Scott Eisner, Robert Schaffer
Observations & Insight
John Van Der Bleek – The Path to Electronic Trading
John Van Der Bleek got his start in the markets after working for a hospital part time with someone later hired at the Chicago Mercantile Exchange as an employment manager. He began as a price reporter at the CME, and the minute he saw the trading floor he knew it was where he wanted to be, and he gave up his aspirations for law school. After working for the CME, he tried his hand at trading there in the S&P pit with his own money. That did not work out as well as he had hoped.
Next week’s Cboe Options Institute webinar on trading strategies using mini index futures and options is apparently a hot ticket. Cboe’s Matt Moran says 350 people have already signed up for the February 10 event. Registration is open here. ~SC
Looking for a Correction? It Might Have Already Happened.
Jacob Sonenshine – Barron’s
When stocks look a little pricey, investors often wait for them to drop before buying more. That drop has likely already happened—and the best defense now may be offense.
The S&P 500 fell 3.7% between the closes of Jan. 25 and Jan. 29. Retail traders forced a handful of stocks exponentially higher, prompting short sellers to buy those shares back, which required that they sell out of long positions to raise the cash, thereby pressuring the broader market. The minute the short squeeze cooled, stocks popped, trading on fundamentals and sending the S&P 500 back to its pre-selloff level.
A historic decline in volatility sets the stock market up for more gains ahead, Fundstrat’s Tom Lee says
Matthew Fox – Markets Insider
The stock market’s fear gauge – or the Cboe Volatility index, also known as the VIX – has staged a historic decline over the past three days, falling a record 39%.
According to Fundstrat’s Tom Lee, that’s a signal that the stock market has more room to the upside over the next few months, according to a Wednesday note.
The volatility decline was likely sparked by hedge funds de-leveraging their portfolios following the epic short-squeeze rally in shares of GameStop last week.
Volatility storm gives way to inflation gale
Mike Dolan – Reuters
Whether it’s durable or not, investors are bracing for several months of inflation angst that challenge the structure of world market positioning far more than January’s amateur stock frenzy.
Amid hopes the worst of this latest pandemic wave has passed as vaccines roll out, market-based inflation expectations are creeping higher again. Some gauges from the swaps and index-linked bond market hit their highest in over two years in the United States this week and in more than 12 months in the euro zone.
Exchanges and Clearing
Cboe Global Markets Reports 2020 Fourth Quarter and Full Year Results
Cboe Global Markets, Inc. today reported financial results for the 2020 fourth quarter and full year. “I’m pleased to report that Cboe posted solid fourth quarter and strong full year 2020 results, including 10 percent net revenue growth and 11 percent adjusted EPS growth for the year, despite an unprecedented macro environment. We continued to execute on our ongoing strategy to leverage product innovation and superior technology, expand our customer base and diversify our business mix with recurring revenue,” said Edward T. Tilly, Cboe Global Markets Chairman, President and Chief Executive Officer. “We plan to continue to advance our strategy while leveraging our recent acquisitions to accelerate further growth. We are targeting mid-term organic net revenue growth of 4 to 6 percentage points and believe we can drive additional organic growth longer-term through our ongoing investment in attractive market opportunities. I am excited to build on the progress made by our team in 2020 to capitalize on our strategic opportunities in 2021 and beyond and deliver increased value to our customers and shareholders.”
Ion Group acquires Dash Financial in move to bolster options execution; The deal will allow Ion to pair Dash alongside Fidessa as it looks to “own the sell-side technology space.”
Rebecca Natale Anthony Malakian – WatersTechnology
WatersTechnology can reveal that a deal has been agreed in principle for Ion Group to buy Dash Financial from private-equity firm Flexpoint Ford. The purchase had been rumored about in recent days, as four individuals had told WT about the deal. A spokesperson has confirmed that the acquisition agreement was signed in December and is now awaiting approval from Finra. They add that the deal is expected to close in Q2, pending regulatory approval.
Robinhood wants the settlement system that underpins stock trading to be sped up, as it lifts its limits on GameStop and AMC transactions
Harry Robertson – Markets Insider
Day-trading app Robinhood is stepping up its calls for the settlement process that underpins stock transactions on Wall Street to be made instantaneous in the wake of the GameStop saga.
Robinhood argues that the current system – in which trades take 2 days to settle – was at the heart of the stock-trading chaos seen at the end of January, when the brokerage made amateur investors furious by limiting transactions in GameStop and other popular companies.
Wall Street firms paid almost $3bn last year for retail brokers’ trades
Philip Stafford, Joe Rennison, Madison Darbyshire and Patrick Temple-West – Financial Times
Wall Street trading firms paid almost $3bn to retail brokers such as Robinhood to handle their trades last year — a practice that is attracting rising scrutiny in Washington.
Monthly regulatory filings collated by Bloomberg show “payment for order flow” earned US brokers $2.9bn in 2020. TD Ameritrade generated fees of $1.1bn between its broker-dealer and clearing divisions, while rival Robinhood grew fastest, earning fees of almost $700m.
