The Impact of T+1 on Options

Jul 2, 2024

Observations & Insight

OCC June Monthly Volume Data

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NYSE Options Executive Discusses Industry Growth, Technology Advancements, and Global Expansion
JohnLothianNews.com

In a recent interview at the Options Industry Conference in Asheville, NC, Meaghan Dugan, head of NYSE Options, shared insights on the evolving landscape of the options industry and the exchange’s technological advancements.

Dugan highlighted the significant growth in the options market, particularly in short-dated instruments. The options industry has seen a surge in new listings, especially in the short-dated space, she said, pointing to the introduction of Wednesday options as a tradable instrument in the US options market.

Watch the video »

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Algorithmic Adventures: Futures Discovery EP 11
JohnLothianNews.com

Today, we’re immersing ourselves in a pivotal episode focused on Algorithmic Adventures: Navigating the World of Order Book Strategies in Futures Trading. It’s not merely about numbers and charts; it’s about deciphering the dynamic landscape of financial trading. Join us as we delve into the intricacies of reading your statement as a professional in the futures market and unravel the secrets behind successful algorithmic strategies.

Watch the video »

Lead Stories

The Impact of T+1 on Options
OIC
On Tuesday May 28, 2024, the highly anticipated settlement cycle conversion from T+2 to T+1 was rolled out. The products affected by this change include ‘transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange’ according to SEC’s Investor Bulletin announcement, click here.
What is the settlement cycle? Simply put, it is the number of business days for a product transaction to be delivered to the buyer’s account and a payment to the seller’s account. The widely used term T+2 and the new T+1 is shorthand for ‘trade day (T) plus (+) business days (1 or 2) which indicates the amount of time needed for trades to be cleared and added to the individual accounts. The settlement cycle for stocks, ETFs and the other products is overseen by the National Securities Clearing Corporation (NSCC) a subsidiary of the Depository Trust & Clearing Corporation (DTCC).
/jlne.ws/4bBunVu

Tesla Rally Flips Options to Most Bullish in Three Years; Options traders are betting rally has more room to run; Shares in EV maker have climbed more than 30% in three weeks
David Marino – Bloomberg
Tesla Inc. options investors are the most bullish in more than three years, betting the rally to an almost six-month high has room to run.
The three-month call skew – measuring the premium of call options over puts – is the widest since Feb. 1, 2021, according to data compiled by Bloomberg. That’s a flip in sentiment from just three weeks earlier, and comes as shares have rallied 34% in that time.
/jlne.ws/4eQf9OY

GameStop Shareholder Quickly Drops ‘Roaring Kitty’ Fraud Suit; Suit accusing Keith Gill of ‘pump and dump’ plan filed Friday; Proposed class action was voluntarily dismissed on Monday
Avalon Pernell – Bloomberg
A lawsuit accusing popular stocks influencer Keith Gill, better known as “Roaring Kitty,” of engaging in a “pump and dump” scheme involving GameStop Corp. shares was dropped within days of its filing.
In a proposed class action filed Friday in Brooklyn, New York, federal court, GameStop shareholder Martin Radev sued Gill for securities fraud, claiming he was seeking to manipulate the stock for his own gain. In a court filing late Monday afternoon, Radev said he was voluntarily dismissing the lawsuit.
/jlne.ws/4bqPycz

Hedge Funds Are Just Too Big to Beat the Market; The industry is now a multitrillion-dollar business, and that kind of size inevitably leads to disappointing results.
Nir Kaissar – Bloomberg
Hedge funds were once the hottest investment around, but they’ve long ceded the spotlight to better performers, including private assets, real estate, technology startups and even cryptocurrencies. The latest reminder of that is Bobby Jain’s new multi-strategy fund, Jain Global, boasting $5.3 billion in commitments and set to start trading this week. In the heyday of hedge funds, a launch of that size – one of the biggest ever – by one of the industry’s brightest lights would have been headline financial news. There’s been tepid interest.
/jlne.ws/3zsD1rX

