SoftBank Shares Drop on Concerns About Massive Options Bet; Goldman Sachs says Wall Street’s fear gauge is flashing a warning sign unseen since the dot-com crash in 2000

Sep 8, 2020

Observations & Insight

Cboe’s Henry Schwartz, in partnership with The Options Industry Council, will present The State of the Options Industry on Tuesday, September 15, 2020. Schwartz will share his analysis of an unprecedented year for the markets and insights on what the future holds. Register HERE.

Lead Stories

SoftBank Shares Drop on Concerns About Massive Options Bet; Investors worry that a large bet on tech stocks changes the risk profile of the Japanese tech conglomerate
Phred Dvorak – WSJ
Shares in SoftBank Group Corp. tumbled 7% on Monday, as investors reacted to news of a massive bet the company has placed on a rise in tech stocks. The size of the bet—which used stock options tied to as much as $50 billion in individual tech stocks, as reported by The Wall Street Journal—means SoftBank could win big if the market goes its way, or lose a sizable down payment for the options if tech share prices drop, as they did at the end of last week.

****JB: Also see the Financial Times’ story, SoftBank shorted on hedge fund moves and The Wall Street Journal’s story, SoftBank’s $4 Billion Tech Option Gambit Feels Like Déjà Vu.

Goldman Sachs says Wall Street’s fear gauge is flashing a warning sign unseen since the dot-com crash in 2000
Shalini Nagarajan – Markets Insider
Goldman Sachs said Wall Street’s top fear gauge is flashing a warning signal not seen in about two decades since the dot-com bubble burst in early 2000.
The CBOE Volatility Index, also known as the VIX, is the market’s best indicator of expected volatility in the next 30 days. When the stock market rises, ordinarily the index declines, and vice versa.

Where Danger Lurks in the Big Tech Rally; Unbridled optimism, the impact of options, and the speed and scale of the gains have left the rest of the stock market in the dust
James Mackintosh – WSJ
It’s been a terrible two days to be an Apple shareholder. Yet, after falling 8% on Thursday and swinging wildly to end flat on Friday, the price is all the way back down to where it was, um, two weeks ago. Investors might reasonably worry that this is the start of a bigger correction. There was far too much enthusiasm for the big disruptive technology stocks, so prices could go down a lot more. Yet, there are still good reasons for liking companies whose growth has been helped rather than hindered by the pandemic.

Don’t bet against the U.S. market, it’s likely going higher, BlackRock’s Rieder says
Saqib Iqbal Ahmed – Reuters
The U.S. stock market’s two-day tech-led fall last week has revived investor worries about a spiral of selling that could crash the broader market, but Rick Rieder, head of the BlackRock Global Allocation team, does not see stocks going off a cliff. Indeed, the $23.2 billion BlackRock Global Allocation Fund that Rieder runs currently has options trades that would benefit from a rebound in stocks.

Wall Street losses pile up as tech shares slide
Naomi Rovnick, Eric Platt and Hudson Lockett – Financial Times
US technology shares that powered stock markets to records this summer dropped for a third consecutive session, in what some investors are calling a “healthy” correction to valuations that had surged since the coronavirus sell-off in March.

August’s Bitcoin Rally Led to Record Crypto Derivatives Volumes: Report
Paddy Baker – Coindesk
Trading volumes for crypto derivatives rebounded to record levels as bitcoin’s rally to $12,000 spurred on speculation, according to a newly released report.

Exchanges and Clearing

Minneapolis Grain Exchange Membership Approves Demutualization for Purposes of Merger with Miami International Holdings
Press Release via New York City Biz List
Miami International Holdings (MIH), the parent holding company of the MIAX Exchange Group, and the Minneapolis Grain Exchange (MGEX), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), today announced that MGEX membership overwhelmingly voted in favor of demutualizing. As a result, MIH and MGEX can now proceed with merger preparations in accordance with the agreement and plan of merger previously announced by the parties.

Effective September 8, 2020 through September 11, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
MIAX Options
Issue Symbol: All Symbols
Multiplier: 2X
Reason: In maintenance of a fair and orderly market.
Time: Opening and Intraday
Subject Summary: Please be advised, effective September 8, 2020 through September 11, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.

August monthly figures at Eurex and EEX
OTC Clearing volumes at Eurex led the way in August with continued strong growth, while the picture was mixed across other business areas
OTC Clearing at Eurex enjoyed a very positive August with notional outstanding volumes rising 50% from 12,821 billion EUR in August 2019 to 19,266 billion EUR this year. Average daily cleared volumes rose by 26% – from 57 to 72 billion EUR – across the same period, while Interest Rate Swap volumes remained stable.

