New Research Suggests a Reason for Abnormal Returns in Index Put Option Strategies; JPMorgan Sells an Exotic Quant Trade Chasing Stock-Market Whales

Apr 15, 2021

$37,826/$300,000 (12.6%)

Observations & Insight

*****SC: Eurex has just published a “Derivatives Forum Frankfurt 2021 Report,” based on its conference held on March 23 and 24. The report covers five key topics that also were highlighted at the meeting and range from markets and regulation to responsible investing. You can read it here.


Scott Knudsen – From Open Outcry to Electronic Trading to Trading the GOAT

Scott Knudsen found his way to the world of trading by mistake on the online portal at the career center at Northwestern University, where he was studying electrical engineering. He ended up interviewing with a firm called Holland Trading House, which would later become IMC.

Watch the video »


Brendan Bradley Is No ESG Investing Dummy and He Has a Book to Prove It

Brendan Bradley is no dummy, and he has two Dummy books to prove it. First he co-wrote “FinTech For Dummies.” Now he has written “ESG Investing For Dummies.” John Lothian News interviewed Bradley over Zoom about his new book and the ESG space.

Watch the video »


Lead Stories

New Research Suggests a Reason for Abnormal Returns in Index Put Option Strategies
Traders Magazine
A common finding when it comes to options trading is that selling index put option contracts (such as those written on the S&P 500) tends to offer average returns and Sharpe ratios which seem to be excessive when compared to equities. Academic literature has well documented that selling index put options yields high average returns. This is also well known among practitioners: these trades have been highly profitable, except in instances where sales coincide with spikes in volatility, such as when Lehman Brothers crashed, or in the initial heat of the pandemic in March 2020.

JPMorgan Sells an Exotic Quant Trade Chasing Stock-Market Whales
Yakob Peterseil – Bloomberg
JPMorgan Chase & Co. is tapping into retail demand for trend-following by giving rich investors access to a kind of complex stock strategy that’s usually reserved for institutional managers.
The New York-based bank has issued $15 million of structured notes that give investors a way to surf S&P 500 trading patterns caused by market whales including options dealers and pension funds.

Global stocks hit record highs on strong economic data
Naomi Rovnick – Financial Times
Global equities pushed to record highs and Treasury yields fell following the release of upbeat economic data in the US and reassurances that the Federal Reserve would continue to support financial markets.
US retail sales in March rose by the most in 10 months while the number of Americans filing for new unemployment benefits fell by 193,000 last week to 576,000, beating economists’ expectations for 700,000 new claims.

Quant-Inspired ETFs Are Breaking Records and Beating the S&P 500
Claire Ballentine – Bloomberg
The great stock-market rotation is revitalizing a $1.4 trillion corner of quantitative investing and handing ETF managers a rare opportunity to outperform the S&P 500.
Systematic strategies wrapped up in exchange-traded funds — known as smart-beta products — took in a record $28 billion in March, according to Bloomberg data. After luring almost $7 billion so far this month, total assets are at the highest ever.

Hedge funds post best start to year since before financial crisis
Laurence Fletcher – Financial Times
Hedge funds have navigated the GameStop short squeeze and the collapse of family office Archegos Capital to post their best first quarter of performance since before the global financial crisis.
Funds generated returns of just under 1 percent last month to take gains in the first three months of the year to 4.8 per cent, the best first quarter since 2006, according to data group Eurekahedge. Recent data from HFR, meanwhile, show funds made 6.1 per cent in the first three months of the year, the strongest first-quarter gain since 2000.

Exchanges and Clearing

Miami International Holdings Enhances Futures Teamwith Expanded Roles for Mark Bagan and Joe Ferraro and the Addition of Tom Jarck and Matt McFarland to Support Growth in MGEX and MIAX Futures
Miami International Holdings
Miami International Holdings (MIH), the parent holding company of MIAX , today announced expanded roles for two key members of company senior management and the addition of two new vice presidents in MIAX Futures. The appointments will play a key role in MIH’s futures and proprietary product expansion efforts. MIH is pleased to announce the following expanded roles for members of senior management: Mark G. Bagan has been named Executive Vice President, U.S. Futures Strategy of MIH. In this capacity, he will oversee the company’s overall futures strategy. Bagan will also continue in his current role as President and Chief Executive Officer of the Minneapolis Grain Exchange (MGEX), an MIH exchange subsidiary.

