Risk Appetites Revitalized in Supercharged U.S. Equities Rebound

Dec 8, 2021

Observations & Insight

CME has a deal with QuickStrike to provide all sorts of analytics tools, including an options calculator which “generates fair value prices and Greeks for any of CME Group’s options on futures contracts or price up a generic option with our universal calculator. Customize your input parameters by strike, option type, underlying futures price, volatility, days to expiration (DTE), rate, and choose from 8 different pricing models including Black Scholes.”

It is pretty amazing the list of tools the CME has embedded in their website. Check out the complete list here.

Lead Stories

Risk Appetites Revitalized in Supercharged U.S. Equities Rebound
Lu Wang and Vildana Hajric – Bloomberg
Risk-taking traders roared back to life Tuesday, abetted by speculators who had loaded up on too much protection against further losses.
Rallies in the most speculative corners of the market led U.S. stocks to the biggest surge since March, with all major averages climbing at least 2%. That was enough for the S&P 500 to wipe out all of the drop suffered after Federal Reserve Chair Jerome Powell’s hawkish tilt a week ago.

Stock Volatility Steers Gains to the Predictable Profit Makers
Emily Graffeo – Bloomberg
In a year rife with uncertainty, stock-market investors have sought refuge in predictable profit producers.
Just last week, the CBOE Volatility Index, or VIX, surged to the highest point since February as investors grappled with news of the omicron variant and hawkish comments from Federal Reserve Chair Jerome Powell.

Global stocks steam ahead after days of volatility
Naomi Rovnick and Nicholas Megaw – Financial Times
Stocks globally rallied by the most in over a year on Tuesday, with investors encouraged by signs that the Omicron coronavirus variant may prove less serious than feared as well as signals from Chinese authorities that they are willing to stimulate the country’s slowing economy.
The FTSE All World share index rose 2.1 per cent, marking its best day since November 2020, while the S&P 500 and Nasdaq Composite indices in the US enjoyed their biggest one-day gains since March.

FX options wrap – FX clues from positioning and price action
Risk recovery takes option implied volatility cautiously lower, but uncertainty over the Omicron variant, central bank meetings and year-end liquidity are limiting deeper declines in shorter dated and front-end expiry premiums.

Hedge funds’ November performance worst since March 2020 – HFR
Hedge funds posted their worst performance in 20 months in November, after a global market selloff sparked by concerns over the Omicron COVID variant, according to data from HedgeFund Research.

Bitcoin’s Selloff Driven by Options, but Also Interest Rates, Fed Policy
Paul Vigna – WSJ
Bitcoin’s weekend selloff and subsequent rebound illustrate the crypto market’s volatility, but also its growing connection to traditional asset classes.
Between late Friday night and early Saturday morning, bitcoin’s price fell more than 20%, trading as low as $42,000 at one point. By Monday afternoon, it had recovered some of those losses and on Tuesday afternoon was trading around $50,528, according to CoinDesk. That was still down from $53,670 on Friday afternoon, and about 27% off its high of $68,990 set in November.


Miami International Holdings Reports November 2021 Trading Results; MIAX Exchange Group Sets Annual Volume Record; MIAX Pearl Equities Sets Market Share and Volume Records
Miami International Holdings
Miami International Holdings, Inc. today reported November 2021 trading results for its U.S. exchange subsidiaries – MIAX , MIAX Pearl and MIAX Emerald (together, the MIAX Exchange Group™) and Minneapolis Grain Exchange (MGEX™).
Total U.S. multi-listed options market share for the MIAX Exchange Group reached 13.88% in November 2021, 309 basis points higher than the 10.79% market share in November 2020 and representing a 28.6% increase.

Keynote Address at FIA Asia Derivatives Conference by SGX CEO Loh Boon Chye
1) Congratulations to our friends at the FIA for bringing together the industry, virtually, once again. We applaud your efforts in putting together a strong agenda for the Asia Derivatives Conference year after year – well done.
2) The global derivatives space remains a linchpin of the world economy and as the leading industry group, the FIA plays an important role in supporting open markets and upholding the integrity of the financial system. Your advocacy work, amid the challenging business and regulatory landscape, continues to make a difference for the community.

What Does Payment for Order Flow Buy? (Opinion)
Matt Levine – Bloomberg
I think there are two different intuitive models of payment for order flow. Let’s call them the Good Model and the Bad Model.
The Good Model goes like this. Lots of retail investors go to their brokerage looking to buy XYZ stock, and lots of retail investors go to their brokerage looking to sell XYZ stock. XYZ is available on the stock exchange; you can buy it for $10.02 or sell it for $9.98. Those prices on the stock exchange are called the “national best bid and offer,” or NBBO, and are set essentially by market makers, high-frequency electronic traders who are in the business of buying from sellers and selling to buyers. The spread — the $0.04 difference between the buying price (the offer) and the selling price (the bid) — is due to the fact that the market makers take lots of risk: If they buy stock on the stock exchange, probably some smart hedge fund is selling, and it will probably go down. So they need to buy at a fairly low price ($9.98) and sell at a fairly high price ($10.02) to compensate for this risk of “adverse selection,” this risk that whoever they trade with knows something that they don’t.

