Observations & Insight
MR: Robinhood sent me this email last night:
We wanted to reach out to you in the midst of the current volatile market conditions. It’s as important as ever to be an informed investor.
Whether you’re brand new to Robinhood or have been investing with us for years, we have lots of resources to help you navigate the markets, including Investing 101 and our entire Help Center.
Here are some specific articles from Robinhood Learn to help make sense of market volatility:
The stock market has been super volatile – How can I make sense of it?
As always, thank you for being a Robinhood customer.
The Robinhood Team”
It seems that Robinhood is reminding traders to consider their educational material in light of “market conditions” related to trading activity around GameStop stocks and options on those stocks. At this point, it feels a little like trying to put toothpaste back in the tube, but hey, at least they’re trying. Robinhood did not issue a response to requests for comment at press time.
FIA 2020 Volume Review Shows Global Growth, Geographic Evolution of Industry
Suzanne Cosgrove – John Lothian News
While activity in futures and options was undeterred by the pandemic in 2020, logging record volume for a third year in a row, a closer look at data produced by the Futures Industry Association shows a shift in recent years in where that volume occurred and what was most actively traded.
In a webinar held Wednesday, Will Acworth, senior vice president of publications, data and research at the FIA, acknowledged that much of the growth in 2020 derivatives trading was driven by nascent markets in India, China and Brazil.
In a ranking by 2020 volume, the National Stock Exchange of India (NSE) was the leading global exchange, followed by Brazil’s B3 at No. 2. CME Group was ranked No. 3, according to the FIA.
To read the rest of this story, go here.
Stock Fears Come Back With VIX Trading Near November High
Yakob Peterseil – Bloomberg
Stock volatility is making a comeback amid worries about tech profits, unhinged retail trading and tepid economic growth.
The Cboe Volatility Index, known as the VIX, jumped to 37 on Wednesday — the biggest one-day move since the pandemic-spurred market crash in March. The gauge was trading at 31 as of 7:24 a.m. New York time on Thursday, near the highest since November.
Wall Street’s ‘fear gauge’ just logged its biggest rise in two years as the battle between Reddit day traders and hedge funds rattles investors
Shalini Nagarajan – Markets Insider
Wall Street’s favorite gauge of stock-market volatility posted its biggest jump in two years Wednesday after market participants saw one of the steepest sell-offs in the S&P 500 since October.
The Cboe Volatility Index, also known as the VIX, which measures the market’s expectations of volatility in the coming 30 days, spiked 62%, to 37.32, as retail traders continued to wage their battle against hedge funds.
Robinhood Blocks Buying in GameStop, AMC, and Other Stocks
Avi Salzman – Barron’s
Investing app Robinhood blocked access to GameStop and other highflying names on Thursday as trading surged among retail users.
The move comes after GameStop (GME) stock has shot higher over the past week, inspiring a short squeeze. The action — driven by retail traders often using options — has spread to other names like BlackBerry (BB), AMC Entertainment Holdings (AMC), and Bed Bath & Beyond (BBBY). Several of those stocks were falling in premarket trading after enormous run-ups in the past few days.
*****JB: Also see the Markets Insider story, GameStop shares plunge as much as 60% after Robinhood curbs trading on wildly volatile morning.
Hedge funds retreat in face of day-trader onslaught
Ortenca Aliaj, Colby Smith, Eric Platt and Michael Mackenzie – Financial Times
Hedge funds have scaled back the size of their bets in the stock market in recent days after volatility caused by groups of amateur traders pushed up shares in companies such as GameStop and inflicted heavy losses on some high-profile firms.
The unwinding of positions has been noted by brokers and may have contributed to the sharp moves in some shares, according to market participants.
‘Short squeeze’ spreads as day traders hunt next GameStop
Robert Smith, Laurence Fletcher, Madison Darbyshire, Eric Platt, and Hannah Murphy – Financial Times
A “short squeeze” that started on Wall Street swept across the globe on Wednesday, triggering another day of frenetic upward moves in the share prices of previously-unloved companies, followed by a dramatic plunge in after-hours trading when a popular Reddit message board went dark.
The dramatic moves highlight the growing influence of retail traders, who have organised on Reddit. Their success in pushing up stocks that are the subject of large short bets by hedge funds has led them to target a growing number of companies on both sides of the Atlantic.
Investors Take Profits on Short-Squeezed Stocks Pearson, Evotec, Klepierre
Anna Hirtenstein – WSJ
Investors dumped heavily shorted stocks in Europe Thursday in a bid to profit from share prices that have been pumped up by groups of retail traders.
Pearson, a British publishing company, declined nearly 7% after soaring close to 14% on Wednesday. Shares in German drugmaker Evotec were down as much as 4% after rising close to 10% both of the previous two days. Both are among the most-shorted stocks in Europe, with short interest close to 15%, according to data from IHS Markit . French commercial-real-estate firm Klepierre fell 3% after jumping over 20% Wednesday.
