Options Feedback Loop Revives Bust Warnings in Soaring Stocks; Short Interest in World’s Biggest ETF Plunges to Decade Lows

Jan 14, 2021

$24,451/$300,000 (8.2%)

Observations & Insight

Ray Carmichael – The History of Financial Futures Part I

Carmichael Led Communications at the Chicago Board of Trade During a Decade of Incredible Growth in Financial Futures

Ray Carmichael joined the Chicago Board of Trade in 1980, hired by then-CBOT president Thomas Donovan to lead communications for the exchange. Carmichael had come from the nonprofit world, so he understood how committees work in organizations.

Watch the video »

Ray Carmichael – The History of Financial Futures – Part 2

Carmichael Led Communications at the Chicago Board of Trade During a Decade of Incredible Growth in Financial Futures.

Ray Carmichael was in the thick of the new markets, the early days of electronic trading and huge change in the futures industry globally as the head of corporate communications for the Chicago Board of Trade. He was there when financial futures grew dramatically at the CBOT, making it “the most exciting time in the world to be at the Board of Trade; it was the glory days.”

Watch the video »

Lead Stories

Options Feedback Loop Revives Bust Warnings in Soaring Stocks
Katherine Greifeld – Bloomberg
As stocks extend their relentless rally from last year’s bottom, one measure in the options market is flashing a warning signal.
Over the last 30 days, an average of more than 22 million calls traded across U.S. exchanges — close to a record, data compiled by Bloomberg show. That’s forced the dealers selling those contracts to buy the underlying shares to offset any option price drift, boosting their potential selling pressure to an all-time high, according to at least one model.

Short Interest in World’s Biggest ETF Plunges to Decade Lows
Sam Potter and Katherine Greifeld – Bloomberg
Bets against the world’s largest exchange-traded fund have plunged back to pre-pandemic levels seen about a year ago, before the onset of the fastest stock bear market in history. Fueled by vaccine hopes and reflationary signals, short interest in the $334 billion SPDR S&P 500 ETF Trust (ticker SPY) now sits at just 2% of shares outstanding, according to IHS Markit Ltd. data. Barring melt-ups in 2017 and early 2020, these levels have rarely been seen over the past decade.

Is Bitcoin (BTC USD) Cryptocurrency Price Boom a New Gold or Another Bubble?
Olga Kharif and Edward Robinson – Bloomberg
Bitcoin investors are having a wild ride. The best-known cryptocurrency quadrupled in price in late 2020 – – a surge reminiscent of its heyday three years earlier, when it rocketed to nearly $20,000, then crashed and lost more than two-thirds of its value. Once seen as the province of nerds, libertarians and drug dealers, there’s still little sign it will evolve into a useful form of money for most transactions. Yet the latest bout of roller-coaster volatility comes as more big investors are speculating that Bitcoin will gain wider acceptance and shake up the financial world, maybe by filling the role of gold as a hedge against inflation better than gold can.

‘Reckoning’ ahead? Why investors continue to ignore ’emerging market’ – style U.S. politics
William Watts – MarketWatch
That financial markets aren’t reacting to the political chaos in Washington right now doesn’t mean investors can rest easy.
U.S. assets are “not being traded like an emerging market … even though the politics are becoming more and more like an emerging market,” said Mark Rosenberg, chief executive of political-risk-analysis firm GeoQuant, in an interview after last week’s assault on the Capitol by a violent mob who supported President Trump’s bid to overturn the November election.

Stocks climb in anticipation of U.S. stimulus plan, yields up slightly
Caroline Valetkevitch – Reuters
Stocks on world indexes climbed and U.S. bond yields held slightly higher on Thursday as investors focused on President-elect Joe Biden’s pandemic aid proposal.
On Wall Street, the Dow and Nasdaq rose to record highs early.