Miami International Holdings Reports January 2021 Trading Results, Market Share and Volume Records for MIAX Exchange Group
Miami International Holdings
MIAX Exchange Group’s equity options market share grew to 12.65% in January, led by MIAX Emerald, which increased by 26.9% compared to December and saw a peak market share of 5.94% on Jan. 27.
January 2021 monthly figures at Eurex
Notional outstanding volumes at Eurex grew 20% year-on-year in January – from 17,054 billion EUR in January 2020 to 20,390 billion EUR this year – while average daily cleared volumes grew by 4% across the same period. Eurex’s euro clearing market share in notional outstanding volume now stands at 20%. The number of traded financial derivatives contracts at Eurex shows a mixed picture in January, with volumes up for European interest rate derivatives, and down for European equity index and European equity derivatives, for a total reduction in volume of 11%. These figures, and others, are affected by the reduced number of trading days in January 2021 compared to January 2020 – 20 compared to 22.
Regulation & Enforcement
Yellen and Regulators Met Amid GameStop Frenzy to Discuss Market Volatility; The Treasury Secretary met with her fellow regulators to discuss whether markets need new attention after the rise of so-called “meme stocks.”
Jeanna Smialek and Deborah B. Solomon – NY Times
Treasury Secretary Janet L. Yellen met with fellow regulators on Thursday to discuss recent market volatility and few wild weeks on Wall Street, in which a crush of retail investors sent stocks soaring — in GameStop’s case, more than 1,700 percent — and then plunging back to earth.
SEC Requests Comment on Potential Money Market Fund Reform Options Highlighted in President’s Working Group Report
The Securities and Exchange Commission today published a request for public comment on potential reform measures to improve the resilience of money market funds as highlighted in a report of the President’s Working Group on Financial Markets issued in December 2020.
MARKET REGULATION ADVISORY NOTICE
Exchange: CME, CBOT, NYMEX & COMEX
Subject: Block Trades
Effective on trade date Monday, February 22, 2021, and pending all relevant CFTC regulatory review periods, this Market Regulation Advisory Notice will supersede CME Group Market Regulation Advisory Notice RA2013-5 from September 4, 2020. It is being issued to amend Section 7. of this Advisory Notice to increase the block trade reporting window for all FX futures contracts during RTH from five (5) minutes to fifteen (15) minutes. Therefore, effective on trade date February 22, 2021, the reporting window for all FX futures and options block transactions submitted for clearing via CME ClearPort will be fifteen (15) minutes during all hours (RTH, ATH, and ETH).
Options trading strategy, 4 option picks for earnings, Goldman Sachs
Kari McMahon – Business Insider
The spotlight is on options trading.
Many retail investors have been leveraging options trading as part of their strategy to push up the price of GameStop and other small-cap stocks that had been shorted by hedge funds.
Options are considered a sophisticated investing strategy to be used only by experienced investors and traders. However, in recent years they have become more accessible to retail investors through the rise of digital brokerages and investing applications, such as Robinhood.
Fundamentals of Futures & Options Course (applicable to Series 3 Exam)
May. 10, 2021 12:00pm – May. 14, 2021 2:00pm
Mar. 15, 2021 12:00pm – Mar. 19, 2021 2:00pm
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lecture from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books – Futures and Options and the Guide to U.S. Futures Regulation.
Registration is open! – FIA Boca 2021
Save the Date – April 28 & 29
The Options Industry Conference is Going Virtual in 2021
Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.
From Vaccine News to Retail Traders, See What’s Rattled Markets; Almost every trading day since March 2020 has been eventful.
Katherine Greifeld and Claire Ballentine – Bloomberg
As the coronavirus pandemic surged around the globe last year, markets went on a wild ride. Unprecedented fiscal and monetary stimulus, along with a flood of new retail investors, spurred increased activity in financial assets and rapid swings. With nonstop political news and a vaccine rollout under way, volatility is likely to continue into 2021.
What Robinhood Traders Need to Know About Taxes
Laura Saunders – WSJ
Joseph Holler started day-trading stocks last July when he was stuck at home during the pandemic and his work slowed down.
“It was fun and exciting. I enjoyed it,” says Mr. Holler, a 38-year-old telecom salesman who lives near Huntsville, Ala., with his wife and their five children. Using several no-commission online brokers, he sometimes made more than 200 trades a day and thousands in 2020, according to brokerage records he provided. Overall, he says, he’s ahead by more than $8,000.
The GameStop Dilemma: What to Do if Day Traders Target Your Company Stock; GameStop and other companies briefly saw their share prices surge as Reddit-inspired buyers created a short squeeze. For executives, taking advantage of the situation is more complicated than it appears.
Charley Grant – WSJ
Day traders have sent your company’s share price surging, seemingly without reason. What now? That usually isn’t on the long list of things corporate executives have to worry about, and especially not at a company struggling to reinvent itself. Your share price is usually seen as a real-time vote of confidence in how you are doing and, when times are good, a currency for raising capital or buying a competitor—except when your company’s value rockets from $250 million a year ago to more than $25 billion in large part because of posts on a message board.
(Podcast) TWIFO 235: Volatility Review in Silver, Russell 2000, Nat Gas, Gold and Rates
This Week In Futures Options – Options Insider Radio Network