Observations & Insight

 

Lead Stories

Tesla Has Become One of the Hottest Stock-Option Trades on Wall Street; Electric-vehicle maker accounts for roughly 7% of all options trading on an average day
Eric Wallerstein – The Wall Street Journal
Speculators’ love of wagering on Tesla Inc. TSLA 1.80%increase; green up pointing triangle has propelled Elon Musk’s electric-vehicle maker into one of the hottest stock-option trades on Wall Street. Tesla options trading has surged recently: Nearly three million contracts now change hands on an average day, according to Cboe Global Markets data. That is up from 1.5 million a year ago and more than any other stock. Only wagers on the SPDR S&P 500 ETF outpace those on Tesla.
/jlne.ws/3wx1TKn

Tesla Options Traders Are More Bullish Than Musk and See Stock up 400%
Brian Evans – Markets Insider
Wall Street loves options trades on Tesla stock, and the most popular bet would see shares surge nearly 400% within the next year.
Tesla options are traded more than any other company’s stock, according to CBOE data cited by the Wall Street Journal. On average, nearly 3 million contracts for Tesla options are traded daily, up from 1.5 million a year ago, accounting for roughly 7% of all options trading.
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Bitcoin’s Price Pauses. Why a Recent Trend Suggests a Big Spike Will Hit Friday.
Barron’s
Bitcoin and other cryptocurrencies were largely paused on Friday, holding at levels reached after a recent rally. A recent trend in the crypto options market suggests that a spike in volatility—and possibly a big move upward—could come in the day ahead.
The price of Bitcoin has traded flat over the past 24 hours to just shy of $23,000. The largest digital asset has rallied some 40% in a matter of weeks, enjoying a roaring start to the year that has carried Bitcoin to the highest levels in five months and erased losses that came after crypto exchange FTX’s November bankruptcy rocked markets. Bullish traders are calling it a turning point in the brutal bear market and “crypto winter” that has seen Bitcoin lose two-thirds of its peak value, hitting a multi-year low in November.
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Derivatives volumes are up – and it’s giving the buy-side a headache; Equity index derivatives volumes jumped 73% in 2022, according to the Futures Industry Association (FIA) – but the increase is causing higher operational risk and capacity burdens for asset managers and buy-side traders.
Laurie McAughtry – The Trade
The FIA futures and options exchanges data findings for December 2022 and annual year 2022 show that numbers are broadly up for listed futures and options, with equity index derivatives volumes increasing 73% to 48.6 billion in 2022, making up more than half the overall global total. The worldwide volume of exchange-traded derivatives reached 8.44 billion contracts in December, up 8.9% from November 2022 and up 37.4% from December 2021.
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Meme-stock groups have raised $5bn in 2 years since trading frenzy
Jennifer Hughes and Andrew Edgecliffe-Johnson – Financial Times
Companies at the centre of the meme-stock mania that began two years ago have raised a collective $4.7bn from the hype, according to calculations by the Financial Times, even as the windfall has done little to boost their performance.
The eight stocks have also gained a combined $7.5bn in market capitalisation since the retail trading frenzy at the start of 2021. On January 28 of that year the popular US broker Robinhood outraged customers by limiting their ability to buy those companies’ shares, causing their prices to suddenly plunge.
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Exchanges

Exchange of the year: CME Group
Risk.net
On a sunny November afternoon in 2014, Sean Tully, an executive at CME Group, was in Washington, DC for a crucial meeting – one that could threaten the group’s stranglehold on US short-term rates trading.
Tully listened as Jerome Powell, then a member of the Federal Reserve Board of Governors, shared his concerns about Libor. Wild oscillations in the benchmark had wreaked havoc with the daily cost of credit, and investigations into rate rigging were in full swing. The US central bank was embarking on an ambitious plan to unhook global markets from the tainted rate, but it needed powerful allies.
/jlne.ws/407GTr6

