Option Dealers Pushed Prices to Extremes in Day Trader Onslaught; Quadruple Witching Sparks Bursts of Trading Amid Options Anxiety

Sep 18, 2020

Lead Stories

Option Dealers Pushed Prices to Extremes in Day Trader Onslaught
Justina Lee and Yakob Peterseil – Bloomberg
Apple, Tesla options hit historic levels amid wave of demand; Retail traders are still buying calls despite recent selloff
Amid last month’s frenzy in options, some investors said they saw an age-old ritual playing out. Newbie traders, blinded by dreams of riches, rushed into the market, where Wall Street professionals sat waiting to take advantage of their enthusiasm by raising prices. A few volatility analysts saw signs that dealers cashed in on novice buyers by pushing up options costs in the most popular stocks. By these accounts, individuals were so hungry for Apple Inc. and Tesla Inc. options in late August and early September that they were willing to buy at any cost.

Quadruple Witching Sparks Bursts of Trading Amid Options Anxiety
Lu Wang and Katherine Greifeld – Bloomberg
In a month during which the red-hot trade in technology stocks has wavered and options activity dominated headlines, traders just got jolted with a spike of trading volume.
Equity transactions surged Friday amid a quarterly event known as quadruple witching, when options and futures on indexes and equities expire. During the first 15 minutes of trading, volume on S&P 500 stocks was double the average for that time of day over the past 30 sessions as the benchmark fell 0.3%.

Stocks Are Slipping Because ‘Quadruple Witching’ Is Spooking the Market
Teresa Rivas – Barron’s
Stocks are falling on Friday, although indexes could still eke out small gains for the week,
The Dow Jones Industrial Average is down 0.2% the S&P 500 is off 0.5%, and the Nasdaq Composite is 0.8% lower in recent trading.
As Barron’s reported earlier today, markets are braced for “quadruple witching,” as both futures and options tied to individual stocks and indexes expire simultaneously, which often indicates volatile trading.

Presidential Election Is the Only Cloud for Credit Investors; Options markets show investors are hedging against a sharp selloff in November
Paul J. Davies – WSJ
Investors piled back into corporate debt as hopes of an economic recovery grew. The only cloud on the horizon now, based on options markets, is the presidential election. The rally in credit markets has been helped by companies repairing their balance sheets and ensuring they have plenty of cash. By some measures, the extra income demanded by investors to hold corporate bonds instead of government debt—known as the spread—has fallen to near record lows.

Hedge Funds Can’t Possibly Survive the Nasdaq Whale; With Masayoshi Son’s big bets driving up the S&P, who needs professionals anymore?
Shuli Ren – Bloombrg
These days, you don’t really need a professional to tell you how to make money. The rise of Big Tech alone has allowed investors in exchange-traded funds to recoup their March losses. As for the more adventurous players, like SoftBank Group Corp.’s Masayoshi Son, they can simply buy billions of dollars worth of call options, which has driven up demand and the price of FAANG stocks.

ESG Derivatives: Liquidity will bring Liquidity; Recent ESG trade breaks notional volume record for ESG options
Swedbank Robur did it again! Swedbank Robur, one of Scandinavia’s largest asset managers, has investment funds covering all major regions, sectors and asset classes. EUR40bn of EUR125bn are already placed in ESG-related (Environmental, Social, and Governance) funds, and this proportion is increasing rapidly. During the current roll activities, Robur performed an inter-product switch together with Barclays – out of the STOXX Europe 600 into the ESG filtered STOXX Europe 600 ESG-X index.

S&P 500 Edges Lower on Weakness in Technology Stocks
Caitlin Ostroff and Gunjan Banerji – WSJ
Declines in shares of technology companies weighed on the S&P 500, capping off another tumultuous week for the stock market.
The S&P 500 slipped 0.4%. The tech-heavy Nasdaq Composite lost 0.6%. The Dow Jones Industrial Average shed about 20 points, or less than 0.1%.
The S&P 500 has edged lower in recent days as the Federal Reserve said the U.S. economic outlook remains highly uncertain. Some investors were disappointed that the central bank didn’t offer more guidance around additional stimulus measures or specifics about its inflation targets.

Elon Musk’s Pay Helps Tesla Get a Record Price Target
Al Root – Barron’s
Tesla just received another record price target from a Wall Street analyst. Piper Sandler’s Alex Potter raised his target price for the electric-vehicle maker’s stock to $515 from $480 a share. His reasons are a little unusual. That eclipses the $500 price target from Jefferies analyst Philippe Houchois set in late August. The stock was up 4.9%, at $444.26, in recent trading. The S&P 500 was down 0.1%. Potter focused on Tesla’s energy-storage business and CEO Elon Musk’s pay in his Thursday evening research report. “These topics can be vexing, but they are growing increasingly material, and as such, we think they warrant more explicit attention,” he wrote.

