Professional investors behind ‘witching day’ options spike

Feb 9, 2024

Observations & Insight

Cboe Global Markets, Inc. announced the election of Erin Mansfield, former managing director of global regulatory relations and policy at Barclays, and Cecilia Mao, global chief product officer at Equifax Inc., as new members of its board of directors. Additionally, Joe Ratterman has chosen to step down from the board of directors of Cboe Global Markets. Ratterman joined the Cboe board in 2017 following the Bats Global Markets acquisition. Moreover, Cboe’s board of directors has declared a quarterly cash dividend of $0.55 per share of common stock for the first quarter of 2024. ~JJL


Futures Discovery: Regulation & Do You Need to be Registered

Today, we’re diving head first into a crucial topic that affects every trader’s journey in the world of futures trading – “Regulation & Do You Need to be Registered.” Buckle up as we unravel the intricate web of rules and regulations that shape the landscape of the futures market.

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Term of the Week – The Price of an Underlying Asset

The basics of how the price of an underlying asset affects options prices.

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Lead Stories

Professional investors behind ‘witching day’ options spike
Study says retail investors are the losers from anomaly that costs more than $3.8 billion
Rob Mannix –
Researchers have added fuel to controversial claims made last year that equity index options may be subject to market manipulation.
The fresh analysis, which builds on work done by the same team in 2023, shows that professional investors benefit from a pricing anomaly in S&P 500 index options that costs retail investors more than $3.8 billion a year.

Zero margin is the real risk in zero-day options; Risk management practices built for slower markets are dangerously outdated
Tom Adlard, Tom Leake and Arie Aboulafia –
In S&P index options, contracts with less than a day to expiry now account for almost half of all trading, with more $500 billion in face value changing hands every 24 hours. The explosive growth in activity has given rise to an increasingly polarised debate about the risks this may pose for financial markets.
That discussion, though, may be distracting attention from an arguably bigger concern – the fragility of an outdated margining system that was designed for a much slower pace of trading.

Market Reaches Record Highs as a Tech Surge Propels S&P 500 Near 5000
JJ Kinahan – tastylive
Strong earnings reports are generating optimism despite potential headwinds
The market is reaching new highs fueled by tech. Meanwhile, earnings reports are generating optimism despite potential economic headwinds.
Rising bond yields are challenging rate cut expectations, and optimism among CEOs contrasts with market trends.
It may be time for a breather—it’s prudent to adhere to long-term investment plans amid uncertainties.
The S&P 500 surged to a new high, flirting with 5000 before a modest 0.1% uptick yesterday. Similarly, the Nasdaq Composite, propelled by tech stocks, has neared its 2021 peak, just 1.6% shy. Forecasts for robust 2024 earnings are bolster this ascent.

Hedge-Fund Short Sellers Revel in Hidden Cash Perk Like 2007
Justina Lee and Lu Wang – Bloomberg
Hedge funds are paid big bucks for making smart market bets. Yet these days, a simple feature of the financial plumbing – largely overlooked on Wall Street during the low interest-rate era – is helping juice industry returns. It’s the tidy income the masters of the universe are enjoying just on their cash proceeds after shorting stocks, all thanks to the highest federal funds rate since 2007. When the fast-money set bets against a company, it sells borrowed shares, resulting in a pile of cash that is held as collateral with their prime broker. That cash earns interest, known as a short rebate.

S&P 5000 Can’t Mask the Chaos Beneath the Calm
Jacob Sonenshine – Barron’s
There’s chaos beneath the stock market’s calm—a calm that could be ready to break.


ICE to launch coal options contracts on Nov 8
IntercontinentalExchange Inc’s ICE Futures Europe will launch monthly coal options contracts for Rotterdam in the Netherlands, South Africa’s Richards Bay and Australia’s Newcastle on Nov. 8, ICE said on Monday.
“This is an additional tool in the risk manager’s toolbox, and a considerable one,” said Eoghan Cunningham, Chief Executive Officer of screen trading platform globalCOAL, which is cooperating with ICE to develop the coal futures market.

Cboe Global Markets Announces Election of Erin Mansfield and Cecilia Mao to Board of Directors; Declares First-Quarter 2024 Dividend
Cboe Global Markets, Inc. (Cboe: CBOE), the world’s leading derivatives and securities exchange network, today announced its Board of Directors elected Erin Mansfield, former Managing Director, Global Head of Regulatory Relations and Policy at Barclays, and Cecilia Mao, Global Chief Product Officer at Equifax Inc., as new members to its Board of Directors. Additionally, its Board of Directors has declared a quarterly cash dividend of $0.55 per share of common stock for the first quarter of 2024. The first-quarter 2024 dividend is payable on March 15, 2024, to stockholders of record as of February 29, 2024.

