Libor Proving Hard to Kill in $200 Trillion Derivatives Market; Hang Seng Indexes Under Pressure as Funds Avoid Chinese Stocks

Jan 11, 2021

$23,651/$300,000 (7.9%)
Matt Wolfe

Observations & Insight

The Spread: It can only go up from here

2020 was a lot of things, most of them pretty bad…but it was a banner year for options traders. And options exchanges!

Watch the video »

Lead Stories

Libor Proving Hard to Kill in $200 Trillion Derivatives Market
Alex Harris and William Shaw – Bloomberg
Shift away from swaps, futures tied to key rate is slow going; Some see significant gains for SOFR benchmark usage in 2021
It’s one of the most confounding questions facing regulators in the fight to phase out the London interbank offered rate. How do you wean everyone from asset managers and traders to corporate treasurers off derivatives that are so ubiquitous, they’ve become part of the fabric of the financial system? For the better part of three years, U.S. officials have been preaching patience. Libor-based interest-rate swaps, futures and options, among the most liquid markets in the world, would gradually give way to new securities tied to new benchmarks, they said, including the Secured Overnight Financing Rate, dollar Libor’s anointed successor.

Hang Seng Indexes Under Pressure as Funds Avoid Chinese Stocks
Sofia Horta e Costa – Bloomberg
Hong Kong’s index provider is facing increasing pressure to comply with a U.S. ban on investments in Chinese companies that populate its benchmarks. Hang Seng Indexes Co. was in the spotlight Monday after State Street Global Advisors Asia Ltd. said its $14 billion Tracker Fund won’t make any new investments in sanctioned securities. The exchange-traded product — the largest in Hong Kong — is popular among the city’s savers and is also the most actively traded in the secondary market. Its mandate is to mirror the performance of the Hang Seng Index.

‘Full-Blown Mania’: Stock Market Jackpot Bells Just Keep Ringing
Joanna Ossinger, Lu Wang, and Elena Popina – Bloomberg
Owning sound-alike stocks, lending for Bitcoin are paying out; Waves of bullish options buying is the ever-present backdrop
Like a slot machine paying off on every pull, the stock market’s most reliable bets lately have often been its riskiest. Go long a company that sounds like something Elon Musk mentioned in a tweet (but wasn’t)? Signal Advance Inc. just soared 12-fold. Lend money to a software maker to buy Bitcoin? A Microstrategy Inc. convertible bond is up 50% in four weeks (its option is in the money). Back up the truck on bullish options after the Nasdaq 100 doubled in 24 months? Wednesday was the fourth-busiest day ever for call trading in the U.S. (the other three were last year).

December trading volumes for Bitcoin futures and options surpassed the previous month’s all time highs
MK Manoylov – The Block
In 2020, December eclipsed November for all-time highs in bitcoin future and options trading volumes, according to data organized by The Block. Bitcoin futures trading volumes reached $1.06 trillion in December, increasing 21.6% from November. Binance had the most futures trading volume for bitcoin at 27.9%, followed by Huobi (22.8%) and OKEx (15.4%).

Hedge Funds Head for Cover as Dollar Rebound Gathers Momentum
Ruth Carson and Joanna Ossinger – Bloomberg
The dollar rebound is picking up pace, with signs that speculative traders are busy covering short positions after U.S. Treasury yields surged. The Bloomberg Dollar Spot Index surged Monday to touch the highest since Dec. 23. Traders are reporting strong demand from leveraged funds, with the greenback leading major currency advances. That adds to data released from the Commodity Futures Trading Commission that showed them trimming long positions on major currencies including the euro and the pound. “The dollar is so extremely oversold, over-hated, and over-shorted that it all but has to rally for a while at some point soon,” said Matt Maley, chief market strategist at Miller Tabak + Co. “The dollar is getting very ripe for a tradable bounce — one that will last at least several weeks and maybe even a couple of months.”

