Some on Wall Street try options trade to bet against AMC without getting burned

Jun 9, 2021

Lead Stories

Some on Wall Street try options trade to bet against AMC without getting burned
Matt Scuffham, Saqib Ahmed – Reuters
Some Wall Street traders are betting against another massive rally in AMC Entertainment Holdings Inc (AMC.N) and other “meme” stocks this week through a type of wager in the options market that would limit their losses should retail investors behind the run-up prove them wrong.

Day Traders in Duel With Short-Sellers Over Korea Meme Stock
Youkyung Lee – Bloomberg
Funds looking to short shares in a South Korean power-plant builder are meeting resistance from retail investors rushing to bolster the stock, in an echo of what happened on Wall Street with GameStop Corp. earlier this year.
Doosan Heavy Industries & Construction Co. surged 160% from mid-May to a Monday peak, a gain that sent its market value to the highest level since 2008. The stock slumped 21% on Tuesday after hitting levels that indicated it was overbought, before rising 3% in trading today.

Wall Street languid as “meme stock” frenzy hogs spotlight
Stephen Culp – Reuters
Wall Street stocks wavered near the starting line on Tuesday as a lack of clear market catalysts kept institutional investors on the sidelines, while retail traders kept the rally of so-called meme stocks alive.
All three major U.S. stock indexes were little changed, with the S&P (.SPX) and the Dow (.DJI) hovering within 1% of their record closing highs.

Meme Stock Madness Spreads to Wendy’s
Al Root – Barron’s
The meme trade is spreading, and morphing into something new. The spread increases the potential gains, and pain, of traders looking to make a fast buck with little or no regard to fundamentals.
Stock in Clover Health rose 32% on Monday and 86% on Tuesday. Shares were up another 20% in premarket trading on Wednesday.

‘Meme’ Stocks Can Learn From AMC
Holman W. Jenkins, Jr. – WSJ
Stock investors are free to buy for any reason they want (except inside information) and yet it works better for society if they buy and sell depending on whether a company appears to be cheap in relation to long-term prospects. This sends the right message to managers. It directs capital to its most highly valued uses. It makes the world safe for indexers.
So congrats to AMC Entertainment chief executive Adam Aron, who has been playing the role normally filled by short sellers. He’s been selling hand over fist that which appears to be grossly overvalued, namely his own company’s shares thanks to Reddit-dwellers who’ve bid them up in seeming defiance of any business logic.

The Meme Stocks Keep Coming
Also skew, Fastly, Anom, Brian the Snail and replication.
Matt Levine – Bloomberg Opinion
This again
Blah blah blah:
Clover Health Inc., a health insurer backed by venture capitalist Chamath Palihapitiya, was swept up in meme-stock mania on Tuesday, posting a second day of wild gains as retail investors banded together to punish short-sellers betting against the company.
Clover rallied 86% to close at $22.15 in New York trading after briefly doubling intraday. The gains erased five months of losses in the stock — which formed part of a broader selloff in Palihapitiya-backed companies — in just two days. Trading volume in Clover was more than 29 times the three-month daily average on Tuesday, with a record 718 million shares changing hands.


CME Group to Launch Micro Treasury Yield Futures
Micro 2-Year, 5-Year, 10-Year and 30-Year Yield futures will be cash-settled to BrokerTec U.S. Treasury benchmarks
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will expand its suite of deeply liquid U.S. Treasury futures and options with the introduction of four new Micro Treasury Yield futures contracts on August 16, pending regulatory review.

MGEX Reports a Pair of Top-25 Records
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports that Monday, June 7th broke into the top 25 record book as the 17th best total volume day in history with a total of 25,925 contracts traded. Additionally, yesterday was also the 10th best electronic volume day in MGEX history with a total of 24,945 contracts. At the close of market, open interest was recorded at 98,432 which is 25% higher compared to this time last year.

May 2021 monthly figures at Eurex
Volume of traded derivatives contracts grows in May
Total traded derivatives contracts grew 13 percent in May compared to the same month last year – from 121.8 million to 137.4 million. This figure included strong growth in European interest rate derivatives and European equity derivatives – up 37 percent and 41 percent, respectively – and a modest fall of 8 percent in the number of European equity index derivatives contracts traded. This growth in May comes after a mixed few months in 2021 due to comparisons with the unprecedented volatility in early 2020.

NYSE Opposes CAT NMS Plan Amendment, Offers Alternative
Anna Lyudvig – Traders Magazine
The Securities and Exchange Commission (SEC) should disapprove the amendment to the consolidated audit trail (CAT) NMS Plan, according to Michael Blaugrund, COO for NYSE Group.
…”Because option market makers play a really important role in our markets, we want to encourage options market making. So I understand why that factor is applied. But the bottom line is that we’ve now kind of perturbed this logic in such a way that the claimants message traffic driven is really no longer true,” he said.

