Options Market Shows Call Bias as Bitcoin Prepares for New Price High; Investment Firm’s Collapse Put Unseen Risks on Full Display

Apr 1, 2021

$32,426/$300,000 (10.8%)

Observations & Insight

Editor’s Note: JLN Options will not be published tomorrow, April 2. We will be back on Monday, April 5. Have a great weekend!


*****JJL: Here are the upcoming product launches by the CME Group on Globex: Ukrainian Wheat (Platts) Futures and Options starts trading on April 11, E-mini Nasdaq-100 Monday and Wednesday Options also start on April 11, and Freight Route TC18 (Baltic) Futures begin on April 25. Also, Freight Route Liquefied Petroleum Gas (BLPG3) (Baltic) Futures start trading on April 25 and Micro Bitcoin Futures on May 2.


JLN Takes ‘A Deeper Dive into the NYSE Group Retail Liquidity Programs’ Research Report with Kevin Tyrrell

Kevin Tyrrell is the head of research for NYSE. He and his team of researchers and economists were intrigued by the market activity during an unprecedented surge in the price of GameStop shares during January 25-29, 2021, and they wanted to see how different OTC trading platforms responded to the order flow, including NYSE’s Retail Price Improvement (RLP) programs.

Watch the video »

Lead Stories

Options Market Shows Call Bias as Bitcoin Prepares for New Price High
Omkar Godbole – Coindesk
Bullishness looks to be building in the bitcoin options listed on the dominant Deribit exchange, with the cryptocurrency trading just 4.6% short of a new record high. Options skew, which measures the difference between the call implied volatility and put implied volatility for all options, is creeping up, as tweeted by the options analytics platform Genesis Volatility. In plain English, that call options are again drawing greater demand or premium than puts in a sign of bullish bias. Implied volatility refers to investors’ expectations for price turbulence over a specific period and positively impacts the option’s price. Hence, an uptick in the call-put implied volatility spread is considered a sign of bullish positioning.

Investment Firm’s Collapse Put Unseen Risks on Full Display; Archegos Capital Management’s use of swaps helped conceal its exposure to huge blocks of shares but showed once again how lightly regulated derivatives can shake the financial system.
Matt Phillips – NY Times
After the implosion of a little-known investment firm saddled banks around the world with billions of dollars in losses last week, one big question is being asked all over Wall Street: How did they let this happen? The answer may stem from the way the firm, Archegos Capital Management, with ample assistance from at least half a dozen banks, made bets on stocks without actually owning them.

U.S. Treasuries’ Worst Quarter Since 1980 Upended Global Markets
Greg Ritchie, Farah Elbahrawy, Vildana Hajric, and Andres Guerra Luz – Bloomberg
The promised end of the pandemic draws closer with every shot in the arm. So in the first three months of 2021, traders raced to position themselves for a post-Covid world by girding for super-charged growth and higher inflation.
This reflation trade put Treasuries on course for their worst quarter since 1980, with the global bond plunge sending yields surging to pre-pandemic levels. These sharp moves spooked investors, who were already turning away from pandemic favorites, like tech companies, into value stocks poised to benefit from economic reopening. Market fever dreams played out in cryptocurrencies and newfangled ways to take companies public. And even as the U.S. dollar proved its resilience, traditional haven currencies were battered.

Do You Even Pairs Trade?
Frank Kaberna – tastytrade
As March draws to a close, equity indices from the Small Exchange are within a few percentage points of unchanged on the month. That said, the last four weeks of stock movement have been anything but sideways for the active trader utilizing pairs opportunities. As of last Friday, the industrial sector outperformed technology stocks by nearly 10% in the month of March; and just two weeks in, energy was trading almost 10% on top of tech before coming back to a more normal difference of 4% month-to-date.*

Five market trends investors are focused on for the second quarter
Saqib Iqbal Ahmed, Lewis Krauskopf – Reuters
(Corrects quarter referenced in 3rd paragraph to first from second; corrects to make clear gains referenced in 3rd paragraph are for a 3-month period, not calendar quarters) NEW YORK, April 1 (Reuters) – The first quarter of 2021 kept investors on their toes as it served up surging yields, an accelerated rotation into cyclical stocks and wild rides in the shares of GameStop that brought the retail investors of WallStreetBets into the public eye. Here are some trends investors are positioning for in the second quarter, and how they could impact broader markets.

Gold Is Getting That Inflation Feeling Again
John Authers – Bloomberg
As 2021’s first quarter comes to an end, gold hasn’t enjoyed a great time of it. The precious metal has tumbled 19% from its high last August and is back where it was in February of last year, before the pandemic hit the developed world. Gold did at least manage to rally in Wednesday trading, as traders took heart from its ability to stop short of the 20% fall that would have qualified as a bear market. But the problems for gold are still significant, and come as something of a surprise. Last August, I wrote a Points of Return on the gold price which looked at various arguments by analysts and concluded that “absent a swift victory over the virus, all of these… methodologies suggest that there is far more room for gold to rise than to fall.”

