SEC approves Ethereum ETF on Nasdaq, NYSE, CBOE; A Hedge-Fund Volatility Trade Risks Getting Crushed by the Crowd

May 24, 2024

Observations & Insight

The FIA released its April ETD volume report, saying that worldwide volume of exchange-traded derivatives reached 15.19 billion contracts in April, up 2.4% from March 2024 and up 89.9% from April 2023. Options trading continue to gain in popularity, reaching 12.57 billion contracts in April, up by more than 109% from last year, with most of that trading taking place in the Asia-Pacific region. Global trading of futures reached 2.62 billion contracts in April, up 30.3% from the same month last year. On a year-to-date basis, volume in the first four months of the year was 63.1 billion contracts, up 77.5% from the first four months of 2023. The majority of that increase came from equity contracts.~SR

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Futures Hall of Famers Moore and Heinz Reflect on Trading Careers in JLN Interview
JohnLothianNews.com

BOCA RATON, Fla. (JLN) – Robert Moore and James Heinz, two veteran traders recently inducted into the FIA Futures Hall of Fame, reflected on their decades-long partnership and the evolution of the industry in an interview with John Lothian News.

Watch the video »

Crypto.com Aims to Revolutionize Financial Services, Eyes Expansion Beyond Core Customer Base
JohnLothianNews.com

BOCA RATON, Fla. (JLN) – The future of Crypto.com involves bringing cryptocurrency into every wallet and becoming a one-stop shop for financial services, according to two Crypto.com executives interviewed at the FIA’s annual Boca Raton, FL conference in March.

Watch the video »

Lead Stories

SEC approves Ethereum ETF on Nasdaq, NYSE, CBOE
Radek Zielinski – readwrite
The U.S. Securities and Exchange Commission (SEC) approved applications from Nasdaq, CBOE, and NYSE on Thursday to list spot exchange-traded funds (ETFs) tied to the price of Ethereum (ETH). This decision could potentially allow these products to start trading later this year, marking a significant win for the cryptocurrency industry. Nine issuers, including VanEck, ARK Investments/21Shares, and BlackRock, are hoping to launch ether ETFs following the SEC’s approval of Bitcoin ETFs in January. Andrew Jacobson, vice president and head of legal at 21Shares, described the moment as “exciting” and “a significant step” towards getting the products trading.
/jlne.ws/4bOKuiO

A Hedge-Fund Volatility Trade Risks Getting Crushed by the Crowd; Strategy selling index hedges, buying stock options has surged
Justina Lee – Bloomberg
A once-niche stock trade beloved by hedge funds and volatility players has ballooned into one of the biggest options strategies on Wall Street, stirring fears it will get crushed by its own popularity. Known as dispersion, it’s traditionally been the preserve of bank trading desks and fast-money players like Capstone Investment Advisors and One River Asset Management. But it’s been luring new cash in the post-pandemic era as a market riven by rising interest rates has boosted performance.
/jlne.ws/3KfVAlb

Traders bet Ethereum will hit $5,000 as ETF nod sparks rally
Tim Craig – DL News
Ethereum options traders are bullish for June. The May 31 options expiry signals some short-term volatility. Traders are betting that Ethereum will continue to rally following the US approval for a spot Ethereum exchange-traded fund. Some $3.4 billion in options that expire on June 28 signals a surge in traders buying calls – or bullish bets – that Ethereum will exceed $4,000.
/jlne.ws/44Yv1uh

Hedge Funds’ Stampede Threatens a Prized Options Trade
Bloomberg MarketsTV Shows
Hedge funds’ success with the options strategy known as “dispersion” is attracting more and more investors, stirring concern that the trade will get too crowded and fall victim to its own popularity, Bloomberg’s Justina Lee tells Sonali Basak on “Bloomberg Markets.”
/jlne.ws/3QVZDqw

OCC introduces new intraday risk charge covering zero-day options; Revised measures “a nightmare” to implement, says one broker-dealer
Faye Kilburn – Risk.net
The Options Clearing Corporation is levying a new charge on clearing members for intraday risk, with lofty bills for their clients’ zero-day-to-expiry option (0DTE) risk exposure. The move has come after rapid growth in 0DTE trading volumes raised concerns that existing end-of-day margin calculations were failing to reflect the risk from firms trading the instruments.
/jlne.ws/3yyccSN

What Nvidia’s 10-for-1 Stock Split Will Mean for Investors
WSJ Staff
Alongside another blockbuster earnings report, Nvidia said it planned to split its stock. Here’s a look at what that means: Why is Nvidia splitting its stock? The company said it wants to “make stock ownership more accessible to employees and investors.” A split lowers the per-share price of a stock, theoretically putting it in reach for more small investors (though nowadays, brokers offer fractional share trading, meaning this isn’t a big obstacle.) It is also marginally good news for bigger investors, who tend to prefer dealing in round lots of 100 shares at a time.
/jlne.ws/3Vfuhhl