*****MR: “‘Elon Musk is compensated in an unorthodox way,” Potter writes. “Instead of a salary, he receives an options package that, in all likelihood, will eventually make him the world’s wealthiest person.'”

SoftBank: Nasdaq Whale Files First 13F Report
“Entrepreneurship, you will only understand it if you experience it for yourself. It’s not something I can explain in words.” – Masayoshi Son
On September 4, the Financial Times was first to report that “SoftBank is the ‘Nasdaq Whale’ that has bought billions of dollars’ worth of US equity derivatives in a series of trades that stoked the fevered rally in big tech stocks…” Since then, a consistent drumbeat of other articles and podcasts have been published; some of them tying SoftBank in with Robinhood and other retail brokers as leading factors that may explain the (concentrated) run-up in US equities from the March lows to the early September highs.

Exchanges and Clearing

MIAX Exchange Group – Options Markets – Corporate Action Alert: Northern Oil and Gas, Inc. (NOG)
MIAX Options
Northern Oil and Gas, Inc. (NOG) has announced a reverse split effective for Monday, September 21, 2020. On that date, the current NOG option class will change to NOG1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list NOG1 options. Therefore, no options on NOG will be available for trading on Monday, September 21, 2020. Northern Oil and Gas, Inc. (NOG) will resume trading on the the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange on Tuesday, September 22, 2020.

Options Regulatory Alert #2020 – 32 PHLX, ISE and GEMX – Bid/Ask Differentials for NDX Option Class through December 18, 2020
Effective September 21, 2020, the below market maker quote width requirements for options overlying NDX on Nasdaq PHLX (PHLX), Nasdaq ISE (ISE) and Nasdaq GEMX (GEMX) will be effective through December 18, 2020. The exchanges may, in their discretion, amend the bid/ask differentials by providing notice to members. The PHLX, ISE, and GEMX bid/ask differentials for NDX option class for electronic opening Valid Width Quotes and PHLX open outcry quotes are as follows:

Options Regulatory Alert #2020 – 31 PHLX, NOM, BX, ISE, GEMX and MRX – Quarterly Quote Spread Parameter Relief through December 18, 2020
Effective September 21, 2020, the updated market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through December 18, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.


What will quad witching mean for the stock-market trade on Friday?
Mark DeCambre – MarketWatch
The spooky-sounding quadruple witching gets a lot of fanfare in the news but don’t expect a lot of turbulence related to the stock-market event set to play out on Friday, even amid the COVID-19 pandemic and rising anxieties on Wall Street, market technicians say.
Quadruple witching, occurs on the third Friday of the month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-index futures.

“How to Build a Portfolio using Complex Futures Strategies” Takeaways
Tom Sosnoff – tastytrade
tastytrade presents TradeTALK, a 10-part speaker series that showcases trading strategies and concepts for the individual trader. Tom Sosnoff, Tony Battista, Liz/Jny, Pete Mulmat, and other tastytraders will show you how to optimize your approach to trading with practical takeaways. You can go beyond stock trading when you learn to trade smarter, not harder, with options and futures.


The impending EU CCP recovery and resolution regime and its impact on EU and non-EU firms
24 September 2020 • 10:00 AM – 11:00 AM ET • Webinar
On 24 September, representatives from Allen & Overy’s Global Financial Services Regulatory and Bankruptcy practice in London and New York will provide an overview of the EU legislative framework for the recovery and resolution of CCPs operating in the EU, which has now been finalized. The aim of the framework is to reduce the risk of a CCP failing and to establish procedures for the resolution of a CCP that has failed in order to limit impact on the financial system and on public funds. The regime and the changes it will require to EU CCP practices will be relevant to all direct and indirect participants in EU CCPs.


Unbeatable Overnight Gains Fuel Theories on Who’s Driving Them
Katherine Greifeld – Bloomberg
U.S. stock traders can thank their late-night counterparts for powering this year’s rally.
The bulk of the S&P 500’s historic rebound from the March lows has been driven by after-hours trading, according to data compiled by Bloomberg. A strategy of buying the SPDR S&P 500 exchange-traded fund at the close of trading in New York and selling it at the next day’s open has gained 39% since March 23. That compares to just 9% for those buy the ETF at the start of Wall Street trading hours and sell at the close.

TWIFO 217: Crazy Crude and Exploding Equity Volatility
This Week In Futures Options – Options Insider

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