Taiwanese Bourse Suffers Worst Crash In Its History; SEC Sets Its Sights on Gamified Trading – The Spread

Suzanne Cosgrove

Suzanne Cosgrove




Welcome to The Spread, I’m Matt Raebel.

A large Eurodollar options bet on higher U.S. interest rates got even larger last week. Expiration of these contracts seems to be based around an annual Fed get-together in August at the dubiously-named mountain resort in Jackson Hole, Wyoming. Central bankers have signalled changes in monetary policy at this meeting in the past, so it makes sense that options traders would be watching it. Last week, thousands of Eurodollar put options were added to the initial bet, for a total of 400,000 puts.

A crash at the Taiwanese stock exchange caused a lot of options to change hands Wednesday as bearish contracts suddenly exploded in value. The TAIEX index, a local Taiwanese benchmark, had its worst-performing day in history, falling nearly 9 percent. Apparently this was due to margin debt that had been building up faster than stocks were appreciating — that combined with continued COVID worries and an abrupt sell-off on semiconductor stocks. As they say, the early bird gets the worm, and any options trader who saw the crash coming ended up winning big.

Back in the states, a lot of options traders who used to work at the CME are missing the pits, especially now that corn and soybean prices are surging on increased demand from China. Last week the CME announced that the closure of its options pits would be permanent, except for the Eurodollar options pit. With crop prices rallying, a lot of traders must be feeling like they’re missing the action. It’s kind of like when you change lanes on the freeway because you think the other lane is moving faster, but as soon as you do, it slows down, and the lane you just came from starts moving. Like that, but times a thousand.

Some good news for the carbon markets this week – a record-high number of call options on carbon permits suggests traders expect the price of carbon to exceed 100 euros by the end of the year. While many have maintained a bullish outlook on the carbon markets, others think it’s just a bunch of hot air.

Nasdaq got the green light from the SEC to launch options on the VOLQ, the Nasdaq -100 Volatility Index, later this year. That’s good news for options traders, of course – when it comes to volatility indexes and options trading, as the late Isaac Hayes once said, “you can never have enough.”

That wasn’t the only thing the SEC was up to this week, of course; the commission’s chairman, Gary Gensler, said in House testimony that the agency is studying the marriage between social media and retail trading apps like Robinhood, as well as the “gamification” of trading those apps allegedly encourage. Typical government, always hating on video games.

Gensler said that the gamification of trading encourages traders to make more frequent and risky moves than trades made through a more traditional brokerage. Robinhood, in response to the criticism, removed an animation of confetti falling on the app that showed up to celebrate successful trades; folks like Gensler argue that things like that reward impulsive bets, while Robinhood says it’s trying to make investing and trading more approachable for the public. If I’ve learned anything in my 30-plus years of life, it’s that the truth in these things usually lies somewhere in the middle.

We’ve got a couple of new videos up on John Lothian News dot com – a new Path to Electronic Trading and a new edition of the Open Outcry Traders History Project. Both feature interviews with Tom Sosnoff, a founder of tastytrade. We’ve also got a new article by Suzanne Cosgrove covering an ISDA meeting from Tuesday, so head over to John Lothian News dot com to check those out. Also, follow us on Twitter, LinkedIn, Facebook, and subscribe to us on Youtube for more news and musings.

That’s gonna do it for The Spread this week. Until next time, stay safe and happy trading.


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Traders Ramp Up Bets on a Hawkish Fed Surprise at Jackson Hole
Stephen Spratt and Edward Bolingbroke – Bloomberg

Taiwan Stock Crash Shows World Dangers of Too Much Leverage
Sofia Horta e Costa and Cindy Wang – Bloomberg

Here’s Why Taiwan’s Stock Market Went Into Free Fall on Wednesday
Barbara Kollmeyer – Barron’s

Death of Chicago’s grain options pits hits traders as crop prices soar
Tom Polansek, Julie Ingwersen – Reuters

Option Traders Boost Bets on Carbon Hitting 100 Euros
Will Mathis and Jesper Starn – Bloomberg

Nasdaq gets green light from SEC for volatility index options; Nasdaq plans to launch the volatility index options later this year, following the approval from the US financial regulator.
Annabel Smith – The Trade

SEC chief warns of growing monopoly power among market makers, retail brokers at GameStop hearing
Chris Matthews – MarketWatch

SEC to Explore Rules for Apps That ‘Gamify’ Trading, New Chairman Says
Dave Michaels and Alexander Osipovich – WSJ

Tom Sosnoff – The Path To Electronic Trading – John Lothian News
John Lothian – JLN

Tom Sosnoff – Open Outcry Traders History Project
John Lothian – JLN

ISDA 35th AGM: Are Derivatives a Green Solution?
Suzanne Cosgrove – John Lothian News

John Lothian Newsletter

Today’s Newsletter

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Past The Spread Episodes

The Spread – July 2, 2021

The Spread – July 2, 2021

Finra socks Robinhood with its biggest-ever fine; Cboe acquires Chi-X Asia Pacific; OCC reports another volume gain; NIO takes its cue from options; John Lothian weighs in with his take; Looking for volatility; and Jermal Chandler explains hedging in the options “Term of the Week.”

THE SPREAD – JUNE 25, 2021

THE SPREAD – JUNE 25, 2021

No summer doldrums this year; Volatility and volume surge; More (single stock) options to choose from; John Lothian weighs in with his take; and Jermal Chandler explains extrinsic value in this week’s options “Term of the Week.”

The Spread – June 18, 2021

The Spread – June 18, 2021

Inflation really is a thing; Small traders are still big; John Lothian weighs in on the current trading landscape; and Nasdaq wins the May options market share race. All in this and the debut of the options “Term of the Week” in The Spread.

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