Navigating the Complex World of Equity Options Data

Nov 21, 2022

Lead Stories

Navigating the Complex World of Equity Options Data
Cboe
In an exclusive Risk.net webinar, convened in collaboration with Cboe Global Markets , experts discussed the expanding world of equity options data, the rise of retail investment within it, and the technological challenges and opportunities associated with these factors.
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The 2022 Market Structure Week Debrief
Katie Kolchin – SIFMA
Recently, SIFMA hosted our annual Listed Options Symposium and Equity Market Structure Conference. Across the two days, we gained insights into top-of-mind topics for market participants. Inside this note, we recap just some of what was seen and heard, including:
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Funds ditch CBOT corn longs at highest rate in over six years
Karen Braun – Reuters
Chicago corn futures last week fell to their lowest levels since late August before recovering again, though speculators were heavy participants on the downside, taking out an unusually large number of bulls for a second straight week.
Although most-active CBOT corn futures were unchanged in the week ended Nov. 15, the contract had traded down more than 2% by Nov. 15 before rallying back late in the session. Corn trading volume was unusually high on that date, and it is now clear that was downside momentum.
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VIX near level that’s marked top for stock-market bounces in 2022
William Watts – MarketWatch
DataTrek Research co-founder Nicholas Colas notes that the pullback by the Cboe Volatility Index, or VIX, a measure of expected volatility in the S&P 500, is easing back toward levels that have marked tops for bear-market bounces so far in 2022.
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Global equity bear market not over yet – Goldman Sachs
Reuters
Goldman Sachs on Monday warned that the global equity bear market is not over as the markets are yet to see a trough in the momentum of global growth deterioration, a peak in interest rates and valuations lowered to reflect a likely recession.
The Wall Street investment bank expects returns to be a “relatively low” 6% through the end of 2023 as investors focus on the pace of monetary policy tightening and the consequent hit to growth and earnings.
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Beyond the Crypto Crash, a Big Squeeze Jolts Stock Markets Anew; Hedge funds cover short wagers at the fastest rate since 2021; Thinly positioned investors play catch-up via call options
Lu Wang and Isabelle Lee – Bloomberg
Being glued to crypto news this week meant missing adventures in regular markets that while lacking the same high drama, made up for it in terms of money at stake. In case you missed it, stock and bond traders spent the last five days still caught in the thrall of an event that may be hard to recall for people mesmerized by the FTX.com collapse: Nov. 10’s inflation report, which ignited a short squeeze among traders expecting a worse number. Reverberations continued to be felt in terms of positioning, trading in derivatives and probably also in wrongly prepared portfolios.
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Will Unicorns Similar to FTX Become the Next ‘Big Short’?
Chris Bryant – Bloomberg
As his luck would have it, Michael Lewis has been trailing FTX founder Sam Bankman-Fried for the past few months. The author of The Big Short won’t be short of material, but one thing he probably won’t find is a big group of skeptics who successfully wagered on the demise of the $32 billion crypto exchange.
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US Oil Futures Point to Oversupply for First Time This Year; US crude’s prompt spread trades in bearish contango structure; Demand worries weigh on futures, options could deepen selling
Devika Krishna Kumar and Alex Longley – Bloomberg
The US crude market’s structure is signaling oversupply for the first time in almost a year, the latest indicator of the scale of the dramatic slump in the nearest section of the oil futures market. The front-month spread, which reflects short-term supply-demand balances, traded in contango — the industry term for the bearish market structure — ahead of the December contract’s expiry on Monday. One other subsequent spread also flipped to contango. The rest remain in the opposite bullish structure, known as backwardation, indicating the move could yet be a short-term one.
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Exchanges

Cboe MATCHNow’s Willing To Trade Enhances Investors Ability to Source Block-Sized Liquidity
Cboe
Cboe MATCHNow operates Canada’s largest equity dark pool, accounting for 64.5% of total dark Canadian volume and over 3% of total Canadian volume traded. One of our primary goals is to provide price improvement compared to the protected National Best Bid or Offer (NBBO) for Canadian investors, and MATCHNow’s Conditional Book allows investors to do just that by sourcing block sized liquidity through Conditional Orders, Sponsored Access and Willing To Trade.
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Pimco ETF makes history with move to open outcry pit
Steve Johnson – Financial Times
Pimco’s $3bn Active Bond ETF (BOND) has become the first active ETF to be traded in an open outcry pit, in a move aimed at enhancing liquidity and reducing trading costs. It is almost certainly the first ETF of any kind to be traded in an open outcry pit since 2007.
Open outcry, where floor traders shout and use hand movements to execute orders, has died out on most stock exchanges due to the rise in electronic trading — touted as faster, cheaper, more efficient and less prone to manipulation by market-makers. But the New York Stock Exchange still operates a hybrid model because it believes floor traders can sometimes provide advantages such as reduced volatility and better liquidity.
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FTX Mayhem Fails to Scare Futures Exchanges Away From Crypto; CME and Cboe are sticking to trading in crypto futures; CME’s Duffy says ‘one bad actor’ won’t change his firm’s plans
Katherine Doherty and Isis Almeida – Bloomberg
Even as some of Wall Street’s old guard has an “I-told-you-so” moment after the collapse of Sam Bankman-Fried’s FTX, futures exchanges aren’t giving up on crypto. CME Group Inc. Chief Executive Officer Terry Duffy, who has been one of Bankman-Fried’s fiercest critics, said he won’t stop crypto-futures trading just because of “one bad actor.” Cboe Global Markets, another Chicago exchange, and software provider Trading Technologies also recommitted to digital assets in the wake of the FTX meltdown.
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Regulation & Enforcement

