Observations & Insight
Longtime CME Group executive David Lerman passed away a week ago. All the services were private. Lerman served as senior director, asset managers client segment, at the time of his death. He had been an independent bond options trader at the Chicago Board of Trade and worked as a U.S. Treasury Bond trader for Fossett Trading.
Record Options Trading Shows Jitters Before $2 Trillion ‘OpEx’; The 4,000 level for S&P 500 is a battlefield for bulls, bears; Cboe put-call ratio for single stocks reaches a 25-year high
Lu Wang – Bloomberg
Nowhere better illustrates Wall Street’s febrile sentiment than the stock-derivatives market, where trading volumes are breaking records heading into Friday’s $2.1 trillion options expiration. The monthly event, known as OpEx, has a reputation for stoking volatility as traders and dealers rebalance their big exposures en masse. Now, with demand for both bullish and bearish index contracts booming while hedging in single stocks explodes in popularity, OpEx comes at a precarious time.
More than $2 trillion in stock options expire Friday with put-call ratio near levels unseen since 2001
Joseph Adinolfi – MarketWatch
Equity options worth $2.1 trillion in notional value are set to expire on Friday in the latest monthly event where weekly and monthly options tied to single stocks, equity indexes and exchange-traded funds expire, risking an explosion of volatility across markets.
Every month, a team of analysts from Goldman Sachs publishes a breakdown of the options that are expiring. And one of the most notable details from this month’s report is a chart showing how much trading has shifted to options contracts with 24 hours or less left before they expire.
Foreigners join speculative China stocks frenzy
Hudson Lockett and Nicholas Megaw – Financial Times
Fast foreign money is piling back into Chinese equities, with even cautious US investors placing record bets via options just in case a path develops out of the country’s property crisis and zero-Covid malaise.
The buying of Shanghai- and Shenzhen-listed equities through Hong Kong’s Stock Connect programme has climbed to more than Rmb27bn ($3.8bn) this week, according to Financial Times calculations based on exchange data.
Navigating the Complex World of Equity Options Data
In an exclusive Risk.net webinar, convened in collaboration with Cboe Global Markets , experts discussed the expanding world of equity options data, the rise of retail investment within it, and the technological challenges and opportunities associated with these factors.
The 2022 Market Structure Week Debrief – SIFMA – The 2022 Market Structure Week Debrief
Katie Kolchin – SIFMA
Recently, SIFMA hosted our annual Listed Options Symposium and Equity Market Structure Conference. Across the two days, we gained insights into top-of-mind topics for market participants. Inside this note, we recap just some of what was seen and heard,
Nickel dogged by liquidity concerns and price volatility
Harry Dempsey – Financial Times
The wild swings in the nickel price have pointed up the long road ahead for the London Metal Exchange in its efforts to regain the market’s confidence in using its global benchmark for trading the precious metal.
The price of high purity nickel for delivery in three months under the LME contract fell 15 per cent in the three days to Friday to $25,235 per tonne, after climbing 20 per cent in the five days beforehand and peaking at $31,275 per tonne.
Watch Where’s the Volatility?
Where’s the Volatility? That was Friday’s question of the day posed by Alix Steel and Guy Johnson to Steve Sosnick, Interactive Brokers Chief Strategist, on “Bloomberg Markets: Americas.”
A year after the Nasdaq peak, why stocks could rally from here.
Jamie Chisholm – MarketWatch
This weekend a year ago the Nasdaq Composite hit a record high. And why not. The Fed Funds rate was then effectively zero, while the central bank continued to buy assets, pumping liquidity into the market. Inflation, Fed chair Jay Powell insisted, was “transitory.”
It was not. Powell has since raised the cost of borrowing to a top of range 4%. He’s now shrinking the central bank’s balance sheet. So the Nasdaq is off 30.6% from that peak.
U.S. Crude Drops Below $80 a Barrel
David Uberti – WSJ
U.S. crude futures fell below $80 a barrel, extending two weeks of declines that have carried oil prices to their lowest levels since September.
Front-month contracts for West Texas Intermediate crude traded as low as $77.23 Friday morning, according to Dow Jones Market Data, their lowest intraday value since Sept. 26. They have since nudged higher to $78.37.
As the FTX fallout spreads, smaller cryptocurrencies may have to stop be taken off exchanges to protect consumers, Crypto.com CEO says
Phil Rosen – Business Insider
The collapse of Sam Bankman-Fried’s FTX has sent shockwaves through the crypto sector, and more measures must be taken to protect consumers, according to Crypto.com CEO, Kris Marszalek.
Stick or twist? CME retains FCM application; Even though FTX has withdrawn its application, the exchange still plans to take on FCM business
Luke Clancy – Risk.net
CME is ploughing on with its application to become a US futures commission merchant (FCM), despite the demise of cryptocurrency exchange FTX and the pulling of its own similar application. FTX’s proposal would have allowed it to effectively bypass FCMs and give retail traders direct access to crypto derivatives trading, also opening the possibility it could extend its offering to traditional assets.