Deribit Exchange Raises Maximum Bitcoin Options Strike Price to $400K
Sebastian Sinclair – Coindesk
Crypto derivatives exchange Deribit is now offering traders the ability to bet bitcoin will reach $400,000 by year’s end. The eye-watering $400,000 option supplants the company’s previous $300,000 maximum offering listed on Jan. 9. Despite recent volatile swings in its spot price, Deribit continues to offer higher strike prices for traders looking to bet big amid continuing high demand and sky high predictions even from conservative banks.

Exchanges and Clearing

Early Libor Shift for Derivatives Is Weighed by Clearing Houses
William Shaw and Alex Harris – Bloomberg
Global clearing houses are considering whether to shift trillions of dollars of interest-rate derivatives away from the London interbank offered rate weeks before the benchmark expires.
LCH Ltd. is consulting clients about an exit strategy for swaps before the possible retirement of multiple Libor benchmarks at year-end, according to Phil Whitehurst, head of service development, rates at SwapClear, which is part of the firm. CME Group Inc. opened a similar consultation on Thursday.

Expansion of the 6.25 Basis Point Strike Price Listing Schedule of the Options on Three-Month Eurodollar and Three-Month SOFR Futures Contracts
CME Group
Effective Sunday, January 24, 2021 for trade date Monday, January 25, 2021, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will expand the 6.25 basis point strike price listing schedule for the Options on Three-Month Eurodollar Futures (Rulebook Chapter 452A) and Options on Three-Month SOFR Futures contracts (Rulebook Chapter 460A) (the “Contracts”) for trading on the CME trading floor, the CME Globex trading platform (“CME Globex”) and for submission of clearing via CME ClearPort as noted in the
tables below

Regulation & Enforcement

Bitcoin faces regulatory scrutiny after rapid rally
Eva Szalay, Matthew Vincent and Martin Arnold – Financial Times
Regulators are sharpening their focus on bitcoin and its use in the international financial system after the value of the digital currency raced higher in a volatile rally that fed concerns over its lack of robust oversight by financial watchdogs.
Both the UK’s Financial Conduct Authority and the president of the European Central Bank highlighted the need for more stringent regulatory scrutiny for cryptocurrencies this week, noting the extreme volatility and criminal activity often associated with the market.

From Goldman to SEC: Gensler’s Next Stop Worries Wall Street
Benjamin Bain – Bloomberg
The tale of Gary Gensler’s transformation has always been remarkable. He went from being one of the youngest partners in the history of Goldman Sachs Group Inc. to becoming a favorite of progressive Democrats as a financial regulator during the Obama administration. Now, it’s about to add another chapter and Wall Street is very worried.


Vesica Raises $2.1M Seed As Demand Grows for Market Color Product, SHIFT
Vesica Technologies (Vesica), the innovative financial technology company that developed SHIFT and makes financial data more accessible to individuals, announced today that it has closed a $2.1 million Seed round. The new financing includes investment from market-leaders Mercury Digital Assets and Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Exchange Group.

How to Leverage the Stimulus Boom
Steven M. Sears – Barron’s
The hoi polloi get stimulus checks from Congress. Investors get Fed puts and raging bull markets from the Federal Reserve.
If you had to choose, most people would favor accommodative monetary policies over bite-size handouts, but the key to the market now is the $600 checks the U.S. government recently sent to people struggling under the Covid-19 pandemic.


What is Margin Investing?
Caitlin McCabe – WSJ
It is easier than ever to buy securities. During periods of volatility in financial markets, it can be tempting to dive right in. But there are times when an investor might not have enough cash when a buying opportunity emerges.
Margin investing is the practice of borrowing money from a brokerage firm to make investments. Traders tap this to increase buying power, and then pay the sum borrowed back at a later date of their choosing. But the practice comes with significant risks and steep losses can accumulate quickly. That means inexperienced investors should take caution.


2020 Annual Trends in Futures and Options Trading
Description: This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Presenter: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
Time: Jan 27, 2021 10:30 AM in Eastern Time (US and Canada)

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