Observations & Insight
Fed to Reduce Bond Purchases in March; Trader Bet $65 Million in Options; Blockbuster Options Activity Recorded
OPTIONS NEWS: Fed Moves Up Bond Taper, $65 Mln Option Bet & Blockbuster Options Activity in Alex Perry’s Optionstopia.
JOHN’S TAKE: Cboe looks at Meme Stock and Options Trading in John’s Take.
TERM OF THE WEEK: “European-Style Options” is the Term of the Week with tastytrade’s Jermal Chandler.
Omicron Fears Ignite Market Selloff Just as Traders Clear Books
Ruth Carson, Ishika Mookerjee and Albertina Torsoli – Bloomberg
Just as investors were wrapping up this year’s trading, the threat of new lockdowns sent shock waves through markets across the world.
Sentiment in stocks and bonds remained on the back foot, though U.S. stock index futures and 10-year Treasury yields pared declines after Moderna Inc. said a third dose of its Covid-19 vaccine increased antibody levels against the omicron variant.
Manchin Blow and Omicron Spark Market Selloff. Prepare for Volatility.
There is a little bit of déjà vu out there today.
Stocks are slumping amid concerns over the Omicron coronavirus variant and fresh restrictions being imposed by a number of countries, including the Netherlands, which is re-entering lockdown.
The Dow is plunging and Nasdaq nears correction because stock-market investors don’t see a Christmas cavalry coming to the rescue
Mark DeCambre – MarketWatch
There is a pervading sense on Wall Street that there may be little this week to counter an onslaught of selling ahead of Christmas.
Markets were trading sharply lower Monday to start a truncated week of trading, a period that is notoriously known for thin volumes, which can lead to outsize price swings.
In the stock market, the new year may start with a bang
Brian Frank – MarketWatch
Investors have had to contend with large swings in sentiment this month, capping a year of seesawing risk sentiment.
After big share-price drops in high-growth companies in the late winter and early spring, broad-based buying returned in May and the rest of the summer, followed by more selling starting in late November.
With tumultuous declines in the past month, is this a contrarian “all-clear” signal for further gains? Or, with the Federal Reserve accelerating its tapering of quantitative easing and potentially raising official interest rates in 2022, is this the end of the bull run that started in early 2020?
For answers, we look to the major players: “passive” investors and the Fed.
Is the Fed Deflating Prospects for Speculative Stocks?
James Mackintosh – WSJ
Speculation seems to be going out of fashion. Since early November, the most speculative stocks have been crushed, even as the wider market reached new highs. Many blame the Federal Reserve, but the link between monetary policy and speculation is less clear than it seems.
Among those losing 20% or more: The “meme” stocks of GameStop and AMC Entertainment , electric-car maker Tesla, hydrogen darling Plug Power , bitcoin and a host of tiny unprofitable stocks. The businesses have little in common, but all rely for high valuations on buyers willing to bet on a story—and have benefited from the surge in individuals trading stocks. (A stunning rally in some of the speculative names Friday did little to mitigate the losses; AMC led with a 19% daily gain, but is still down one third from early November, and worth just over half where it peaked in June.)
U.S. oil futures plunge 6% amid omicron-inspired restrictions
William Watts and Mark DeCambre – MarketWatch
Crude-oil prices fell sharply on Monday, as the spread of the omicron variant of the coronavirus that causes COVID-19 and the imposition of new mobility restrictions in parts of the world, amplified worries about demand.
“Oil prices are getting pummeled again as sentiment turns south and countries ponder deepening restrictions and lockdowns,” wrote Craig Erlam, senior market analyst at Oanda, in a note.
The Stock Market Is Positioned For A Massive Move
The week of December 17 had plenty of volatility, and this coming week may have even more. Now that the big quadruple witching options expiration date has passed, the market should be freer to move up or down as option gamma levels in the S&P 500 decline. It will “unpin” the S&P 500 from the 4,700 trading around for the entire month.