Position Limits – Cash Settled Interest Rate Listed Products
The applicable position limits for cash settled interest rate futures and options on cash settled interest rate futures have been updated and are reflected in the position limit file. The position limit file is available in Annex 1 and retrievable here.
Regulation & Enforcement
EXCLUSIVE How FTX bought its way to become the ‘most regulated’ crypto exchange
Chris Prentice, Angus Berwick and Hannah Lang – Reuters
Before it collapsed this month, FTX stood apart from many rivals in the largely unsupervised crypto industry by boasting it was the “most regulated” exchange on the planet and inviting closer scrutiny from authorities.
Now, company documents seen by Reuters reveal the strategy and tactics behind founder Sam Bankman-Fried’s regulatory agenda, including the previously unreported terms of a deal announced earlier this year with IEX Group, the U.S. stock trading platform featured in Michael Lewis’s book “Flash Boys” about fast, computer-driven trading.
Sonic the Hedgehog co-creator accused of insider trading
Leo Lewis and Eri Sugiura – Financial Times
The co-creator of Sonic the Hedgehog — a veteran programmer who ranks among the most famous figures in the Japanese games industry — has been arrested over an alleged insider dealing scam involving an investment of just $20,000.
Yuji Naka, whose producing credits during his early career at games developer Sega spanned major hits such as Phantasy Star Online to the less famous Billy Hatcher and the Giant Egg, was arrested on Friday.
**** I include this because I grew up playing Sonic the Hedgehog games. ~JB
It’s Been a Rough Year for Stocks and Bonds. What to Do in 2023.
Randall W. Forsyth – Barron’s
With more than a month to go, 2022 is all but certain to go down as an annus horribilis for both stocks and bonds. The crucial question for investors: What does that portend for the year ahead?
The relevant funds tell this year’s sad tale. The iShares Core S&P Total U.S. Stock Market exchange-traded fund (ticker: ITOT) shows a negative total return of 16.9% from the end of 2021 through Wednesday, according to Morningstar. The iShares Core U.S. Aggregate Bond ETF (AGG), which tracks the domestic investment-grade taxable bond market, suffered a 12.9% negative return over that span. With both asset classes taking double-digit hits, the Vanguard Balanced Index fund (VBAIX), a proxy for the traditional 60%/40% stock/bond portfolio, had a 15.3% loss.
Three seasonal effects in the stock market begin around Thanksgiving
Lawrence G. McMillan – MarketWatch
The stock market started what appeared to be another leg up in the past week, as the benchmark S&P 500 broke out over resistance at 3900 points.
In fact, the index rose to 4020 but then ran into trouble. There is support at 3900, but if that level is violated, the recent jump would be, in reality, a false breakout. So there is a struggle between the bulls and bears for control, right at current levels.
Are Options Bears Ahead of the Tesla Curve?
Emma Duncan – Schaeffer’s Investment Research
Following its multi-month and major billion-dollar takeover deal, Twitter — formerly carrying the ticker TWTR on the New York Stock Exchange (NYSE), has moved back into being a private company, as its now owned by Tesla Inc (NASDSAQ:TSLA) CEO, Elon Musk. The deal, which finalized in the last days of October, came with a slew of layoffs, including that of former CEO Parag Agrawal. The $44 billion-dollar takeover now makes Musk the mogul of five companies, including SpaceX and two small startups.
IRS Audits for the Wealthy Are About to Heat Up With $80 Billion of New Funds
Ben Steverman – Bloomberg
For the first time in years, rich Americans who cheat on their taxes face a growing threat from the Internal Revenue Service.
And, despite the Republican Party’s best efforts to invoke the tax bogeyman in this month’s midterm elections, it’s a menace that’s unlikely to go away.
Fintechs Still Pushing Crypto But Distancing Themselves From FTX
Aisha S Gani – Bloomberg
Digital finance companies are trying to reassure customers about their cryptocurrency offerings after the implosion of crypto exchange FTX.
Revolut Ltd., a finance app based in London, told users this week it did not have “material exposures” to FTX but was monitoring the situation. “This is a good reminder that crypto is very volatile: the value does go down, as well as up,” it said in an email. “So, remember to only invest what you can afford to lose.”
Supposed $477 million FTX ‘hack’ was actually a Bahamian government asset seizure
Lukas I. Alpert – MarketWatch
Remember that hack of nearly half a billion dollars in cryptocurrency from bankrupt FTX last weekend? Turns out it was actually a government asset seizure.
The Securities Commission of the Bahamas has now acknowledged that it was behind the removal of $477 million in crypto assets from the bankrupt exchange on Nov. 12.