Robinhood announces changes to options trading after 20-year-old trader’s suicide; Hedge funds lack conviction on oil outlook

Jun 30, 2020

Lead Stories

Robinhood announces changes to options trading after 20-year-old trader’s suicide
Michael Graw – TechRadar
Trading app Robinhood has announced major changes to its service after a 20-year-old trader on the platform committed suicide. Alexander Kearns committed suicide after an options trade resulted in an apparent negative $730,000 balance in his trading account. Although the negative number referred to available buying power rather than to debt, Kearns left a note effectively blaming Robinhood for his death. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” Kearns’ message asked.

Hedge funds lack conviction on oil outlook
John Kemp – Reuters
Hedge funds increased their bullish positioning in oil last week, reversing a bearish move the week before, but the minimal changes serve to confirm the market’s lack of direction since the start of June.
The equivalent of 26 million barrels were purchased by hedge funds and other money managers in the six most important futures and options contracts in the week to June 23, after selling 16 million barrels the previous week.

Ethereum Volatility Drops Below Bitcoin’s but ETH Options Are Bearish
Marcel Pechman – Cointelegraph
Ethereum’s implied volatility dropped below Bitcoin’s for the first time ever, but is this a bullish or bearish development? Ether (ETH) options implied volatility, a measure of the expected price swings as per the options markets premium, has dropped below Bitcoin’s (BTC) for the first time ever. This could signal that investors have given up expectations of a price decoupling, or they simply expect ETH price moves to mirror Bitcoin. In the case of potential catalysts for significant price moves, implied volatility tends to move up whereas an absence of triggers causes volatility to recede, alongside a diminishing premium on options markets.

It’s a Small Cap Life
Denis Vinokourov – Traders Magazine
The so-called small-cap effect, whereby small companies tend to outperform large ones over time is well documented. The basic theory states that there is a premium to be achieved by investing in smaller companies. However, the challenge arises from the fact that the aforementioned small cap assets are usually a lot less liquid and are also a lot more volatile. In turn, transaction costs are higher and there is a greater risk of information leakage, impact on the underlying price as positions are slowly built up by active money managers.

Exchanges and Clearing

Robinhood is making more money per trade than rival brokerages as millennials rush into day-trading
Ben Winck – Markets Insider
Robinhood made more from individual first-quarter trades than its legacy rivals, according to Piper Sandler research.
The discount brokerage made $0.0024 for every stock trade, beating out TD Ameritrade, Charles Schwab, and E-Trade. Equities trades netted Robinhood more than $31 million, second to TD Ameritrade’s nearly $73 million windfall. Charles Schwab and E-Trade brought in roughly $22 million and $19 million, respectively, according to Piper Sandler.

****JB: It is probably worth reading this article, Robinhood Trader’s Suicide Is Warning For Millennial Investors in conjunction with the one above (recall that this person lost over $700,000 in a day by trading options on Robinhood).

MIAX Exchange Group – Options Markets – Update for Option Classes to be added to the Penny Interval Program Beginning Wednesday, July 1, 2020
MIAX Options
As previously announced in our June 29, 2020 Alert, following the expiration of the Penny Pilot Program on Tuesday, June 30, 2020, the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will implement the Penny Interval Program effective for trading Wednesday, July 1, 2020. Please note: Chesapeake Energy Corp. (CHK) has been removed from the list of Penny Interval Options and ZScaler, Inc. (ZS) has been added to the list.

MIAX Exchange Group – Options Markets – UPDATED Corporate Action Alert: Tsakos Energy Navigation Limited (TNP)
MIAX Options
Tsakos Energy Navigation Limited (TNP) has announced a reverse stock split effective for Wednesday, July 1, 2020. On that date, the current TNP option class will change to TNP1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list TNP1 options. Therefore, no options on TNP will be available for trading on Wednesday, July 1, 2020.

Regulation & Enforcement

CFTC Charges Chicago-Based Firm and Six Individuals in Multi-Million Dollar Options Fraud Scheme
The Commodity Futures Trading Commission today announced the filing of a civil enforcement action in the U.S. District Court for the Northern District of Illinois against Long Leaf Trading Group, Inc., its principals James A. Donelson of Aurora, Illinois, and Timothy M. Evans of Tulum, Mexico, and former Long Leaf associated persons Jeremey S. Ruth of Austin, Texas, and Andrew D. Nelson of Elmhurst, Illinois. The defendants are charged with defrauding customers in connection with options on futures transactions. Some of the defendants are also charged with registration and disclosure violations. The CFTC also issued two orders filing and simultaneously settling charges against two additional former associated persons of Long Leaf, Scott J. Gecas, of Tinley Park, Illinois, and James E. Leeney, of Chicago, Illinois for their participation in the firm’s fraud scheme.

