Observations & Insight
The Spread: New Beginnings
This week on The Spread, Gary Gensler is nominated by President Joe Biden to be Chairman of the SEC, TT gets a new CEO, and more.
Tencent’s $251 Billion Rally Triggers Frenzy in Shares, Options
Sofia Horta e Costa and Jeanny Yu – Bloomberg
Hong Kong’s equity traders can’t get enough of Tencent Holdings Ltd., the $950 billion giant that’s on pace for its biggest ever monthly gain.
They’re paying up for bullish derivatives tracking the Chinese internet firm, buying thousands of January call options that expire Thursday. The price of one Tencent contract — which bets the stock will rise past HK$800 by expiry — surged as much as 118,300% on Monday. Traders also rushed to offload their bearish puts, with one of the most-traded contracts losing more than 84% in value.
Investor anxiety mounts over prospect of stock market ‘bubble’
Katie Martin – Financial Times
Screaming stock rallies and wild speculation by have-a-go amateur investors are stirring concerns among market veterans over a bubble to rival anything seen in the past century.
After a dramatic rebound from the coronavirus crash last March, benchmark equity indices have toppled a series of record highs in the early days of 2021. Bitcoin, the most speculative bet of them all, has raced to new extremes. Popular stocks like Tesla continue to defy efforts at sober valuation.
Bullish Stock Bets Explode as Major Indexes Repeatedly Set Records; Wagers tied to Tesla, Amazon, Apple and Nvidia were among the most popular wagers recently
Gunjan Banerji – Bloomberg
Investors are piling into bets that will profit if stocks continue their record run. Options activity is continuing at a breakneck pace in January, building on 2020’s record volumes. It is the latest sign of optimism cresting through markets as individual and institutional investors pick up bullish options to profit from stock gains and abandon bearish wagers.
Top hedge funds reap biggest gains in a decade during pandemic; Despite some big-name flops, many managers profited from extreme market volatility
Laurence Fletcher – FT
The 20 best-performing hedge fund managers of all time made $63.5bn for investors during the coronavirus-driven market turmoil in 2020, making it the industry’s best year of gains in a decade, despite a tough 12 months for US giants Bridgewater Associates and Renaissance Technologies.
Rates Traders Are Counting on Powell to Quell Talk of 2021 Taper
Vivien Lou Chen and Edward Bolingbroke – Bloomberg
Rates traders say there’s one message they want to hear most from Jerome Powell this coming week: reassurance that the Federal Reserve’s $120 billion of monthly bond purchases will continue unabated for the foreseeable future. The consensus is that the central bank’s Jan. 26-27 meeting won’t roil prices much, a view that’s reflected in muted rates-market volatility and a buildup of options positions that pay off as long as Treasury yields stay stable for the next few weeks. The risk, investors say, is that if Powell doesn’t commit forcefully enough to the status quo on bond-buying, by pushing back once again on speculation that discussions of tapering purchases may begin later this year, it may spark a selloff in longer-dated U.S. government debt.
Best Online Brokers Met Rise In Options Accounts With Tools, Education
Chris McKhann – Investors.com
This year Tastyworks again tops IBD’s Best Online Brokers survey for options platforms. And this makes sense because 80% of its business is option trades and it provides a very options-centric platform.
Tastyworks was founded by a former option trader, as was Interactive Brokers (IBKR), No. 4 on the list for best Options Trading Platform. Interactive Brokers, which has its roots as an options market making firm, caters to more sophisticated traders, which is evident in its tools and pricing.
How Options Trading Could Be Fueling a Stock Market Bubble; A swell of individual investors are betting that stocks will go up. That enthusiasm is having a growing influence over the regular stock market itself.
Matt Phillips – The New York Times
The stock market is near record highs, and optimism abounds. Coronavirus vaccines are finally getting jabbed into arms. Interest rates are at historic lows. And the Democrats who control Washington are expected to pour another trillion dollars or so into the still-struggling economy. But it’s getting increasingly difficult to overlook signs that investors are taking things too far, too fast. The latest signal is from the somewhat obscure market for stock options, where traders can place bets with brokers that a stock will rise or fall. Speculation has reached a frenzied level not seen since the tail end of the dot-com boom two decades ago. That enthusiasm is having a growing influence over the regular stock market itself.
Exchanges and Clearing
Shanghai’s legislative advisers urge city’s financial exchanges to merge and list to open the world’s second-largest market place
Daniel Ren – South China Morning Post
A score of Shanghai’s legislative advisors have called for the merger of the local stock and futures exchanges to attract global companies and investors raising funds, as the city marked 30 years of explosive growth to become the
elder sibling of the world’s second-largest capital market.
The merger was proposed by 20 delegates of the Shanghai People’s Political Consultative Conference (SPPCC), including the Shanghai Gold Exchange chairman Jiao Jinpu, the Shanghai chief of the Export-Import Bank of China (ExIm), and the Agricultural Bank of China’s city president Chen Qichang, according to a bill obtained by the South China Morning Post.
NSE named world’s largest derivatives exchange for 2020
The National Stock Exchange of India Ltd (NSE) has emerged as the world’s largest derivatives exchange in 2020 in terms of the number of contracts traded, according to data maintained by Futures Industry Association (FIA), a derivatives trade body.
