Large investor lays out $31 million options hedge against U.S. stock market drop; The fear of missing out will punish you once the stock market starts to make a ‘blow-off top’

Dec 3, 2019

Observations & Insight

OCC Monthly Volume by Exchange – November 2019

Lead Stories

Large investor lays out $31 million options hedge against U.S. stock market drop
Saqib Iqbal Ahmed – Reuters
Monday’s slide in U.S. stocks prompted at least one large investors to load up big on stock options that would guard against a sharper hit to stocks into the start of next year.
Shortly after the market opened on Monday, an investor paid about $31 million to buy 16,000 of January put options at the 2,980 level on the S&P 500 Index .SPX, according data from options analytics firm Trade Alert.

The fear of missing out will punish you once the stock market starts to make a ‘blow-off top’
Michael Sincere – MarketWatch
A “blow-off top,” a fascinating financial phenomenon, occurs when an individual stock or broad-market index spurts higher accompanied by increased volatility and volume, and then makes a sharp fall. Although blow-off tops occur frequently with individual stocks, they are relatively rare for indexes such as the Dow Jones Industrial Average DJIA and the S&P 500 SPX.
The rapid rise is so extreme, it will catch most investors off-guard. It’s common for latecomers to jump in with buy orders at the top. Wise investors who recognize these exceptional moves will not celebrate, but be cautious.

Exchanges and Clearing

OCC November Cleared Volume Down 9.6 Percent
OCC, the world’s largest equity derivatives clearing organization, announced today that total cleared contract volume in November reached 395,903,344 contracts, a 9.6 percent decrease compared to last November. OCC’s year-to-date average daily cleared contract volume is 19,734,063 down 4.7 percent compared to 2018’s record-breaking pace.
Options: Overall exchange-listed options volume reached 390,695,941 contracts in November, down 9.1 percent from 429,670,901 in 2018. Equity options volume reached a total of 357,882,106 contracts, a 6.8 percent decrease from November 2018. This includes cleared ETF options volume of 123,874,652 contracts last month, a 30.8 percent decrease, compared to the November 2018 volume of 179,002,180 contracts. Index options volume was down 28.4 percent with 32,813,835 contracts in November with a year to date average daily volume of 1,906,109.

Cboe Expands MSCI Index Product Suite with New Options Strategy Benchmarks on MSCI EAFE and MSCI Emerging Markets Indices
Cboe (press release)
Cboe’s benchmark indices are designed to help investors gauge the performance of options-based investment strategies to highlight the use of options to help manage risk, reduce volatility and enhance yield The new Cboe-MSCI BuyWrite and PutWrite indices are created for investors looking to replicate the same strategy on global equities

CME Group Averaged 18.2 Million Contracts Per Day in November 2019
CME Group press release
CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 18.2 million contracts during November 2019. Open interest (OI) at the end of November was 131 million contracts. Interest Rate volume averaged 10.3 million contracts per day in November 2019.

January 2020 Brazilian Real/US Dollar Futures and Options Contracts Terminate Trading Monday, December 30, 2019 at 9:15 AM CT
CME Group
The January 2020 Brazilian Real/US Dollar (“BRL/USD”) futures and options termination of trading day is Monday, December 30, 2019 at 9:15 a.m. Central Time (“CT”). The Central Bank of Brazil (“Banco Central do Brasil”) has confirmed that the end-of month spot “PTAX Rate” that it will publish on Monday, December 30, 2019, will be the same rate as determined and published on Tuesday, December 31, 2019. Chicago Mercantile Exchange, Inc. (“CME” or “Exchange”) utilizes the reciprocal of the end-of-month “PTAX Rate” to cash settle expiring BRL/USD futures and options contracts.

New Product Summary: Initial Listing of the Options on Bitcoin Futures Contract – Effective Date: January 13, 2020
CME Group

Eurex Announces New Liquidity Provider Schema for ETF Options
John D’Antona – Trader’s Magazine
1. Introduction The Management Board of Eurex Deutschland and the Executive Board of Eurex Frankfurt AG took the following decisions with effect from 1 January 2020: Introduction of a new, combined Liquidity Provider (LP) scheme for ETF options Discontinuation of four ETF-related LP schemes Production start: 1 January 2020 This circular contains information on the introduction of the new LP scheme and the respective Product Specific Supplement as attachment, as well as the list of schemes to be discontinued.

Regulation & Enforcement

FIA submits response to public consultation on FRANDT under EMIR
FIA responded today to the ESMA consultation paper on Draft technical advice on commercial terms for providing clearing services under EMIR (FRANDT). FIA and its members are fully supportive of the policy objective of FRANDT in addressing the clearing access difficulties faced by some counterparties.


Trading Technologies Launches Colocated Access to Thailand Futures Exchange
John D’Antona – Trader’s Magazine
CHICAGO and BANGKOK – Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, infrastructure and data solutions, and the Thailand Futures Exchange (TFEX) announced the launch of colocated execution and client connectivity services to TFEX, connecting via the exchange’s proprietary EMAPI API from within TFEX’s SET Data Center in Bangkok.


Options Markets Are Keeping Calm About December Tariff Deadline
Joanna Ossinger and Stephen Spratt – Bloomberg
The underbelly of stock and bond markets is where investors would be busy prepping for an upcoming deadline in the U.S-China trade war. Right now they’re as cool as ice.
If those steely nerves persist, it suggests markets are betting that Dec. 15 will pass without fireworks, or that a repricing is nigh.

Funds sell CBOT soybeans at a record clip on evasive trade deal
Karen Braun – Reuters
Speculators are losing faith that a trade deal between the United States and China will be signed anytime soon, and that pessimism was reflected in their record selloff of Chicago-traded soybeans last week.
In the week ended Nov. 26, money managers sold a net 61,393 CBOT soybean futures and options contracts, according to data published late on Monday by the U.S. Commodity Futures Trading Commission.


A bank vault exclusively for billionaires is opening in London
Taylor Nicole Rogers – Business Insider
Some ultrawealthy people are moving their fortunes out of the stock market as recession fears mount — and a new billionaires-only bank vault is opening in London to accommodate their new investments.
Located in a mansion next to the Dorchester Hotel on London’s ritzy Park Lane, the bank will be home to the most expensive safety deposit boxes in the British capital when it opens next week, The Guardian’s Rupert Neate reported. The smallest boxes, just 2 inches tall, 6 inches wide, and 19 inches deep, will be rented for $776 (GBP600) annually, according to The Guardian. A box twice that size at department store Harrod’s, which is currently the most expensive place to store your valuables in London, goes for $601 (GBP465) a year, according to The Guardian.

****JB: Don’t bother approaching them for a safety deposit box unless you are a literal billionaire. Mere millionaires are not welcome. The article mentions some clients want to rent whole floors for $3.2 million annually to house their precious metals.

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