CME Group Inc. Names Slate of Director Nominees
CME Group
CME Group Inc., the world’s leading derivatives marketplace, today announced its slate of candidates for its board of directors for election at the company’s annual meeting to be held Thursday, May 9, 2024. The board of directors recommends the Class A and Class B shareholders voting together elect the following individuals to the board: Terrence A. Duffy, 65, Chairman and Chief Executive Officer, CME Group Kathryn Benesh, 64, CPA, Retired Partner, Deloitte Timothy S. Bitsberger, 64, Retired Managing Director and Portfolio Specialist, The TCW Group; Former Senior Vice President and Treasurer of Freddie Mac; U.S. Treasury Department (2001-2005)

Miami International Holdings Reports Trading Results for January 2024; MIAX Pearl Equities Volume Increases 105.3% with Market Share Reaching 1.9%
Miami International Holdings, Inc. (MIH) today reported January 2024 trading results for its U.S. exchange subsidiaries – MIAX , MIAX Pearl and MIAX Emerald (together, the MIAX Exchange Group), and Minneapolis Grain Exchange (MGEX™).

Derivatives Holiday Trading (February 12, 2024)
The derivatives market will be open for holiday trading on Monday, February 12, 2024 (Substitute Holiday of National Foundation Day).

Regulation & Enforcement

Hedge Funds to Share More on Their Strategies Under SEC Rule
Ben Bain – Bloomberg
US regulators will begin requiring hedge funds to confidentially share more information about their investment strategies. New rules approved on Thursday will require firms to provide more details with watchdogs, including investments, borrowing and counterparty exposure. The Securities and Exchange Commission and Commodity Futures Trading Commission described the new regulations, which were proposed in 2022, as a way to better keep tabs on risk in the financial system.

New SEC Rule Will Impair the World’s Most Important Market; The agency’s new regulations, an attempt to fix its past mistakes, will likely lead to excess volatility in US government securities during times of stress.
Aaron Brown – Bloomberg
Never mind the dense 247 pages. Just the title of Securities and Exchange Commission’s new rule concerning trading of US Treasuries, deemed the world’s most important market, will make your eyes glaze over: “Further Definition of ‘As a Part of a Regular Business’ in the Definition of Dealer and Government Securities Dealer in Connection with Certain Liquidity Providers.” But regardless of what the SEC calls it, this is a classic example of regulatory creep.

Goldman Is Facing CFTC Probe Over Fees Charged for Futures Trading; US derivatives regulator will demand information on fees; Investigation is latest headache for Goldman with CFTC
Lydia Beyoud and Sridhar Natarajan – Bloomberg
A top US financial regulator has opened an investigation into whether Goldman Sachs Group Inc. improperly charged fees to execute some of its clients’ futures trades, the latest regulatory headache for the bank. The Commodity Futures Trading Commission privately authorized sending subpoenas to Goldman for information about fees charged for some futures block trades, according to people familiar with the matter. The probe stems from a whistle-blower tip, said one of the people, who asked not to be identified discussing the confidential probe.


BMLL Wins ‘Data Science Solution Provider’ at the Hedgeweek European Awards 2024
We are delighted to announce that BMLL has won “Best Data Science Solution” at the annual HedgeWeek European Awards 2024. These awards recognise excellence among fund managers and service providers in Europe across a wide range of categories. BMLL was awarded “Best Data Science Solution” for providing Level 3 data and analytics to hedge funds, helping them improve predictability, quality and speed of alpha through a scalable, managed data and analytics service.


Volatility Is Good. How to Use It.
Steven M. Sears – Barron’s
If interest rates aren’t going to increase, does it matter when the Federal Reserve cuts rates?

Cherry Picks
Tastylive (Video)
Mike, Nick and Katie take trading questions live on YouTube chat and explain the answers in depth using the tastytrade platform and graphics.

New All Time Highs
Cboe (Video)
In #Vol411, Dan Deming @Djd551 takes a look at the volatility complex – the $VIX futures roll market, active #VIX options, and realized vs. implied volatility – as $SPX hits all-time highs.

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The Spread

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