UK regulators call for action on hidden leverage threat to pension funds; Policymakers say more must be done to address blind spot revealed by September’s gilt crisis
Chris Flood and Josephine Cumbo – Financial Times
Regulators and policymakers are calling for action to address the risks associated with pension funds’ use of derivatives, after key watchdogs admitted last week that they were unprepared for the crisis that hit the industry in September. The meltdown, now the focus of four separate parliamentary probes, revealed regulators did not have a reliable picture of the scale of hidden leverage in liability-driven investment (LDI) strategies, which cover about GBP1.4tn of the future promises made by UK defined benefit pension schemes.
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Ohio Investment Manager Arrested for Allegedly Running a $10M Cryptocurrency Ponzi Scheme
Nelson Wang – CoinDesk
Rathnakishore Giri, a 27-year-old investment manager living in New Albany, Ohio, was arrested on Friday on criminal charges for alleging running a cryptocurrency investment scam that raised at least $10 million from investors, according to a Department of Justice press release. Giri allegedly misled investor by promoting himself as an expert cryptocurrency trader with a specialty in bitcoin derivatives. According to the indictment, Giri falsely promised investors lucrative returns on the money they invested with him, with no risk to principal. In reality, he used funds from previous investors to pay off new investors in a classic Ponzi scheme set-up.
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Will FTX-Like Unicorns Be the Next ‘Big Short’? The crypto implosion shows the potential opportunity in betting against startups
Chris Bryant – Bloomberg Opinion
As his luck would have it, Michael Lewis has been trailing FTX founder Sam Bankman-Fried for the past few months. The author of The Big Short won’t be short of material, but one thing he probably won’t find is a big group of skeptics who successfully wagered on the demise of the $32 billion crypto exchange. For one, credulous crypto traders aren’t natural fraud detectives: Even SBF rival Changpeng “CZ” Zhao, head of Binance Holdings Ltd., says he didn’t short FTX’s native token, FTT. He was instead left holding a big bag of near-worthless magic beans — along with hundreds of thousands of creditors.
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ISDA Survey on Sustainability-linked Derivatives
MarketsMedia
With the growth of sustainable investing, there is emerging demand for derivatives products that are linked to environmental, social and governance (ESG) goals. Although a nascent market, these products – sustainability-linked derivatives (SLDs) – have the potential to contribute to the green transition.
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Strategy

Bear Stock Markets Will Last Through 2023, Goldman Sachs Says
Farah Elbahrawy – Bloomberg
Equity investors hoping for a better year in 2023 will be disappointed, according to Goldman Sachs Group Inc. strategists, who said the bear market phase is not over yet.
“The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen.
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Markets will shift to a ‘hope’ phase next year, and investors would be wise not to miss it, says Goldman Sachs
Barbara Kollmeyer – MarketWatch
Fresh China COVID-19 worries are threatening to nix any preholiday gains for Wall Street, with stocks struggling, oil tumbling and the dollar higher as Monday’s session gets underway.
In a shortened week that will bring both Thanksgiving and the World Cup kickoff, investors have all sorts of excuses to head to the sidelines. Those sticking around will be grinding through the traditional data dump on Wednesday and even an appearance by Fed Chairman Jerome Powell.
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VIX near level that’s marked top for stock-market bounces in 2022
William Watts – MarketWatch
DataTrek Research co-founder Nicholas Colas notes that the pullback by the Cboe Volatility Index, or VIX, a measure of expected volatility in the S&P 500, is easing back toward levels that have marked tops for bear-market bounces so far in 2022.
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Miscellaneous

FTX’s Failure Is Proof that Crypto Regulation Works
Kevin Werbach – Barron’s
The sudden collapse of leading digital asset exchange FTX is spurring fresh questions about risky behavior in the volatile world of crypto. It will take time for the full impacts to be felt and all the facts to come out. However, this incident is a resounding endorsement of the U.S. approach to digital assets, while also demonstrating how much work remains for legislators and regulators.
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How to Buy Taylor Swift Tickets in the Future
Lucas Shaw – Bloomberg
Here’s The Real Reason You Can’t Buy Taylor Swift Tickets
Tessa Carpenter logged into Ticketmaster’s virtual waiting room at 9:45 Tuesday morning figuring she would have four tickets to see Taylor Swift within the hour. A 33-year-old insurance worker in Minneapolis, Carpenter had received a code from Ticketmaster that would admit her to an early sale for the tour. She also received an extra boost by pre-ordering a vinyl edition of Swift’s latest album Midnights.
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UK watchdog warns against gamification of trading apps
Joshua Oliver and Oliver Ralph – Financial Times
The UK’s financial watchdog has warned against the use of “game-like elements” in trading apps, saying that they risk leading consumers to take actions against their own interests.
The Financial Conduct Authority on Monday said share trading apps were giving their customers “in-app points, badges and celebratory messages for making trades”, and that people using these features were more likely to “invest in products beyond their risk appetites”. It told operators of the apps to review their design.
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Washington watchdogs outgunned in crypto’s Wild West
Sam Sutton and Declan Harty – Politico
The epic collapse of FTX and founder Sam Bankman-Fried’s investment empire has left Washington officials scratching their heads: Why didn’t U.S. regulators stop this mess before it took down the crypto market?
There wasn’t much they could do, according to more than a half-dozen interviews with regulators, lawmakers, lawyers and other compliance experts. The Bahamas-based exchange’s offshore location and sprawling corporate structure made it a difficult target for the federal agencies tasked with protecting investors from fraud and manipulation.
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