Column: London Metal Exchange ring will return, but for how long?
Andy Home – Reuters
The shouting will resume on Sept. 6, when the nine ring-dealing members of the London Metal Exchange (LME) take their red leather seats after more than a year’s coronavirus-induced break.
It is an unexpected outcome.
When the LME proposed closing the 144-year old bastion of open outcry trading in January, few in the metals trading community expected it to survive.
But industrial users have rallied around the ring. The exchange received an unprecedented 192 responses to its discussion document, mostly from the physical side of the market and mostly negative.

Regulation & Enforcement

CFTC’s Interest Rate Benchmark Reform Subcommittee Recommends July 26 for Transitioning Interdealer Swap Market Trading Conventions from LIBOR to SOFR
The CFTC’s Market Risk Advisory Committee’s (MRAC) Interest Rate Benchmark Reform Subcommittee voted to recommend a market best practice for switching interdealer trading conventions from LIBOR to the Secured Overnight Financing Rate (SOFR) for U.S. Dollar (USD) linear interest rate swaps. This MRAC Subcommittee initiative, referred to as “SOFR First,” is the third recommendation this Subcommittee has referred to the MRAC for consideration in connection with the transition of USD derivatives and related contracts away from LIBOR. Acting Chairman Rostin Behnam is the sponsor of MRAC.

DeFi Derivatives “Are a Bad Idea”: CFTC Commissioner
Vishal Chawla – Crypto Briefing
Dan Berkovitz, Commissioner of the Commodity Futures Trading Commission, is taking a hard stance against DeFi.
Speaking at the Asset Management Derivatives Forum 2021 Tuesday, Berkovitz aired his concerns with the decentralized finance sector. Decentralized markets, mostly found on the Ethereum blockchain, allow users to exchange cryptocurrencies, financial derivatives, NFTs, and other assets without relying on any intermediaries.


Why stock traders say ‘never short a dull market’
William Watts – MarketWatch
As old trader sayings go, history shows that “never short a dull market” is pretty good advice. But there’s still a case to be made for being cautious with the S&P 500 index trading in “rarefied air,” according to one well-known Wall Street researcher.
When the Cboe Volatility Index VIX, 1.17% “consistently trades below 20, the S&P has done well and suffered no annual drawdowns,” wrote Nicholas Colas, co-founder of DataTrek Research, in a Tuesday note.

Interest Rate Volatility Falls as Summer Carry Trades Begin
Stephen Spratt – Bloomberg
With bond traders preparing for a summer lull, quite possibly until the Jackson Hole symposium in August, there has been an increase in interest for carry trades in a bid to generate returns.
Interest rate volatility has retreated under the weight of option sales from investors betting on a calm summer, with a Cboe gauge of implied price swings falling to the lowest since March. The selling of Treasury options though so-called strangles — a sale of an out of the money put and call option — is one popular trade that enhances returns by collecting premiums, though it comes with the risk of uncapped losses should volatility rise.

Goldman, Morgan Stanley Back Bets on Lower Bond Volatility
Stephen Spratt – thinkadvisor
Goldman Sachs Group Inc. and Morgan Stanley are telling clients to sell short-term Treasury volatility as weaker-than-expected U.S economic data has kept the yield curve in a tight range.
Measures of volatility in global bonds cratered after Friday’s weaker-than-anticipated U.S. payroll report, with Wall Street strategists now lining up to go short volatility over the summer.


Is inflation going higher or lower? We checked with the model that has the best record
Mark Hulbert – MarketWatch
All eyes this week will be on May’s inflation rate, which will be reported Thursday.
While there’s little doubt that the Consumer Price Index will be markedly higher than the pandemic-depressed level of a year earlier, there’s widespread disagreement about whether this higher rate will be more than temporary. The report is widely anticipated because April’s reading broke a 12-year record, prompting a broad decline in stocks.
I’m reminded of George Bernard Shaw’s classic quip that if you laid all the economists end to end they still wouldn’t reach a conclusion.

Pot Stock’s Options Pits Ignite as Reddit Traders Move In
Jake Scott – Yahoo! Finance
It looks like cannabis stocks have entered the “meme” stock fray, as shares of Tilray Inc (NASDAQ:TLRY) were last seen up 10.6% at $22.36. Tilray’s CEO Irwin Simon is buzzing about the attention from retail investors, saying “We love having them as part of our shareholder base,” as he believes their high level of knowledge about the company and its products makes them the perfect investors. In addition, the mini-rally has options traders flooding the cannabis concern, with speculation from both sides of the aisle.

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Past Options Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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