NYSE US Exchanges to Close in Observance of the Christmas Holiday
In observance of the Christmas holiday, the New York Stock Exchange, NYSE American Equities, NYSE Arca Equities, NYSE Chicago, NYSE National, NYSE American Options, NYSE Arca Options and NYSE Bonds markets will be closed on Friday, December 24, 2021.
MIAX Exchange Group – Options Markets – Corporate Action Alert – Invesco NASDAQ Next Gen 100 ETF (QQQJ)
Invesco NASDAQ Next Gen 100 ETF (QQQJ) has announced a short-term capital gains distribution. Associated strike price adjustments will become effective Today, Monday, December 20, 2021. QQQJ options will continue to trade without interruption on the MIAX Options Exchange, MIAX Pearl Options Exchange and MIAX Emerald Options Exchange.
Regulation & Enforcement
Republican SEC Commissioner Roisman to Leave Agency
Dave Michaels – WSJ
Securities and Exchange Commission member Elad Roisman plans to leave the market regulator by the end of January, giving Democrats a bigger majority at an agency pursuing an ambitious and sometimes politically divisive policy agenda.
Mr. Roisman joined the five-member SEC as a Republican commissioner in September 2018, having served as chief counsel for Republicans on the Senate Banking Committee before that. He briefly served as the SEC’s acting chairman at the end of the Trump administration.
Statement on supervision of commodity derivatives position limits
In December 2020, we published a Supervisory Statement setting out our approach to operating the MiFID markets regime after the end of the EU withdrawal transition period. This approach included a change to our supervisory and enforcement actions for commodity derivative position limits in the light of evidence of potential constraints on market functioning highlighted during the coronavirus (Covid-19) crisis. Liquidity providers’ ability to take on positions was impaired because of position limits, at a time when liquidity provision was most critical for the market
These are the big levels to watch for the S&P 500 and Nasdaq. Expect ‘wild trade,’ if they break, warns this strategist.
Barbara Kollmeyer – MarketWatch
Holiday spirit is thin on the ground, with global assets in the vicegrip of a selloff as we kick off the countdown to Christmas.
Blame growing alarm over the omicron coronavirus variant, of course, but some coal may show up in the stocking of Sen. Joe Manchin, who all but torpedoed President Joe Biden’s Build Back Better plan, and prompted Goldman Sachs to cut its U.S. growth forecast.
A Few Last-Minute Entry Points for Bulls
“The SPX enters the week around the levels from which the selloff began, which is where the three-day bearish candle pattern appeared in early November. This area happens to be around the SPX’s 25% year-to-date return, where sellers have been predominant. There is potential resistance here, but with sentiment not as optimistic now relative to when the SPX was trading at this level last month, the outlook is more positive for bulls.”
– Monday Morning Outlook, December 13, 2021
If you are a chart watcher and/or one that is in tune with the options market to determine potential support and resistance levels, there is no doubt you would have had some level of hesitancy in aggressively buying equities early last week.
Derivative Trader Platform Paradigm Raises $35 Million
Annie Baker – Pulse 2.0
Paradigm — a zero-fee institutional liquidity network for derivative traders — recently announced the closing of a $35 million Series A funding round. This funding round values the company at $400 million and was co-led by Jump Capital and Alameda Ventures. And the company is bridging the infrastructure gap between crypto and traditional finance by serving as a liquidity access point to institutional buyers and sellers for large and/or complex derivatives trades across both CeFi and DeFi markets.
2021 shows that investors can be right for the wrong reasons
Robin Wigglesworth – Financial Times
Imagine an oracle last year told you that the US inflation rate would accelerate to a four-decade high of 6.8 per cent by Christmas. Most investors would immediately rinse all fixed income from their portfolio, and take a long hard look at those glamorous growth stocks.
Instead, the 10-year Treasury yield is trundling along at 1.4 per cent, up just half a percentage point from where it started the year. Even the 30-year US government bond yield — which should be hypersensitive to any whiff of inflation — has only nudged up from 1.6 per cent to 1.8 per cent.