RBC’s Amy Wu Silverman Says The Hot Options Market Is Here to Stay
Katherine Greifeld – Bloomberg
After almost two decades in the options market, Amy Wu Silverman of RBC Capital Markets knows a regime change when she sees one. The derivatives strategist—an alumna of Morgan Stanley, Goldman Sachs, and Citadel—has watched as the coronavirus pandemic ushered in a wave of newly minted day traders who were locked down at home with little to do. They descended on the options market, where contracts can cost pennies but have the potential to produce big payouts. The heavy options trading created feedback loops in tech stocks when dealers were forced to hedge the contracts they sold by buying or selling the underlying security. Wu Silverman anticipates that this dynamic will continue in 2021 as more millennials turn to options to make bets on stocks.
Tesla Is Dropping, GameStop Is Jumping, and the Stock Market —Thankfully — Is Quiet
Jacob Sonenshine – Barron’s
The major stock indexes were mixed Thursday morning, but thankfully quiet following a rough Wednesday. Futures on the Dow Jones Industrial Average have risen 13 points, while S&P 500 futures have dipped 0.2%, and Nasdaq Composite futures have dropped 0.8%. On Wednesday, the retail traders, using options, continued forcing a laundry list of stocks ever higher. Funds that were short those names had to cover their positions—or buy the stocks back—and they had to sell the stocks they owned to raise the cash to do that, putting significant pressure on the broader market.
Exchanges and Clearing
European Commission grants equivalence to US equities clearing houses; The EU regulator has adopted an equivalence decision that determines US CCPs under the Securities and Exchange Commission regime as equivalent to EU rules.
Annabel Smith – The Trade
The European Commission has granted equities central counterparties (CCPs) in the US under the Securities and Exchange Commission (SEC) regime equivalence to EU rules. The equivalence decision is an important first step in allowing European access to CCPs, registered with the Securities and Exchange Commission (SEC), that clear US equity options and security-based swaps, and vice-versa.
Outages Continue to Plague Online Brokerages
Geoffrey Rogow and Dawn Lim – WSJ
Outages and interruptions rattled investors using some of the largest online brokers on Wednesday.
Charles Schwab Corp., Vanguard Group, Fidelity Investments and several other online brokerages reported service disruptions, either to clients directly or on their social-media accounts. The new technical issues come after brokerage customers already encountered brief delays executing trades this week or temporarily lost access to vital account information.
Regulation & Enforcement
Elizabeth Warren Reacts to GameStop (GME) Frenzy; SEC Monitoring Volatility
Jordan Fabian and Jennifer Epstein – Bloomberg
The U.S. Securities and Exchange Commission said it is “actively monitoring” volatility in options and equities markets amid a surge in GameStop Corp. and other companies over the past week that prompted Democratic Senator Elizabeth Warren to demand action from regulators.
“Consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants,” the SEC said in a statement Wednesday.
GameStop (GME) Short Squeeze Forces a Look at Zero-Fee Options
Brian Chappatta – Bloomberg
Perhaps the most remarkable part of the stunning, Reddit-fueled surge in shares of GameStop Corp. and other companies is just how powerless the top U.S. regulatory bodies are to do anything about it.
The past week has shown that a group of individual investors banding together can drive up the price of specific stocks, most notably heavily shorted companies like GameStop and AMC Entertainment Holdings Inc. At first, Federal Reserve Chair Jerome Powell simply dismissed this phenomenon, noting in his press conference Wednesday that “I don’t want to comment on a particular company or day’s market activity.” When pressed about whether he and other officials would consider adjusting Regulation T, which sets initial margin requirements, he seemed outright irritated, saying point-blank it wasn’t something they were thinking about “at all.”
GameStop Trading Should Be Halted for 30 Days, Says State Securities Regulator
Avi Salzman – Barron’s
The top securities regulator in Massachusetts said the New York Stock Exchange should halt trading in GameStop stock for 30 days so it can “cool down.” Retail traders—often using options–have helped propel the stock more than 1,000% this year. On Wednesday alone, shares were up more than 100%.
“I really think at this point it calls upon the regulators, in this case, the New York Stock Exchange, to consider simply suspending it for a month and stop trading it,” William Galvin, the Secretary of the Commonwealth of Massachusetts, told Barron’s. “These small and unsophisticated investors are probably going to get hurt by this.”
GameStop Stock Drops After SEC Announcement. An Expert Says the Agency’s Statement Means Little for Now.