Regulation & Enforcement

Senate confirms Gary Gensler as SEC chairman
Chris Matthews – MarketWatch
The Senate voted Wednesday to confirm Gary Gensler as chairman of the Securities and Exchange Commission, paving the way for what could be an ambitious financial regulatory agenda under President Joe Biden.
The vote was 53-45.

Global Derivatives Cling to Libor Even as Its Finale Nears
William Shaw and Alex Harris – Bloomberg
Anyone hoping Libor’s death notice would accelerate the shift of hundreds of trillions of dollars worth of derivatives toward replacement benchmarks will be sorely disappointed.
In the U.S., just 4.7% of contracts traded in March were pegged to the Secured Overnight Financing Rate, or SOFR, the benchmark slated to replace the London interbank offered rate, according to data from the International Swaps and Derivatives Association released Wednesday. That’s down from 5% in February.

Libor Contracts Caught in Limbo Spur Calls for Congressional Fix
Alex Harris – Bloomberg
President Joe Biden’s administration and the Federal Reserve are pushing for U.S. lawmakers to ease Wall Street’s transition away from the London interbank offered rate and help head off legal headaches for many contracts that risk being left in limbo under present plans.
In testimony set to be delivered at a House Financial Services subcommittee meeting Thursday, officials from both the Treasury Department and the Fed will voice support for federal legislation that would allow for an orderly way to shift existing financial products from the discredited set of reference rates, which currently underpins trillions of dollars in securities, derivatives and other contracts.


T-Mobile and 13 Other Stocks That Could Pop on Earnings
Steven M. Sears – Barron’s
The meek rarely inherit much of anything—except on Wall Street, when bruised and shunned stocks sometimes surge higher simply because they have failed to keep pace.
The tendency of stocks to snap back after they have lagged benchmark indexes, or underperformed their sector, is such a time-honored fact that it could be accurately described as a permanent part of the smart investor playbook. Alas, timing is everything, and so is an understanding of the fundamentals of the laggards.

How to Choose a Currency Cross
Frank Kaberna – tastytrade
Trading foreign exchange markets can often feel like picking a winner at the Masters: you try to execute on a general opinion only to be met with a whole mess of choices. So, what do you do in an asset class that seems straightforward yet is divided among too many options? You start basketing. Looking at driving distance? Choosing DeChambeau AND Cameron Champ could yield a higher probability of success. Putting accuracy interest you more? Picking the top two putters (Webb Simpson and Patrick Reed) might reduce your chances of picking the right category but wrong golfer.


(Podcast) OBC 131: Options Volume, Credit vs Debit Spreads, Cash-Settled Options and More
Nancy Crotty – Options Insider Podcast
In this episode, Mark and Dan discuss how options volume shaped up in March, credit spreads vs. debit spreads, cash-settled options, if you can lose more than your investment in options, and much more.

Fundamentals of Futures & Options (also applicable to Series 3 Exam)
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 lectures 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.”
Dates: May 10, 2021 through May 14, 2021, 12:00 p.m. to 2:00 p.m.
Location: Virtual Live. 2-hour sessions over 5 days.
Early-bird $495
Fee $595
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.


Clearing 101: Exchanges, Clearinghouses and CCPs
Join us for a short program (90 minutes each day for 2 days) that explains the multilateral systems that provide the infrastructure for transferring, clearing and settling payments, derivatives and other financial transactions among financial institutions and end users. Following Dodd Frank, clearinghouses became designated as Systemically Important Financial Market Utilities, vital to the operations of the financial markets and subject to heightened regulatory scrutiny. Buyers and sellers in exchange transactions rely on clearinghouses to intermediate transactions and to manage credit risks between trading parties. As such, clearinghouses promote transparency, efficiency, and stability by providing market-based pricing, daily settlement, and ensuring adequate capitalization for markets to function.

Q1 2021 ETD Volume
May 5, 2021; 10:00 a.m. to 11 a.m. ET
The webinar will highlight the main trends in trading activity in Q1 2021 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings. The webinar also will feature two guest speakers from UBS discussing the rise of retail participation in the U.S. ETD markets.

A New Virtual Experience
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 its 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.

The Covered Call Options Strategy
Date: Wednesday, May 12, 2021
Time: 3:30 p.m. CT
Duration: 1 hour
Mark Benzaquen – Principal, Investor Education – OCC
For options investors, the covered call is one of the core strategies for income generation, but there are many details to consider before opening a position. On May 12, join The Options Industry Council’s Mark Benzaquen, a former pit broker who now focuses on options education, for a detailed overview of the covered call.

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