Investors Are Counting on Earnings to Rebound in 2020; Oil price slides as hedge funds’ buying fades

Jan 13, 2020

Observations & Insight

…in with the new

This week on The Spread – the OCC and CME report cause to celebrate, bitcoin options products abound, and the options markets react to retaliation from Iran.

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Lead Stories

Investors Are Counting on Earnings to Rebound in 2020
Akane Otani – WSJ
Money managers aren’t expecting much when U.S. companies report their latest quarterly results over the next several weeks.
But for the bull market to continue its more than decadelong ascent, they are leaning on one crucial assumption: that corporate earnings growth will pick up over the next couple of quarters from its current near-zero rate.

Oil price slides as hedge funds’ buying fades
John Kemp – Reuters
Despite the increase in tensions across the Middle East after the killing of an Iranian general by a U.S. air strike, hedge fund managers added only modestly to their bullish position in petroleum last week.

Funds’ CBOT views largely unaffected by USDA data dump
Karen Braun – Reuters
Speculators did not significantly alter their views toward Chicago-traded grains and oilseeds in the days before the USDA data storm last Friday, and the numbers issued by the U.S. agency did not seem to give them much pause either.

CME Bitcoin Options Launch Has ‘High Anticipation,’ JPMorgan Says
Bloomberg (VIDEO)
JPMorgan Chase & Co. claimed in a Jan. 10 note that institutional interest in Bitcoin-related contracts appears to be building ahead of the launch of CME Group Inc. options. Bloomberg’s Sonali Basak reports on “Bloomberg Daybreak: Americas.”

The First Week of 2020: How U.S. Markets Started the New Year
Cboe blog
The 2010s experienced the longest U.S. bull market ever and was also the first 10-year stretch in nearly 170 years that didn’t experience a U.S. recession. U.S. stocks closed out 2019 with a 190 percent gain, and according to The New York Times, in 2019, you “couldn’t lose money in the market if you tried.” So, how did the first week of 2020 fare in comparison? Are we heading for another historic year or is there change in the air? Here are the big market-moving headlines of the week.

Exchanges and Clearing

Binance-backed derivatives exchange FTX launches bitcoin options
Yogita Khatri – The Block
Cryptocurrency derivatives exchange FTX, in which Binance acquired an equity stake recently, has launched bitcoin options. The options, currently unavailable to U.S. users, went live on Sunday, said FTX, adding that some features such as limit order are yet to be implemented. FTX’s bitcoin options are cash-settled to U.S. dollars (USD), and like its futures, these can be traded on margin. Sam Bankman-Fried, founder and CEO of FTX, tweeted that the options hit $1 million of volume within two hours of its launch, while in the first 12 hours, it traded about 2,000 contracts.

Regulation & Enforcement

SEC Proposes Amendments to Governance of Market Data Plans
Steven Lofchie – TABB Forum
The SEC is seeking to improve governance of NMS plans over public consolidated equity market data and trade and quote data. But a new market system is not going to change the reality that the exchanges and the broker-dealers have interests that are fundamentally averse to one another.


Can RFQ Quench the Buy Side’s Thirst for Options Liquidity?
Russell Rhoads – TABB Group
The equity options market in the US is fragmented across 16 exchanges, making sourcing liquidity a challenge for buy-side traders, who traditionally have been limited to relying on brokers or algorithms to execute trades. But Tradeweb and other firms are introducing new hybrid market models that combine the best of open outcry and electronic trading. TABB Group head of derivatives research Russell Rhoads examines the challenges of seeking out options liquidity and the benefits of Tradeweb’s request-for-quote platform.


‘This is nuts’ — one strategist explains why he just reduced risk by selling Apple, Microsoft and more
Shawn Langlois – MarketWatch
What happens in the stock market when price acceleration goes vertical and investor complacency reaches extreme levels? Typically, bad things, according to Lance Roberts, chief investment strategist at RIA Advisors. And we’re there now. “This is nuts,” his team said Friday when trying to wrap their brains around what’s next. This, Roberts explains, had him reassessing the overall portfolio risk for his clients in the face of a bull market that just keeps chugging along. So, what is nuts, exactly? Well, as Roberts sees it, the “overbought, extended and complacent market” is heading toward a day of reckoning, and he used a tandem of charts to illustrate the excess.

Increased Swaption Activity May Present Financial Reporting Challenges for Oil & Gas Companies
JD Supra
Lower natural gas prices are causing E&P companies to get creative with their hedging strategies to lock in near-term cash flows above the dismal levels the market is currently offering. When hedging with options, it’s not uncommon for oil and gas producers to sell options and roll the premium value of the sold option into another hedging instrument.


The Perfect Way to Play Geopolitical Risk: Just Don’t
Mike Bird – WSJ
Geopolitical risk has been on the tips of many tongues in financial markets in recent years, but selloffs in equity markets associated with moments of high stress are now notorious for the rapidity with which they reverse.
The U.S. airstrike against Maj. Gen. Qassem Soleimani and the retaliatory Iranian missile attacks on Iraqi bases containing U.S. troops now count among the dozens of short-lived geopolitical market panics after which rallies in risk assets have resumed within days, or even hours.

Symbols with High Options Volume Today vs Normal
ORATS blog
ORATS computes today’s total options volume in all tickers with US equity options. The total options volume for each symbol is compared to its average volume for the past 20 days. The tickers with the highest ratio of options volume today to the 20 day average are presented below. PAGP EWY MET KBH SPCE LBTYK RUN PDD AGN and C have unusual options volume today.

*****Bear in mind that this was published January 10th, so by “today’s options volume” they actually mean “Friday’s options volume.”~MR

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