JLN Options: Bond Traders Hedge Prospect That This May Be Fed’s Final Hike; Bitcoin’s Weekly Options Trading Volume Rises to Highest Since FTX’s Meltdown

Jan 24, 2023

 

Lead Stories

Bond Traders Hedge Prospect That This May Be Fed’s Final Hike; Fed swaps price in chance of a March pause after 25bp Feb move; Traders wade into SOFR options to hedge dovish Fed scenarios
Edward Bolingbroke and Michael Mackenzie – Bloomberg
With the Federal Reserve’s Feb. 1 interest-rate decision a week away, traders in the options market are contemplating a scenario in which the rate hike it’s expected to deliver ends up being the last one of the tightening cycle. Ahead of next week’s policy meeting, activity in options tied to the Secured Overnight Financing Rate has mostly been geared toward hedging against dovish outcomes, as well as outright bets that stand to benefit if investors scale back expectations for additional Fed tightening in coming months. Already, about half a percentage point of rate cuts are priced in for the second half of the year.
/jlne.ws/3WuHikk

Bitcoin’s Weekly Options Trading Volume Rises to Highest Since FTX’s Meltdown
Omkar Godbole – CoinDesk
The crypto options market is recovering from the hangover of crypto exchange FTX’s collapse that left several market makers and trading firms reeling. The total volume of bitcoin options on Deribit rose to $4.25 billion last week, the highest since Sam Bankman Fried’s FTX exchange, formerly the third largest in the world, went bust in the second week of November. That’s a 375% rise from the low of $895 million registered in the final week of December, according to data source provider Amberdata. Deribit is the world’s largest crypto options exchange, accounting for nearly 90% of the global trading volume and open interest. The impressive recovery in volume has mainly been driven by an uptick in demand for call options or bullish bets offering protection against price rallies.
/jlne.ws/3Yc9dHd

British authorities split on banning sale of crypto investment products
David Attlee – Cointelegraph
The policy decision-makers in the United Kingdom are divided on whether the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs) tied with cryptocurrencies should be prohibited when it comes to retail investors. The Regulatory Policy Committee believes the measure, adopted in 2021, is unjustified under the current circumstances.
/jlne.ws/3ZYE8Z6

Goldman Sachs Launches Defensive Equity ETF
James Comtois – VettaFi
Goldman Sachs Asset Management has converted its defensive equity strategy into the Goldman Sachs Defensive Equity ETF (NYSE Arca: GDEF) in its first mutual fund to ETF conversion. The investment strategy and portfolio management of the ETF will be consistent with that of the mutual fund. GDEF seeks long-term growth of capital with lower volatility than equity markets. Per its summary prospectus, it invests in a diversified portfolio of U.S. large-cap equity investments within the range of the market cap of the S&P 500 at the time of investment and other instruments with similar economic exposures. When selecting investments, GDEF uses quantitative techniques in conjunction with a qualitative overlay.
/jlne.ws/3WBWgoP

NYSE Investigates Technical Issue That Caused Wild Market Open
Matt Turner and Katherine Doherty – Bloomberg
The New York Stock Exchange is probing what caused wild price swings and trading halts when the market opened on Tuesday as shares for dozens of the biggest US companies suddenly plunged or spiked.
A “technical issue” that the exchange didn’t immediately identify resulted in some gyrations that spanned almost 25 percentage points between the high and low in a matter of minutes. Banks, retailers and industrial companies were among those affected, including Wells Fargo & Co., McDonald’s Corp., Walmart Inc. and Morgan Stanley.
/jlne.ws/3JcnSO9

State Street Expects High Market Volatility to Continue
Bloomberg TV
Olivia Engel, chief investment officer of active quantitative equity at State Street Global Advisors, discusses the outlook for stocks and the opportunities she sees. She speaks with Shery Ahn and Paul Allen on “Bloomberg Daybreak: Australia.”
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Exchanges