Currency derivatives house of the year: Standard Chartered
The volatile markets during the first and second quarter this year have been challenging for corporates and institutional investors to hedge their FX exposures, especially in emerging markets currencies. While maintaining a lead in Asian foreign exchange markets, Standard Chartered also opened new markets and invested in digital solutions to enable efficient access to liquidity for clients.

Regulation & Enforcement

S&P Global Platts Assessment Change Commencing January 2021 – Affecting Three (3) European Ethanol T2 FOB Rotterdam Futures and Options Contracts
CME Group (Special Executive Report)
New York Mercantile Exchange Inc. (“NYMEX” or “Exchange”) has been advised by S&P Global Platts (“Platts”) of an upcoming amendment to the assessment basis of Ethanol T2 FOB Rotterdam (the “Assessment Basis”). Pursuant to Platts advisory dated July 17, 2020 which may be viewed HERE, effective January 4, 2021, Platts will increase the minimum Greenhouse Gas (GHG) savings in the Assessment Basis from 50% to 60%.

Block Trades
CME Group (Market Regulation Advisory Notice)
Effective on trade date Monday, September 21, 2020, and pending all relevant CFTC regulatory review periods, this Market Regulation Advisory Notice will supersede CME Group Market Regulation Advisory Notice RA2004-5R from July 2, 2020.


Tesla stock tumbles toward 2nd bear market in 6 months
Tomi Kilgore – MarketWatch
Shares of Tesla Inc. tumbled Tuesday, putting them on track to kick off their second bear market this year, as investors rode a roller coaster the past week that started with a climb to a record close and was followed by a stock offering, a big bounce, and then an S&P 500 index snubbing.

Giant Trader Footprints Leave Trail to Tech Options Plays
Joanna Ossinger – Bloomberg
As the debate rages as to who has had the most impact on option markets — retail traders or institutions — what’s becoming clear is the sheer size of the wagers of the professionals.
RBC Capital Markets strategist Amy Wu Silverman noted bullish bets in a handful of technology companies in August as having all the hallmarks of a big institutional trade — with “a staggering $1 billion-plus in premium spent.” Henry Schwartz at Trade Alert LLC cited trades with about $1.4 billion in premiums spent last month.

Looking for Yield? Consider This Utilities Options Strategy.
Steven M. Sears – Barron’s
The utility sector, mostly ignored and underperforming the S&P 500 index, deserves consideration by all investors who are interested in reliable dividends at a time when bonds are unable to offer much.
The Utilities Select SPDR exchange-traded fund (ticker: XLU), a portfolio of leading utility stocks, yields 3.27%, compared with 0.72% for the 10-Year Treasury.

The world’s largest wealth manager says tech stocks are ‘not in a bubble’ and lays out 3 ways to position for the next stage of the bull market
Saloni Sardana – Markets Insider
The technology sector is not in a bubble, despite trading near record highs after last week’s abrupt sell-off, according to the world’s largest wealth manager.
“The sell-off raises the question whether the time has come to sell tech stocks. But our view is that the move does not mark the start of a renewed decline in tech similar to March,” Mark Haefele, chief investment officer at UBS Global Wealth Management said in a note on Monday.


Coronavirus Markets: Guggenheim’s Jim Millstein Sees Period of Pretty Significant Volatility
Bloomberg (VIDEO)
Jim Millstein, co-chairman at Guggenheim Securities, discusses market volatility and the economic impact of the coronavirus pandemic. He speaks on “Bloomberg Markets.”

Japanese billionaire laments $41 million loss from day trading in volatile stock market
Ben Winck – Markets Insider
Japanese billionaire Yusaku Maezawa revealed Sunday he regrets day-trading stocks and losing 4.4 billion yen (roughly $41 million) as the coronavirus pandemic fueled strong market volatility.

Why Tesla Was Left Out of the S&P 500
Gunjan Banerji and Michael Wursthorn – WSJ
Tesla Inc. was passed over for inclusion in the S&P 500 index, a move that put a halt to the parabolic run in the electric-car maker’s shares. S&P Dow Jones Indices, which determines the makeup of the index, said Friday afternoon that online marketplace Etsy Inc., technology firm Teradyne Inc. and pharmaceutical company Catalent Inc. would be added in its quarterly rebalancing. Tesla—whose shares have catapulted to new highs, partly in anticipation of joining the S&P 500—was noticeably absent.

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