Stock Bulls Get Punished Yet Again Just Before Big Options Event

Jan 20, 2023

Lead Stories

Stock Bulls Get Punished Yet Again Just Before Big Options Event
Lu Wang – Bloomberg
Market watchers on Wall Street attribute this week’s stock selloff to the insidious threat of recession. Yet derivatives traders see a less ominous foe: the mass expiration of options on Friday — the biggest January event in a decade.
Sitting on the sidelines when the contracts roll over has proved a winning strategy of late. That includes this week with the S&P 500 falling for three straight sessions, the 12th time out of the past 14 months that the index has dropped around the time of OpEx.
/jlne.ws/3WpNAlo

US Debt Ceiling: The Black Swans Are Coming to Congress to Roost
John Authers – Bloomberg
There is nothing markets are worse at than pricing in very low-probability but truly extreme risks. This is the original concept of the “black swan” as laid out in the 19th century by the philosopher John Stuart Mill. Until Europeans went to Australia and found swans that were black, they had been entitled to believe that all swans were white, but couldn’t prove it. The US debt ceiling provides a perfect example; political brinkmanship has never led to an all-out default before, and it’s fair to assume it won’t in future. But we can’t be certain. And the cost could be astronomical.
/jlne.ws/3kpHMe5

Wall Street’s Once-Niche Inflation Trades Hit $4 Billion in 2022
William Shaw and Donal Griffin – Bloomberg
Mounting inflation created lucrative opportunities for Wall Street’s biggest banks last year, a stark contrast to the millions of households struggling with climbing food and energy bills.
Lenders including Goldman Sachs Group Inc. and JPMorgan Chase & Co. made about $3.9 billion last year from inflation trading, a once-obscure business that deals in bonds and derivatives linked to consumer prices, according to data from Vali Analytics Ltd. in London. That’s almost double what the firms made in 2021 and compares with around $700 million before the Covid pandemic, the data show.
/jlne.ws/3XrZGvA

The Debt Limit: Ratings Firms Expect Volatility – and a Deal
Liz Moyer and Janet H. Cho – Barron’s
Ratings firms expect a political fight over the nation’s borrowing limit for a while, but they said lawmakers will ultimately reach an agreement that will resolve the latest impasse before it’s too late.
Investors should beware of volatility until then.
/jlne.ws/3HjQ5kE

Euro’s (EUR/USD) Days of Muted Swings Look Numbered as ECB to Keep Hiking Rates
Vassilis Karamanis and Libby Cherry – Bloomberg
Currency traders are betting that the euro will see another bout of violent swings as European Central Bank hawks keep the focus on raising interest rates.
Movements in the euro have been subdued after a tumultuous 2022, with some investors backing a view that things will quieten down now that inflation is easing and the Federal Reserve is taking its foot off the gas on rate hikes.
/jlne.ws/3GVK64f

Hedge fund industry lost $125 bln worth of assets in 2022 – HFR
Nell Mackenzie – Reuters
Almost $125 billion worth of assets, from performance losses left the hedge fund industry in 2022, Hedge Fund Research (HFR) data showed on Friday in the latest sign of the havoc that volatility wreaked on the industry last year.
Investors rethought putting their money into hedge funds, leading to a net outflow of $55 billion in assets, making it the largest capital flight from the industry since 2016, HFR said.
/jlne.ws/3Y3aEaT

Exchanges

2022 CCP Volumes and Market Share in IRD
Amir Khwaja – Clarus Financial Technology
2022 volumes and market share for OTC Derivatives in Interest Rates reported by Clearing Houses. Clarus CCPView has daily volume and open interest data published by each CCP, which is filtered, normalised and aggregated to allow meaningful analysis and comparisons.
/jlne.ws/3HjWXi2

Regulation & Enforcement

FIA Responds to Hong Kong SFC risk management consultation for futures brokers
FIA
FIA has responded to the Hong Kong SFC’s Consultation Paper on Proposed Risk Management Guidelines for Licensed Persons Dealing in Futures Contracts.
FIA supports the overall goal of the risk management guidelines and welcomes a number of the proposals. FIA also raises concerns around some of the proposals, such as the requirement to designate a risk officer or manager for specific risks, the need to maintain an approved list of tradeable commodity products, the imposition of limits on concessionary margin, the requirement to appoint a back-up executing or clearing agent and the waiver of margin calls based on set thresholds.
/jlne.ws/3J4tlXs

Technology

OSTTRA to provide real-time visibility of Eurex ETD trade status
Jenna Lomax – Securities Finance Times
Post-trade solutions company OSTTRA is enhancing its network to give market participants a real-time view into the status of exchange-traded derivative trades being cleared through Eurex. The connectivity will enable Eurex to send investment managers booking confirmations for their allocations via OSTTRA ClientLink for exchange-traded derivatives (ETD), delivering live status updates on which trades have been given up, claimed and cleared. This will provide trade certainty in fast-moving markets, OSTTRA says.
/jlne.ws/3CXe6LJ

Strategy

Smart beta rewards discerning devotees in 2022
Emma Boyde – Financial Times
Smart beta strategies, which aim to outperform traditional broad market capitalisation-weighted indices by filtering them according to certain factors, delivered returns as high as 15 per cent last year even as major markets fell by a fifth.
/jlne.ws/3XoAC8t

Opinion: Any way you slice it, the bears control the stock market right now
Lawrence G. McMillan – MarketWatch
The U.S. stock market, as measured by the S&P 500 Index SPX, 1.68%, tried once again to penetrate through both the downtrend line that defines this bear market and the declining 200-day Moving Average of the S&P 500. Once again, it failed.
This is the fourth time since the market’s peak in January 2022 that SPX has failed to break the hold of the bear market. As a result, it is still a good idea to maintain a “core” bearish position.
/jlne.ws/3wm6tuR

Trades Rolling Into April
Cboe (Video)
In today’s #Vol411, Dan Deming @djd551 runs through the state of the volatility complex during a busy #trading week. $VIX $SPX
/jlne.ws/3GTi7Ch

Miscellaneous

Trump NFTs Back From the Dead: Daily Sales Surge by 800%
Andrew Hayward – Decrypt
Donald Trump’s NFT collection has condensed much of the wild volatility of the NFT space into its first five weeks of existence: it faced widespread ridicule but ultimately sold out, then saw prices and sales surge before quickly crashing. Now, sales are suddenly skyrocketing again. Total daily sales volume for the official Trump Digital Trading Cards collection rose nearly 800% from Tuesday to Wednesday, jumping from about $34,000 worth on Tuesday to over $306,000 worth yesterday.
/jlne.ws/3J1HPHn

ICE to Start Rival Gas Market in London to Sidestep EU Price Cap

ICE to Start Rival Gas Market in London to Sidestep EU Price Cap

First Read Hits & Takes John Lothian & JLN Staff Thank you to all who replied to my request to help one of my Eagle Scouts who was recently laid off on the West Coast and is looking for new opportunities in the climate tech and sustainability space. You are...

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