reached. Now it appears the gyrations are diminishing if you take a longer view, which Bloomberg Intelligence commodity strategist Mike McGlone attributes to a natural maturation and greater institutional adoption, including last month’s U.S. launch of the first Bitcoin futures exchange-traded funds. During the largest cryptocurrency’s recent rise to an all-time high of almost $67,000, volatility measured over a 260-day period dropped to around 66, levels unseen since May, when Bitcoin dipped under $40,000.

Hedge funds put brakes on oil buying as economy concerns grow
John Kemp – Reuters
Hedge funds remain bullish on the outlook for oil but inflows of new money have dried up over the last month as prices have hit multi-year highs and global inflation concerns have grown.
In the six most important petroleum-related futures and options contracts, hedge funds and other money managers held a net long position equivalent to 847 million barrels on Oct. 26, exactly the same as Sept. 28.


Crypto exchange Binance halts withdrawals for two hours due to a database glitch
Harry Robertson – Markets Insider
Binance, the biggest crypto exchange in the world, halted withdrawals for just under two hours on Monday due to a glitch in its database system.
The company said it had temporarily disabled all crypto withdrawals in a tweet posted at around 7.35 a.m. ET on Monday.
It then claimed to have restarted withdrawals, only to quickly say they were disabled again.

FTSE Russell considers revamping China index after launch of Hong Kong rival
Mercedes Ruehl and Hudson Lockett – Financial Times
FTSE Russell is considering large -scale changes to the index underpinning a widely used China futures contract in Singapore, including potentially doubling the benchmark’s constituents, after Hong Kong’s stock exchange broke its rival’s monopoly on the highly popular trade.
Arne Staal, chief executive of FTSE Russell, said the company may tweak its FTSE China A50 index — a critical tool for international traders seeking to hedge their exposure to Chinese shares — in response to investor feedback.

SGX sees opportunities in next-generation connectivity solutions that enhance access into derivative markets
Invests approximately US$200 million as one of the Limited Partners in a closed-end fund managed by 7RIDGE, that is acquiring global professional trading software provider Trading Technologies
Trading Technologies expected to accelerate plans to provide seamless and efficient access to the world’s major international exchanges and liquidity venues
Singapore Exchange (SGX), Asia’s leading and most liquid international derivatives exchange, continues to expand its network of global partnerships with a strategic investment that seeks to strengthen investors’ participation in the derivatives marketplace across major exchanges globally.
SGX will be investing approximately US$200 million as a Limited Partner (LP) in a private equity fund managed by 7RIDGE, a specialised growth equity firm invested in transformative technologies.


Join FIA in Chicago for Expo
The FIA Futures & Options Expo is being held this week at the Hilton Chicago from Tuesday, Nov. 2 to Thursday, Nov. 4. Registration opens at 4:00 p.m. CDT on Tuesday, followed by a welcome happy hour at 6:00 p.m. CDT. The panels and speakers take place on Wednesday and Thursday.


A former Goldman Sachs boss says millennials were right to splurge their stimulus checks on crypto and meme stocks, and to stick it to Wall Street
Shalini Nagarajan – Markets Insider
Raoul Pal, a former Goldman Sachs hedge fund manager and the current CEO of Real Vision TV, defended the millennial investors who have piled into cryptocurrencies and meme stocks in defiance of conventional investing strategies.
In a Twitter thread on Sunday, Pal laid out that factors like “debts, no savings, no hope from the grind” have made this new generation of investors feel hopeless and skeptical of traditional investing.

Smart beta fails to match returns of bullish tech equities
Steve Johnson – Financial Times
The “smart” in smart beta is supposed to refer to a more intelligent way of investing in markets. But an objective observer might assume it refers to the fact that the concept’s adherents are smarting from the pain of yet another beating at the hands of Mr Market.
Smart beta, also known as factor investing, is based on evidence that, historically, portfolios skewed towards certain stockpicking factors — such as value, quality, momentum, small size and low volatility — have outperformed the market over the economic cycle.

‘Buy the haystack’ approach still hard to beat
Dave Baxter – Financial Times
Vanguard founder Jack Bogle may have recommended that we “buy the haystack”, by holding a passive fund tracking a major stock market index. But some investors in exchange traded funds prefer a more targeted approach.
And, smart beta — which involves tracking indices built around a metric other than a company’s market capitalisation — can offer them a variety of options. From ETFs that buy companies with high dividend yields to those targeting a specific investment factor, such as value or quality, there are many ways to seek an edge.

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