Investor pockets $13 million on one trade by betting big against the S&P 500 right before Monday’s steep drop

Dec 5, 2019

Lead Stories

Investor pockets $13 million on one trade by betting big against the S&P 500 right before Monday’s steep drop
Shawn Langlois – MarketWatch
It may have started out like a year-end hedge, as Trade Alert’s Henry Schwartz described it, but a day later and it’s already delivered a tidy profit.
An unidentified investor early Monday paid some $49 million to buy 23,000 January put options at the 2,980 level on the S&P 500 SPX, Schwartz told MarketWatch on Wednesday. Put options like these are typically used as protection against declines, as they give the right to sell the value of an underlying index at a fixed level in the future.
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Wall Street’s high-stake bets on calm less risky than they seem
April Joyner and Saqib Iqbal Ahmed – Reuters
At a glance, a near-record accumulation of speculative bets on market tranquility looks like it couldn’t have come at a worse time.
Elevated net short positions in Cboe Volatility Index .VIX futures are reminiscent of a similar spike in 2017, when prolonged calm in U.S. stocks prompted a rush into short-volatility exchange-traded products. That episode ended with billions of dollars in losses in early 2018 when a surge in volatility caught investors unprepared.
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Traders Eye Long-Term Hedges on the S&P 500
Gunjan Banerji – WSJ
Market volatility recently receded to the lowest level in months, but traders have picked up contracts that would pay out if stocks fall over the next year. They are driving up the cost of hedges on the S&P 500, especially for contracts expiring one year out. An options measure called skew, which gauges how expensive it is to protect stock portfolios over the next 12 months, has been near a record high, according to Credit Suisse Group AG .
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U.K.’s Brexit Sequel Won’t End Uncertainty for Investors
Bloomberg
We have a week left until Britain decides. Or at least, that is when the U.K. will hold a general election. Painful recent experience shows that when Britain appears to make a decision, as with the 2016 referendum on leaving the European Union, it doesn’t always act on it. So, what is the likely outcome, and what will this portend for Brexit, the issue that matters most for Britain and the world?
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Technology

Eventus Systems selects Itiviti’s Managed FIX Service for drop copy consolidation
Itiviti blog
New York, December 5, 2019 – Itiviti, a leading technology and service provider to financial institutions worldwide, today announced that Eventus Systems, a multi-award winning global trade surveillance and market risk platform provider, has selected Itiviti’s Managed FIX Service to consolidate drop copies from market centers.
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Strategy

Using Options to Gauge Future Volatility
Scott Nations – Nasdaq
The prices of options on the Nasdaq-100 index (ticker NDX) express expectations for movement over time – otherwise called volatility. The higher NDX option prices are the more future volatility option buyers are expecting – or fearful of and trying to hedge against. If NDX option price are lower then the market expects less future volatility.
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BANK OF AMERICA: These are the 5 key themes to finding the right stocks in 2020, from buying up value to looking outside the US
Ben Winck – Markets Insider
Bank of America Merrill Lynch analysts expect the S&P 500 index to jump 6% in 2020, and a recent note highlighted how investors can pick the best stocks heading into the new year.
The critical 2020 event will be the US presidential election, but other factors will spur rotations in global equities markets, the analysts wrote. The next year will follow a jam-packed 2019, as markets surged from January lows despite trade war escalation, flashing recession warnings, the US House of Representatives impeachment inquiry, and slowing economic growth around the world.
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****JB: Not strictly options but some interesting things to think about.

Events

CAIA Chicago Options for Risk Management and Buffered Protection in Times of Volatile Markets
CAIA Association
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Miscellaneous

Ranking of Select US Option Market Makers
Alphacution blog
“The book of nature is written in the language of mathematics.” – Galileo Galilei As we prepare to turn the page on a new year, and consider what we may want to accomplish during that year, derivatives are on the priority list.
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Don’t fall for these 10 financial scams
Claer Barrett – Financial Times
Plenty of unscrupulous people have tried to trick me into parting with cash over the years. So far, none have succeeded. A survey this week could possibly reveal why: it turns out “nice people” are far more likely to fall for financial scams than misanthropes like me.
I always assume that anyone cold calling my landline is a con artist; that any unexpected text or email has been sent with criminal intent; and that any investment with a “guaranteed return” is a guaranteed way of losing money.
/jlne.ws/2sOFdHR

Two-thirds of Americans don’t feel the benefits of Wall St rally
Lauren Fedor and Billy Ehrenberg-Shannon – Financial Times
Nearly two-thirds of Americans say this year’s record-setting Wall Street rally has had little or no impact on their personal finances, calling into question whether one of the strongest bull markets in a decade will boost Donald Trump’s re-election chances.
A poll of likely voters for the Financial Times and the Peter G Peterson Foundation found 61 per cent of Americans said stock market movements had little or no effect on their financial wellbeing. Thirty-nine per cent said stock market performance had a “very strong” or “somewhat strong” impact.
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