Leading cryptocurrency options exchange Deribit selects Eventus for trade surveillance platform
Eventus via PR Newswire
Eventus, a leading global provider of multi-asset class trade surveillance and market risk solutions, announced today that cryptocurrency derivatives exchange Deribit has selected the firm’s Validus platform to provide market abuse monitoring on the exchange.
Headquartered in Panama City, Panama, Deribit is the world’s largest cryptocurrency options exchange by volume and open interest, with approximately 90% market share in Bitcoin and Ether options. The exchange also offers select futures on cryptocurrencies.
/jlne.ws/3wsTN5u

NYSE says all systems operational after session kicks off with numerous trading halts
William Watts – MarketWatch
The New York Stock Exchange, in a trading status update, said all systems were operational at 9:48 a.m. Eastern, after an unusually large number of trading halts made for a rocky start to the Tuesday trading session. Trading halts included shares of Wells Fargo, 3M and McDonald’s.
/jlne.ws/3JexAzK

Is the LME’s Role as the Go-to-Price Point for Nickel Over?
Stuart Burns – MetalMiner
Doomsters have predicted the end of the LME before. Still, after 146 years and counting, the LME is still with us and the go-to nickel price point. However, volumes have tanked since the LME nickel debacle in March of 2022. In fact, the problems no longer relate just to nickel, but the entire non-ferrous metals spectrum. The suspension of LME nickel trading and the decision to cancel trades remains the catalyst. According to Reuters, volumes continue to fall every month year-over-year. Core activity on the LME contracted by 8.3% over the course of 2022. Meanwhile, the 127 million lots traded represents the lowest turnover since 2010.
/jlne.ws/3kI0DkI

Equity Trader Alert #2023 – 4
Nasdaq Introduces new Contra Midpoint Only (CMO) order type
Subject to SEC approval, on April 3, 2023, Nasdaq will be introducing the Contra Midpoint Only (CMO).
The system will execute a resting CMO Order against an incoming Order, unless the incoming Order is priced through the price of the CMO and one or more of the following conditions apply, which the Exchange observes are indicative of a pending price shift in favor of the CMO user:
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Strategy

Podcast: Zetocha on mini-futures (not those) and illiquid options
Risk.net
Valer Zetocha’s job as head of quantitative services for equity and foreign exchange at Julius Baer occasionally takes him to some of the more remote corners of the market. Most recently, he was asked to devise a pricing methodology for so-called mini-futures. While most will be familiar with the popular e-mini futures listed by CME, mini-futures are a type of leveraged derivative, with an embedded barrier that effectively works like a stop loss mechanism. They are mostly traded in Germany, as well as Switzerland.
/jlne.ws/3kDtBCn

VXX And SPY: A Frightening Lull In VIX And How To Play It
Vera Glebova – Seeking Alpha
The situation looks much worse than it was back at the beginning of 2022, but VIX stays in the same place. S&P 500 Index looks overvalued at this point since there are lots of short-term risks. The Fed’s dovishness thesis is not yet something we can count on. VXX doesn’t provide any special opportunity, shorting SPY is a safer option.
/jlne.ws/3HuGS9k

Miscellaneous

Amberdata’s BTC (Bitcoin) Options Report Finds Ethereum Options Likely to be a Big Driver of Volatility Trading in 2023 and Beyond
PR Newswire
Amberdata, the leader in digital asset data and analytics for institutional customers, releases the most comprehensive research on BTC options by the leaders in options trading. The report encompasses four years of BTC options market data, focusing on Deribit as the leading options exchange, leveraging Amberdata’s analytics. While the report focuses on finding profits in BTC volatility, it also uncovers some interesting ETH trends.
/jlne.ws/40cLhVZ

ICE to Start Rival Gas Market in London to Sidestep EU Price Cap

ICE to Start Rival Gas Market in London to Sidestep EU Price Cap

First Read Hits & Takes John Lothian & JLN Staff Thank you to all who replied to my request to help one of my Eagle Scouts who was recently laid off on the West Coast and is looking for new opportunities in the climate tech and sustainability space. You are...

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