Connor Smith and Avi Salzman – Barron’s
The Securities and Exchange Commission said Wednesday it’s monitoring options and equity markets following volatility in recent days. Shares of highly shorted companies like Bed Bath & Beyond, National Beverage, and AMC Entertainment have surged alongside GameStop in recent trading. “We are aware of and actively monitoring the on-going market volatility in the options and equities markets and, consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants,” Allison Herren Lee, the SEC’s acting chair; Pete Driscoll, director at the division of examinations; and Christian Sabella, acting director at the division of trading and markets, said in a news release published Wednesday.
MARKET REGULATION ADVISORY NOTICE
Effective on trade date March 15, 2021, and pending all relevant CFTC regulatory review periods, this Market Regulation Advisory Notice supersedes CME Group Market Regulation Advisory Notice RA1907-5 from August 2, 2019. It is being issued to:
• Reflect amendments to Rule 559 being adopted in connection with the CFTC final rule on
Position Limits for Derivatives becoming effective on March 15, 2021;
• Modify the number of shipping certificates/warehouse receipts in various CBOT agricultural
products that may be owned or controlled by any party in the answer to FAQ 3;
• Adopt separate limits on futures and deliveries in physically-delivered metals contracts (see
• Clarify the provisions applicable to the aggregation of contracts for position limit purposes (see
• Modify the answer to FAQ 10 to reference Part 150 of the CFTC’s Regulations; and,
• Add new FAQ 11 to clarify when an existing hedge exemption needs to be refiled.
DISCIPLINARY DECISION Cboe Exchange, Inc. Star No. 20190629791/ File No. USRI-8986-01 Susquehanna Securities, LLC
Pursuant to Exchange Rule 13.3, attached to and incorporated as part of this Decision is a Letter of Consent. Applicable Rules • Cboe Rules 4.11 and 8.30 – Position Limits.
What to Do in the Middle of a Reddit-Driven Market
Steven M. Sears – Barron’s
The masses aren’t asses anymore.
For decades, great fortunes have been made on Wall Street by people who believed in a few simple, intellectually arrogant ideas. Among them: John and Jane Investor always do the wrong thing at the wrong time. When the public trades put and call options, and often stocks, they generally lose money—so the Street’s mandarins could do the opposite and “fade the little guy” to make money.
6 option investing trading strategies, downside protection from UBS
Kari McMahon – Business Insider
Investors experienced one of the most tumultuous trading days in recent times yesterday as retail investors, predominantly from the Reddit forum Wall Street Bets, piled into small-cap stocks, waging a war against the hedge funds that had shorted them.
The companies selected ranged from Gamestop (GME), which was up 135% from the close on January 26 to the close on January 27, to AMC Entertainment (AMC), which was up 301%, to Blockbuster (BLIAQ), which was up 120%.
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GFF Summit: A cordial invitation and some valuable information
Frank Ghast – Eurex
I hope you are all safe and sound and that I will see many of you at Clearstream and Eurex’s joint Global Funding and Financing (GFF) Summit 2021 from Tuesday, 2 February, to Thursday, 4 February 2021 – even if, unfortunately, only virtually this year. In the ramp-up to the summit, let me take the opportunity to quickly recap 2020 and take a look at what’s ahead.
Occupy Wall Street spirit returns as traders upset the elites
Katie Martin – Financial Times
In retrospect, the Occupy Wall Street movement missed a trick.
Protests in Lower Manhattan annoyed some of the passing bankers. The tents clustered outside the London Stock Exchange got in the way of a quick trip to Starbucks. But the events of the past week show that the way to really upset the financial elites is to do it from the inside.
For the rarefied community of hedge fund managers and professional investors, the problem, of course, is that the great unwashed has jumped into the stock market. In size.
GameStop Mania Reveals Power Shift on Wall Street—and the Pros Are Reeling
Gunjan Banerji, Juliet Chung and Caitlin McCabe – WSJ
The power dynamics are shifting on Wall Street. Individual investors are winning big—at least for now—and relishing it. An eye-popping rally in shares of companies that were once left for dead including GameStop Corp. GME -21.20% , AMC Entertainment Holdings Inc. AMC -51.67% and BlackBerry Ltd. has upended the natural order between hedge-fund investors and those trying their hand at trading from their sofas. While the individuals are rejoicing at newfound riches, the pros are reeling from their losses.
Jane Street: the top Wall Street firm ‘no one’s heard of’
Robin Wigglesworth – FT
A year ago, the world seemed oblivious to signs that a novel virus outbreak in China was a serious, global threat. But one of Wall Street’s biggest but most secretive money machines saw the debacle coming and battened down the hatches. Jane Street may be little known outside its community — and even there mostly famous for its cultish dedication to a recondite programming language called OCaml. But the company has become one of the world’s largest market-makers, trading more than $17tn worth of securities in 2020.
(Podcast) OBC 120: Everything You Always Wanted To Know About Short Squeezes (But Were Afraid To Ask)
Options Boot Camp – Options Insider Radio Network