Crypto Exchange BIT Expands Product Suite With Toncoin Options
Omkar Godbole – CoinDesk
Cryptocurrency derivatives exchange BIT on Thursday introduced options tied to toncoin (TON), the native token of the decentralized layer 1 blockchain The Open Network, formerly known as Telegram Open Network. The options are live on the platform today and will be available on the institution-focused liquidity network Paradigm later, the exchange said in a statement shared with CoinDesk.
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ICE to Start Rival Gas Market in London to Sidestep EU Price Cap; New market will help traders manage risk exposure, ICE says; EU’s temporary gas price cap can be triggered from Feb. 15
John Ainger – Bloomberg
Intercontinental Exchange Inc. will open a parallel natural gas market in London to help traders cope with any potential disruptions caused by the European Union’s new rules to prevent extreme price swings. It will offer Dutch Title Transfer Facility futures and options on the ICE Futures Europe exchange from Feb. 20, five days after the EU’s temporary price cap takes effect, according to a statement.
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ICE Announces Plans to Implement EU Market Correction Mechanism and Related Price Cap on TTF Natural Gas
ICE
Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology, and market infrastructure, today announced how it intends to implement the European Union’s Market Correction Mechanism Regulation (MCM Regulation) and related price cap on TTF natural gas derivatives, in time for entry into force of the regulation. ICE Endex, based in the Netherlands and operator of the world’s most liquid trading venue for TTF natural gas futures and options, plans to change its Rulebook to promote compliance with the MCM Regulation, effective February 15, 2023, subject to completion of relevant regulatory processes.
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Technology

ION partners with OptionsDesk to provide enhanced derivatives capabilities; OptionsDesk will utilise ION’s derivatives solutions as part of its end-to-end digital strategy to support its next growth phase.
Wesley Bray – The Trade
ION has been selected by OptionsDesk to integrate ION’s XTP front-to-back suite to expand its derivatives capabilities. Part of the AMC Group, OptionsDesk is the trading name of AMT Futures, a UK-based options broker that provides advisory and brokerage services for retail investors, corporations, and financial institutions.
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Strategy

This Options Strategy Can Help You Outpace the Stock Market
Steven M. Sears – Barron’s
Most people are rational in their nonfinancial lives. They don’t believe in leprechauns or expect to throw a football like Tom Brady, write poetry like T.S. Eliot, sing like Nina Simone, or cook like Alain Ducasse.
Yet many of those same people are outrageously delusional about the markets. They try to constantly maximize profits while ignoring powerful forces that are within their control, like dividends and compound returns. Dividends, after all, account for about 45% of historical stock returns.
/jlne.ws/3jeHVkv

The VIX Breaking 20 May Not Be Good News; How Investors Can Protect Themselves
Martin Tillier – Nasdaq
The recovery in the major indices since stocks found what looks like a bottom in October has been consistent given the amount of uncertainty that surround the economy, not just here in the U.S., but around the world. There was a period of weakness in December, but most believe that was as much about tax loss harvesting as it was any concern about fundamentals. This month, stocks have bounced back strongly from that pullback. As they have done so, a much-watched indicator of potential trouble ahead, the VIX, has fallen quite dramatically and is now below a significant level.
That, however, may not indicate what a lot of people seem to think it does.
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The Lowest Level In A Year
Cboe (Video)
Dan Deming @djd551 on the $VIX futures term structure, spot VIX and potential events next week that could impact the vol complex in today’s #Vol411
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Miscellaneous

Currency derivatives house of the year: BNP Paribas
Risk.net
In late April 2022, BNP Paribas’s FX options desk was tracking extreme movements in the exchange rate between the dollar and the offshore renminbi (CNH). A rising greenback and declining economic expectations in China resulted in the Chinese currency breaking above its 200-day moving average of CNH6.40 against the dollar and rising to CNH6.80. This led to an influx of demand from hedge funds to buy call options.
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