Regulation & Enforcement

These Stock Options Deserve the SEC’s Scrutiny; Spring-loaded grants allow executives to enrich themselves at the investing public’s expense. Regulators are right to get tougher on the practice.
Michelle Leder – Bloomberg
In principle, corporate directors and executives, who naturally have privileged information about their companies, aren’t supposed to use it to enrich themselves at the investing public’s expense. Yet there remain many ways in which they can nonetheless do so. In a seemingly obscure accounting guidance, the Securities and Exchange Commission has moved to shut down a significant one. It’s a good decision, signaling a tougher approach to insider trading more broadly.

Regulators are taking steps to increase oversight of retail investors’ ability to make risky options bets
Natasha Dailey – Markets Insider
Regulators are set to take early steps in beefing up rules for options trading, looking to better protect retail investors from placing big bets on the direction of a stock without fully understanding the risks involved.
FINRA, the Financial Industry Regulatory Authority, will post a request for comment on options trading in the coming weeks in the hopes of receiving feedback from the public, according to a FINRA spokesperson. The Wall Street Journal first reported the news.


Diversifying Exposure to the Nasdaq With Options-Based ETF Strategies
Max Chen – ETF Trends
Options-based exchange traded fund strategies may help financial advisors diversify a traditional stock and bond portfolio to meet any challenges ahead.
In the recent webcast, How Options-Based Strategies May Provide Protection, Ben Jones, senior index strategist at Nasdaq, highlighted the importance of the Nasdaq-100 Index as a prominent component in many investors’ tool kits. The benchmark index includes the disruptors, the game-changers, and the forward-thinkers — companies that influence our lives daily in multiple areas. For instance, Apple, Amazon, Google, Facebook, and Microsoft have become global leaders in the technology sector by creating products and services that are essential to both individual consumers and enterprise customers. From software, computing, and communications, to entertainment, advertising, and e-commerce, their platforms represent the new “diversified industrials” of the 21st century.


FTX US selects Eventus for trade surveillance and risk monitoring of crypto spot, futures and options markets
Eventus Systems/FTX US
The US-regulated cryptocurrency exchange to deploy Validus platform
FTX US, a leading U.S.-regulated cryptocurrency exchange, and Eventus Systems, Inc., an award-winning global provider of multi-asset class trade surveillance and market risk solutions, announced today that the exchange will deploy the Eventus Validus platform to conduct trade surveillance and risk monitoring on FTX US, and FTX US Derivatives, its recently acquired licensed cryptocurrency futures and options exchange and clearinghouse.


CME Group Names Top Five Teams of 18th Annual University Trading Challenge
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the winners of its 18th annual University Trading Challenge, led by the University of Bogota Jorge Tadeo Lozano, who is the second consecutive Latin American team to top the global competition.

*****Three Illinois teams in the top five: Loyola University (Chicago), University of Illinois and Southern Illinois University.~JJL

‘Proceed with caution’: here’s what Wall Street analysts see for the U.S. stock market in 2022
Christine Idzelis – MarketWatch
The recent spike in market volatility may herald a bumpier U.S. stock market in 2022, as investors come to grips with an inflection point in monetary policy in the pandemic.
“There probably will be some elevated volatility around the potential tightening of Fed policy,” said Shawn Snyder, head of investment strategy at Citigroup’s U.S. consumer wealth management division, in a phone interview. “Omicron throws in a bit of a wrench” to the 2022 outlook, he said of the new variant of the coronavirus, though investors have appeared encouraged by some early signs that it may be less dangerous than initially feared.

An anonymous bitcoin whale reportedly bought $150 million worth of the cryptocurrency during its recent price crash
Carla Mozée – Markets Insider
A big holder of bitcoin scooped up millions of dollars worth of the cryptocurrency during its recent crash that pushed the price down by nearly 30% to below $50,000, The Independent reported Wednesday.
The third-largest holder of bitcoin bought more than $150 million of the digital currency, scooping up more than 3,000 bitcoins over the past couple of days, the report said, citing data from BitInfoCharts, a blockchain monitoring service.

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The Spread

Hedges Across Assets Are Too Expensive, Morgan Stanley Says

Lead Stories Hedges Across Assets Are Too Expensive, Morgan Stanley Says Options imply broad range of outcomes, strategists say Morgan Stanley suggests positioning for a peak in volatility Joanna Ossinger - Bloomberg Long volatility is too expensive as hedging...

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