Bitcoin and Ether options worth $2.7B set to expire; The upcoming 21,000 contract expiry is dwarfed by the significantly larger $4.3 billion options expiry on May 31, according to Deribit.
Amaka Nwaokocha – Cointelegraph
Approximately $2.7 billion in Bitcoin and Ether options are set to expire on May 24, providing valuable insights into the crypto market sentiment. According to a post by Greeks.live on X, 21,000 Bitcoin options are about to expire with a put/call ratio of 0.88. This indicates a near-even balance between buyers and sellers, with a slight tilt toward call options. Meanwhile, the maximum pain point, which is the price at which most option buyers would suffer losses, is $67,000, representing a nominal value of $1.4 billion.
/jlne.ws/4ay5LMD

Listed Options Market Structure – Looking Ahead; A SIFMA Update from OIC 2024
SIFMA Editors
SIFMA’s Ellen Greene moderated the panel discussion, “Navigating the Markets During an Election Year”, at the 2024 Options Industry Conference (OIC) in Asheville, NC. She also shared prepared remarks on the listed options market, including: The continuation of options volume growth. The interconnectedness of multiple SEC Equity Market Structure proposals, the possible trickle-down effect to options, and why many trading and exchange representatives believe that a lookback process is needed to comprehensively assess the impacts and costs. Options market participation is expected to increase through investor education and better access to data and tools. Investor-driven growth continues for listed options: The continuation of options volume growth in 2023 – an increase of 7% year over year – reflects the rising investor demand, with retail traders being a large component of this robust volume.
/jlne.ws/3ywoGtY

Exchanges

Cboe Global Markets surpasses 1,000 ETFs worldwide
The Globe and Mail
Cboe Global Markets, Inc., the world’s leading securities and derivatives exchange network, recently announced that it has achieved a new milestone, surpassing more than 1,000 exchange-traded funds (ETFs) listed across its global network of listings exchanges. Cboe is currently the second-largest ETF listing venue in the U.S. with more than 690 ETF listings. Cboe Europe is the first Pan-European listing venue for ETFs and currently offers approximately 120 listings. Cboe Canada is home to more than 275 listings including public companies, ETFs, and Canadian Depositary Receipts (CDRs). There are more than 20 ETFs and 1,000 other investment products quoted on Cboe Australia, which currently captures up to 40 percent of the Australian ETF daily trading volume.
/jlne.ws/3WXONEe

S&P 500: IG fears a ‘dangerous cocktail’ in view of the VIX
MarketScreener
IG’s teams fear that the combination of a low VIX index and a high valuation multiple for the S&P 500 could create a “dangerous cocktail” for US equity markets. In a strategy note, Alexandre Baradez, head of market analysis at IG France, points out that the volatility index, the VIX, fell back yesterday to around 11.5 points, its lowest level since 2019.
/jlne.ws/3ywiMZZ

Strategy

Investors Hedging Record Stocks Struggle as Options ‘Just Die’; Beaten-down sectors have also rallied, hurting short-sellers; Hedgers are turning to shorting stock futures and ETFs
Jan-Patrick Barnert – Bloomberg
In a bull market with no crashes, no sudden spikes in volatility and no lasting correction, cautious investors are struggling to find effective ways to hedge their positions. Buying put options, a traditional choice for protecting against downturns, has failed to pay off for investors wary of the rally that pushed stocks around the globe to new all-time highs. Volatility sellers pushed the VIX Index down to the lowest level since 2019 this month and the S&P 500 Index has gone more than 300 days without a dropping 2% in a single session.
/jlne.ws/3yz8at8

Sinking volatility rings cross-asset complacency warning
Reuters
If you want evidence of how much the ‘soft landing’ narrative is driving bullish investor sentiment, look no further than benchmark measures of implied volatility. In equities, bonds, credit and currencies, ‘vol’ has not been this low in years, clearing the way for investors to push up asset prices to historic and, in the case of the S&P 500 and Nasdaq, record highs.
/jlne.ws/4dToOno

Options Alert: Asymmetric Trade Setup in the Russell 2000
Ethan Feller – Yahoo!Finance
At this point, we are all aware that the Russell 2000 has severely underperformed the broad market indexes over the last year. The chart below illustrates just how wide the performance gap between the Russell 2000 and the S&P 500 is. We can see that the two indexes were quite correlated until Q2 2023. It was at that point that a banking crisis ensued, and interest rate policy expectations began to change.
/jlne.ws/4bttu1Z

Miscellaneous

What Our Brains Know About Stocks-But Won’t Tell Us; Going on gut feelings when you invest is often a terrible idea. New research helps explain why it can sometimes be beneficial.
Jason Zweig – The Wall Street Journal
Thinking we know more than we do-overconfidence-may be our biggest handicap as investors. Knowing more than we realize, but not being able to use what we know, is another obstacle. It’s a mystery that’s finally getting some attention. To be an investor, rather than a speculator, you must do deep and deliberate research before you buy an asset. As the late investor Charlie Munger liked to say, you must be “rational.” That doesn’t mean you must be as unfeeling as Spock on “Star Trek.” One of Warren Buffett’s most famous rules-“attempt to be fearful when others are greedy and to be greedy only when others are fearful”-is rooted in his ability to respond to emotion.
/jlne.ws/44UHmzE

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