Lead Stories
Options Amplified Falling Oil Prices—and Could Do the Same if They Rise: Standard Chartered
Bob Henderson – WSJ
To the reasons why oil prices slid yesterday, you can add another, say researchers at Standard Chartered bank: options that banks and other dealers sold to oil producers as hedges.
U.S. crude futures slipped about 5.2% Wednesday, to $67.61 a barrel from Tuesday’s settlement of $71.33 per barrel. The drop, which was prompted primarily by problems at Credit Suisse, pulled the price of WTI crude oil below $70 per barrel, a level at which many oil producers had bought insurance against price declines, explained the Standard Chartered commodities research group in a note.
/jlne.ws/42l8E0e
Why Wall Street Should Be Scared of St. Patrick’s Day This Year
Emily Dattilo – Barron’s
Investors might need the luck of the Irish this St. Patrick’s Day.
Friday is a so-called triple witching day: One of the four days a year that stock options, stock index options, and stock-index futures contracts all expire on the same trading day. It occurs on the third Friday of March, June, September, and December each year.
History shows that the stock market typically doesn’t end in the green (see what we did there?) on those days.
/jlne.ws/40bnULA
Hedge Fund Flags Risky Derivatives After China Market Rally
Bloomberg
A top-performing Chinese macro hedge fund is sounding the alarm over a popular type of derivative following the country’s stock rally.
Influential fund manager Li Bei advised against investing in so-called “snowball” products, a tool she used to buy at the bottom of the market late last year. Given the rebound in China equities, investors buying the option-based contracts could suffer losses, the founder of Shanghai Banxia Investment Management Center said in an article on March 12.
/jlne.ws/3ZPk9eS
What the Dramatic Boom in Zero-Day Stock Options Means for Stocks
Bloomberg (AUDIO)
Zero- and one-day options give investors the ability to bet on the daily moves of the S&P 500. In recent months, both big institutional investors and retail traders have gotten in on the action, creating a boom in trading volumes of these short-lived contracts and sparking an intense debate over their effect on the market. So what exactly is driving their popularity and why are some Wall Street analysts so divided on whether such options will cause a rerun of the “volmageddon” that we saw back in early 2018 and that caused a big drop in stocks? Nomura Securities International Inc. strategist Charlie McElligott walks us through these new trading contracts, explaining how they work, why people are snapping them up, and what their impact on the market could be.
/jlne.ws/3LtMoLG
Investors Wonder If Bank Turmoil Is Start of Financial Crisis
Katherine Greifeld and Vildana Hajric – Bloomberg
Is upheaval in the banking sector the prelude to a financial crisis, or just the biggest bump yet on the road to restoring order to the economy? Stock investors clinging to hopes this too shall pass are having their tolerance for pain severely tested.
Snowballing tensions over the banking sector, now gone global after Credit Suisse saw a quarter of its market value lopped off over five hours, torpedoed a nascent rally in equities Wednesday, as systemic risk in the financial system started to blot out the impulse to buy. While US equities pared back the worst of their losses, they still finished lower as warnings of contagion swirled.
/jlne.ws/3mUPApA
Market Stress Snarls Trading in U.S. Treasurys
Gunjan Banerji, Anna Hirtenstein and Eric Wallerstein – WSJ
The markets for the world’s safest and most liquid assets, the government bonds issued by the U.S. and other rich countries, came under immense stress on Wednesday following a week of worries about the health of global banks.
Liquidity, the capacity to trade quickly at quoted prices, has fallen sharply in two of the keystone markets, those for U.S. Treasurys and German bunds, traders said. Difficulties including wider price spreads and slower executions are now spreading to many other markets, they said, including those for derivatives that firms and traders use to lock in prices and hedge risks weeks and months ahead of time, such as options, futures and swaps.
/jlne.ws/3Jnn7QW
Buying the Dips Can Be Fatal—Unless You’re in It for the Long Term
Steven M. Sears – Barron’s
Uncle Sugar, as soldiers have long referred to the U.S. government, has demonstrated once again that he will protect investors from their misplaced avarice.
After Silicon Valley Bank and Signature Bank all but imploded, the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corp. united to protect the stock market from another systemic financial disaster that regulators failed to anticipate.
/jlne.ws/3FwqFPz
‘Everything is fine’ at Credit Suisse – it’s just a bit of panic, says its biggest backer Saudi National Bank
Zinya Salfiti – Business Insider
“Markets are skittish and they’re looking for stories or things that validate concern,” said Saudi National Bank Chairman Ammar Al Khudairy in a Thursday interview with CNBC. “It’s panic, a little bit of panic, I believe completely unwarranted, whether it be for Credit Suisse or for the entire market.”
“They’re very well capitalized. I think if you look at what even the Swiss central bank said yesterday, is that we’ve looked at all the ratios, they’re all sound, everything is fine. I don’t think they’ll need more capital,” Al Khudairy said.
/jlne.ws/42cJi4V
Exchanges
Cboe to Host Global Risk Management Conference, October 17-20 in Austin, Texas
CBOE
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, today announced it will host its global Risk Management Conference (RMCSM) from Tuesday, October 17 to Friday, October 20, 2023, in Austin, Texas.
Cboe RMC is an educational forum dedicated to exploring the latest products, trading strategies and tactics used to manage risk exposure and enhance yields. Leaders from across the global derivatives markets will come together in Austin to share their investment research and its practical applications within portfolios.
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Clearing Innovation & trends
Eurex
The full ramifications of the cyber-attack on ION for capital markets are only now emerging. The immediate fallout was significant in terms of comprehending not just the risks involved but how all market participants – asset managers, brokers, market makers and clearers were able to react and adjust in what timeframes and to what level of proficiency. As the dust clears, understanding exactly where the operational bottlenecks remain and how these can be addressed going forward is critical. However, the recent announcement by the SEC to move settlement of all asset classes to T+1 has ratcheted the need for urgent action in the post trade arena. Magnifying the sheer number of assets to be cleared in a minimal timeframe will have obvious implications for settling and clearing securities transactions. However, there are also important wider complications for funding and credit-lines. These will put a strained industry under further pressure just when the need for investment has never been greater.
/jlne.ws/3liWnc6
Strategy
How Subdollar Securities are Trading Now
Cboe
The increase in trading subdollar securities, or securities priced below $1, has been a popular topic of discussion in the last few years after more retail investors entered the market during the COVID-19 pandemic. During the GameStop phenomenon in January 2021, there was a massive increase in trading subdollar securities. The volume appeared to slow down in the months after these events, however that decline did not last. In fact, trading subdollar securities gained popularity again at the end of 2022 and seems to be holding strong into 2023, driving a significant amount of trading activity.
/jlne.ws/3mWv3ks
Traders Fear Big Losses in Risky Bonds
Gunjan Banerji – WSJ
Some of the most popular options trades in the market right now are put options tied to an exchange-traded fund that tracks junk-rated debt, according to Cboe Global Markets.
/jlne.ws/42lsPv6
Big Volumes in ETF Options
Cboe (Video)
In #Vol411, Scott Bauer @cboesib covers brisk activity in #options #markets, including #trading in $VIX, $IWM, $TSLA & $XLE.
/jlne.ws/3YS5VIT