SGX and FTSE Russell launch ESG index futures
Annabel Smith – The Trade
Singapore Exchange (SGX) and FTSE Russell have partnered to launch a suite of environmental social and corporate governance (ESG) derivatives contracts. The launch is comprised of four new ESG index futures as part of SGX’s Future in Reshaping Sustainability Agenda (FIRST) sustainability agenda which it launched in December. The new derivatives include SGX FTSE emerging ESG index futures, SGX FTSE emerging Asia ESG index futures, SGX FTSE Asia ex Japan ESG index futures, and SGX FTSE Blossom Japan index futures.
Cboe To Introduce New Choice Program for ETP Lead Market Makers, Beginning February 1
Cboe Global Markets, Inc., a market operator and global trading solutions provider, today announced plans to introduce a new incentive program that aims to help further enhance market quality for primarily listed exchange-traded products (ETPs) on Cboe BZX Exchange, beginning Monday, February 1, subject to regulatory review. Previously, Cboe had offered the market’s first-of-its-kind incentive program that awarded lead market makers (LMMs) a flat daily fee, rather than payment based on assigned ETPs’ transaction volume, to help incentivize LMMs to provide liquidity in newly launched or thinly traded ETPs. Following extensive consultation with ETP industry participants, Cboe plans to offer an enhanced incentive program that builds upon the success of its previous program and provides LMMs with additional flexibility and choice in selecting the incentive model that best suits their needs.
Regulation & Enforcement
Untangling Millions of Trades Gets Easier With a New Libor Fix
William Shaw and Alex Harris – Bloomberg
New legal framework could prevent chaos when Libor is retired; ‘Important day’ for the derivatives market: Goldman Sachs
Untangling the vast global derivatives industry from Libor just got a bit easier. The London interbank offered rate is hardwired into swaps and other contracts worth hundreds of trillions of dollars, but it’s slated to disappear in the not-too-distant future. If the move to replacement rates doesn’t go smoothly, that could cause major discord in markets.
ESMA call experts on commodity derivatives to join consultative industry group
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published a call for candidates to renew a Consultative Working Group (CWG) for the ESMA’s Commodity Derivatives Task Force (CDTF). Interested experts are asked to send their application to ESMA by 7 March 2021.
Vanguard, Robinhood Among Brokers That Faced Platform Glitches
Annie Massa – Bloomberg
Vanguard Group, Robinhood Markets Inc. and other major brokerages said they had technical glitches with their platforms Monday morning. Vanguard said on Twitter that some clients had been having problems accessing their accounts, but the issues were resolved. Robinhood was having issues with crypto trading, it said on its status page. A TD Ameritrade spokeswoman said a small number of clients on the Thinkorswim options trading platform were having problems with the display of profit and loss information. Earlier, some users faced delays viewing order status and historical quotes. The challenges came as the Chicago Board Options Exchange Volatility Index, a measure of market uncertainty, jumped 15% to 25.18 as of 11:30 a.m. in New York. Heightened retail trading since the Covid-19 pandemic has put brokerages and their service interruptions into greater focus.
Funds retreat from massively bullish Chicago corn bets
Karen Braun – Reuters
Speculators last week began to turn the corner in their historic bullishness toward Chicago corn after futures hit multi-year highs on shrinking stockpiles, but they may have unloaded a lot more of the yellow grain on Friday as prices underwent a historic downward correction.
In the week ended Jan. 19, money managers reduced their net long position in CBOT corn futures and options to 349,495 contracts from 374,714 a week earlier, according to data from the U.S. Commodity Futures Trading Commission.
Fundamentals of Futures & Options Virtual Course
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies.
This instructor-led virtual course includes lecture from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books – Futures and Options and the Guide to U.S. Futures Regulation.
Presenter: Marti Tirinnanzi, Board of Director of ICE Mortgage Services
Time: January 25-29, 12:00 – 2:00 p.m. ET; 2 hours per day for five consecutive days
2020 Annual Trends in Futures and Options Trading
Description: This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Presenter: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
Time: Jan 27, 2021 10:30 AM in Eastern Time (US and Canada)
The SEC’s new derivatives rule: practical implications for funds
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.
Presenters: Kenneth Holston, Partner, K&L Gates; Stephen Humenik, Partner, K&L Gates; Michael McGrath, Partner, K&L Gates; Fatima Sulaiman, Partner, K&L Gates
Time: Thursday, 25 February 2021 | 10:00 a.m. – 11:00 a.m. EST
Nancy Pelosi has plowed up to $1 million into bullish bets on Tesla stock
Theron Mohamed – Markets Insider
House Speaker Nancy Pelosi has placed up to $1 million worth of bullish bets on Tesla stock, she revealed in a financial disclosure form last week.
Pelosi bought 25 call options on Tesla stock with a strike price of $500 and an expiration date of March 18, 2022. She – or more likely her husband, Paul Pelosi, who runs an investment firm – spent between $500,001 and $1 million on them on December 22.
(Podcast) Volatility Views 431: Planking Volatility and Short Squeeze in GME
Volatility Views – Options Insider Network