Exchanges and Clearing

Trading Overview in FY2020 & March 2021; Japan Exchange Group released Trading Overview in FY2020 & March 2021.
Cash Equity Market; In FY2020, daily average trading value for the TSE 1st Section reached JPY 2.8091 trillion; In the ETF market, trading value was JPY 68.8180 trillion (daily average: JPY 280.9 billion), the second highest on record; In March 2021, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 3.4688 trillion; The daily average trading value for the ETF market was JPY296.6 billion; Derivatives Market; In FY2020, total derivatives trading volume was 382,771,145 contract; In FY2020, total derivatives trading value reached JPY 2,777 trillion. And trading value for equity index derivatives was JPY 1,636 trillion, the second highest on record.

The World Federation of Exchanges Publishes Research on Global Circuit Breaker Practices
The World Federation of Exchanges
The World Federation of Exchanges (“The WFE”), the global industry group for exchanges and CCPs, today published a research paper titled ‘Circuit breakers and other market safeguards,’ as part of the industry’s work on systemic resilience and the structures that support market integrity. This paper, the first of a two-part series, examines and analyses the kind of circuit breakers and other safeguards that are most prevalent among exchanges today and how they were used during the recent COVID-19 related events. The analysis focuses on the equity markets, covering both cash equities and equity derivatives, and reflects exchanges’ views on the topic over the period from June to November 2020, when the survey was conducted.

Regulation & Enforcement

SEC opens investigation into Archegos Capital trades that sparked $20 billion liquidation, report says
Matthew Fox – Markets Insider
The US Securities and Exchange Commission has opened an investigation into Archegos Capital’s Bill Hwang and the margin call trades that led to a $20 billion liquidation of his family office, according to a report from Bloomberg.
The investigation is routine following such a high-profile market event, and the probe may not lead to any allegations of wrongdoing.

ASIC bans the sale of binary options to retail clients
ASIC has made a product intervention order banning the issue and distribution of binary options to retail clients. The ban will take effect from Monday, May 3, 2021 after ASIC found that binary options have resulted in and are likely to result in significant detriment to retail clients.


Robinhood to Remove Controversial Digital Confetti From Trading App
Caitlin McCabe – WSJ
Robinhood Markets Inc. is eliminating digital confetti from its trading app, the latest sign that the popular brokerage is working to correct concerns from critics, as it moves forward with plans to go public. Robinhood’s digital confetti, which historically has rained down on users’ screens to celebrate occasions such as making a first trade, has become a point of contention for the brokerage in recent months. Critics have pointed to the animation as a sign that the company “gamifies” investing. Robinhood repeatedly defended the design. Starting next week, however, the company plans to roll out new digital designs. Instead of confetti, users will see animations that the company hopes will acknowledge “investing milestones” while also providing customers with more information about the actions they are taking.


Opinion: Improving technical indicators put stock-market bulls back in charge
Lawrence G. McMillan – MarketWatch
After having shrugged off some internal weakness, the major stock-market indexes are poised to break upward again.
The Dow Jones Industrial Average has already done so, but now the S&P 500 is beginning to catch up, and Nasdaq has improved (although it is still well below its all-time highs). The S&P made a new intraday all-time high on Wednesday, but some late sell programs – probably based on end-of-the-quarter machinations – kept it from closing at a new all-time high.

(Podcast) OPR 358: Selling A Cash-Secured Put in Ford
Options Playbook – Options Insider Radio Network
On this episode, Brian reviews last week’s trade doing a back spread with calls in United Airlines (ticker: UAL) Today’s trade is selling a cash-secured put in Ford (ticker: F).


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.
Date May 10, 2021 12:00 p.m. – May 14, 2021 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.


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 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.

DOJ enforcement priorities in commodities & derivatives markets: A discussion with DOJ leadership
April 13, 2021 • 1:00 p.m. – 2:00 p.m. ET
During this discussion, James McDonald, Sullivan & Cromwell Partner, will interview Robert Zink, U.S. Department of Justice, Acting Assistant Attorney General (and Chief of the DOJ Fraud Section from January 2019 to August 2020), regarding DOJ’s enforcement priorities in the commodities and derivatives markets and white collar area more generally.


GameStop guru ‘Roaring Kitty’ says he has $40 million in his portfolio – a 1,100% gain in 3 months
Theron Mohamed – Markets Insider
The amateur investor who helped inspire the GameStop short squeeze ended the first quarter with $40 million in his portfolio – a 1,100% gain in three months.
Keith Gill, who goes by u/Deep***Value on Reddit and the name Roaring Kitty on YouTube, posted a screenshot of his portfolio on the Wall Street Bets subreddit on Wednesday. It showed a total of $39.8 million in assets, comprising $19 million in GameStop shares, $8.9 million in bullish call options on the stock, and $11.9 million in cash.

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Past Options Newsletters

Seeing red: tricky times in the markets

Seeing red: tricky times in the markets

$34,126/$300,000 (11.4%) ++++ Lead Stories Seeing red: tricky times in the markets Stefan Wagstyl - Financial Times As investors we like to think we're acting rationally, even though there are mountains of evidence to show that, all too often, we're not. A successful...

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