*****JJL: One of the parties is from my city, Elmhurst. Andrew D. Nelson appears to have grown up in Elmhurst and is connected to two connections of mine on LinkedIn who happen to be Elmhurst Eagle Scouts.


OCC Names Jennifer Baum as New Chief Compliance Officer
OCC, the world’s largest equity derivatives clearing organization, today announced the promotion of Jennifer Baum, currently First Vice President, Regulatory Compliance, to Senior Vice President and Chief Compliance Officer. Baum will replace Joe Adamczyk, who has left OCC to pursue another opportunity. She will serve as a member of OCC’s Management Committee.

Changes to the Executive Boards of Eurex and Eurex Clearing
Michael Peters appointed as new Chief Executive Officer of Eurex
Randolf Roth responsible for Equity & Index Derivatives and Client Services
Jonas Ullmann joins the Executive Board of Eurex
Jens Janka joins the Executive Board of Eurex Clearing
Eurex Frankfurt AG and Eurex Clearing AG are announcing changes to their Executive Boards.

Jordan & Jordan Partners with Jim Northey for CAT Reporting for Options
Jordan & Jordan (press release)
Jordan & Jordan (J&J), a leading financial technology company that provides regulatory compliance, market data, and trading solutions across the securities industry, is continuing to expand their Consolidated Audit Trail (CAT) subject matter expertise through a partnership with Jim Northey. Jim will focus on assisting clients with their preparations to meet CAT Phase 2b and Phase 2d options reporting obligations.


Goldman Sachs has formulated a strategy that could triple the market’s return within a year as volatility remains higher than normal — including 11 new stock picks for the months ahead
Akin Oyedele – Business Insider (SUBSCRIPTION)
Don’t expect the stock market’s whipsawing to subside anytime soon.
That’s the message from Goldman Sachs’ top equity strategists to clients as coronavirus-related headlines continue to fling the market around.

High volatility is here to stay in 2020. Goldman names 31 stocks to deliver the best returns amid the turbulence
Callum Keown – MarketWatch
High volatility and low risk-adjusted returns are likely to linger for months to come, Goldman Sachs strategists have warned.
After one of the worst first quarters in history for U.S. stocks, the second quarter looks set to be one of the best in decades.

A Wall Street chief strategist says US stocks have ‘considerable upside’ from current levels – and could climb as much as 20% in a best-case scenario
Carmen Reinicke – Markets Insider
While the US stock market’s rebound rally from March lows has given some investors the impression that it’s “too much, too fast,” it actually looks relatively normal compared to other new bull markets, according to the Leuthold Group.
Today’s rally “is certainly not a complete outlier, nor has it extended far beyond previous bull markets,” wrote Leuthold Chief Investment Strategist James Paulsen in a Monday note.

****JB: Also consider, The coronavirus’ resurgence could drag the US recovery into an L- or W-shaped trend, Bank of America says.


OCC Learning Is Now Live!
OCC, the world’s largest equity derivatives clearing organization, is committed to providing thought leadership and education to market participants and the public about the prudent use of all OCC-cleared products. One of the ways that OCC supports its mission is through the programs and services of The Options Industry Council (OIC). For nearly 30 years, OIC has strived to continuously evolve its educational offerings to help investors learn about the benefits and risks of trading options.


Impact of Reg NMS II on Exchanges, Market Surveillance and Order Routing
Wed, Jul 1, 2020 3:15 PM – 4:15 PM CDT
Agenda: – Welcome and introductions
– Outcomes of initial Reg NMS ruling and overview of Reg NMS II
– Conversation between Travis Schwab, CEO of Eventus Systems, and Adam Inzirillo, Head of Equities at Cboe Global Markets, on how Reg NMS II could impact exchanges, market surveillance and order routing


(Podcast) Option Block 913: Whistling Past The Graveyard…Again
Options Insider

How coronavirus became a market inferno and what was done to douse it
Ritvik Carvalho – Reuters
From a January lockdown in a Chinese province to 10 million infections worldwide, the coronavirus’ march across the globe has buffeted markets at every step these past six months, roiling the very plumbing of the global financial system.

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