Wall St Week Ahead-As political risk fades, earnings may start to matter again
Saqib Iqbal Ahmed – Reuters
With uncertainties regarding U.S. elections fading, some investors expect company earnings and economic data to play a greater role in moving stock prices this year. For months, earnings and economic data have largely taken a backseat as investors grappled with two overarching uncertainties and their ultimate impact on financial markets: the changing political landscape in Washington and the coronavirus pandemic sweeping the globe. Options data showed that bets on large earnings-related stock moves were profitable only 24% of the time in the last earnings season, compared with a historical win rate of about 40%, according to options analytics firm ORATS.

Blacklisting of Chinese Stocks Prompts Banks to Delist Hundreds of Derivatives; Goldman Sachs, JPMorgan Chase, Morgan Stanley say warrants and callable bull/bear contracts will be suspended from trading Jan. 25
Chong Koh Ping – WSJ
Goldman Sachs GS -0.54% Group Inc., JPMorgan Chase JPM 0.11% & Co. and Morgan Stanley MS 0.41% moved to delist hundreds of derivatives traded in Hong Kong, following a U.S. government ban on American investment in companies considered to be helping China’s military.

Exchanges and Clearing

Bermuda Stock Exchange Reports Record-Breaking Success for 2020; Miami International Holdings completes acquisition of BSX, creating opportunity and promise for Bermuda’s domestic capital market
MIAX Options
The Bermuda Stock Exchange (the Exchange or BSX) today released results for the year ending 31 December 2020, continuing its ongoing history of both product and technological innovation. In making the year-end announcement, BSX President and Chief Executive Officer Greg Wojciechowski said, “It was an active and significant year for the BSX, which included its continued integration into Miami International Holdings, Inc.’s (MIH) group of securities exchanges. MIH obtained a controlling interest in the BSX in late 2019 and full ownership at the end of 2020. This acquisition will assist MIH in expanding its world-class technology, derivatives trading and regulatory expertise to address emerging markets, such as digital assets, and provide the BSX with additional support in the evolving global reinsurance risk market.”


TikTok and Discord Are the New Wall Street Trading Desks
Caitlin McCabe, Gunjan Banerji and Mischa Frankl-Duval – WSJ
A new army of social media-enabled day traders is helping push stocks to records and turning companies into market sensations. As trading by individual investors boomed during the coronavirus pandemic, so has the popularity of online communities where they gather. Platforms including TikTok, Twitter, YouTube, Reddit, Instagram, Facebook and messaging platform Discord have become the new Wall Street trading desks. Individual investors gather to talk about hot stocks like Tesla Inc., boast of gains and commiserate about losses. These investors do more than just talk, though. They piggyback on each others’ ideas and trades, helping fuel the momentum that has propelled some companies to triple-digit or bigger gains in 2020.


SPY ETF: Using Put Options For Protection
Gavin McMaster – Investors Business Daily
Options can be used to generate extra income like in last week’s Tesla bull put spread example. But they can also be used to protect a stock holding from a large drop in price. With the stock market looking extended here, it might be time to look at buying some protection on stocks that you don’t necessarily want to sell. A put option is a financial contract that gives the holder the right, but not the obligation, to sell a certain underlying asset at a given price (the strike price) on or before expiration. For this right, the buyer of the put option pays a premium to the option seller. Think of it like buying insurance against your house burning down. You, as the homeowner, pay the insurance premium. And the option seller is like the insurance company.

Will Earnings Matter Again? Reuters Speaks With Matt
ORATS blog
It was a tough 2020 for many things, owning straddles around earnings announcements included. According to ORATS earnings data, straddle owning last earnings season was especially tough. ORATS performs extensive studies of the implied earnings move from the options straddles versus the actual moves. Usually, as in the historical average of earnings moves below, the win rate for straddle holders is 40% and the return for options holders is slightly below break-even (100%), currently the last 12 quarters are at 96%, bottom right hand corner.


2020 Annual Trends in Futures and Options Trading
Description: This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Presenter: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
Time: Jan 27, 2021 10:30 AM in Eastern Time (US and Canada)


(Podcast) Volatility Views 429: Just Buy Tesla and Bitcoin
Volatility Views – Options Insider Network

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Pin It on Pinterest

Share This Story