Hedge fund giants Citadel and Millennium post strong first-half gains; Performance of Ken Griffin and Izzy Englander’s funds extends profitable run for best-known multi-managers
Costas Mourselas – Financial Times
Hedge funds Citadel and Millennium have made solid gains in the first half of the year, extending a strong run for so-called multi-manager firms that are increasingly dominant in the industry. The flagship Wellington fund of Ken Griffin’s Citadel was up 8.1 per cent at the end of June, while Izzy Englander’s hedge fund Millennium was up 6.9 per cent, according to people who have seen the numbers.
/jlne.ws/4cLWDFC

Roaring Kitty cements Chewy’s meme-stock status, despite company’s improving fundamentals
James Rogers – MarketWatch
With his 6.6% stake in Chewy Inc., the influential trader Keith Gill – also known as Roaring Kitty – sent shares of the online pet-products retailer soaring earlier this week, adding to its meme-stock status.
The stock surged Monday before paring back its gains to end the session down 6.6%. Chewy shares were down 2.1% Tuesday.
/jlne.ws/3XRwgdd

Chewy executives alarmed at ‘Roaring Kitty’ stake in pet-product retailer
Manas Mishra, Greg Roumeliotis and Suzanne McGee – Reuters
Stock influencer Keith Gill, known as “Roaring Kitty,” unveiled a 6.6% stake in Chewy on Monday, a surprise move that alarmed executives at the U.S. pet products company.
The Chewy stake is Gill’s first known investment beyond GameStop. A link connects these two investments: Ryan Cohen, the billionaire founder of Chewy, is now CEO of GameStop. Gill has in the past praised Cohen in his social media posts. Cohen founded Chewy and sold it in 2017.
/jlne.ws/4cOVywZ

Exchanges

CME Group Reports Record June and Q2 2024 Volumes, Reaching New Highs Across Multiple Asset Classes
CME Group
Record June ADV of 25.3 million contracts, up 8% year-over-year; Record Q2 ADV of 26 million contracts, with growth in all asset classes; Record June and Q2 ADV in U.S. Treasury futures and options; All-time monthly and quarterly records for Agricultural products; Record Q2 international ADV of 7.8 million contracts. CME Group, the world’s leading derivatives marketplace, today reported its June and Q2 2024 market statistics, showing average daily volume (ADV) reached a record 25.3 million contracts for the month of June and a record 26 million contracts for Q2. Market statistics are available in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
/jlne.ws/3VLwMqB

ICE Europe’s liquid resources up 27% under new model; More comprehensive stress-testing model pushes highly marketable collateral to record high in Q1
Joshua Walker – Risk.net
ICE Clear Europe saw the size of its liquidity pool expand 27% in the first quarter following the implementation of a new liquidity stress-testing model. The increase was driven by liquid resources classified as highly marketable collateral – assets that can be readily converted into cash without material market price impact even in extreme but plausible market conditions. The central counterparty (CCP) disclosed a record high of $37.5 billion, marking an 82.6% increase from the previous quarter
/jlne.ws/3XNe30r

Regulation & Enforcement

CFTC Announces Supervisory Stress Test Results
CFTC
The Commodity Futures Trading Commission today issued Supervisory Stress Test of Derivatives Clearing Organizations: Reverse Stress Test Analysis and Results, a report detailing the results of its fourth Supervisory Stress Test (SST) of derivatives clearing organization (DCO) resources. Among other findings, the 2024 report concluded the DCOs studied hold sufficient financial resources to withstand many extreme and often implausible price shocks.
/jlne.ws/3VODhc9

ISDA Proceeds with Development of an Industry Notices Hub
ISDA
The International Swaps and Derivatives Association, Inc. (ISDA) will proceed with the development of an industry-wide notices hub, following strong support from buy- and sell-side institutions globally. The new online platform will allow instantaneous delivery and receipt of critical termination-related notices and help to ensure address details for physical delivery are up to date, reducing the risk of uncertainty and potential losses for senders and recipients of these notices.
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Rules Must be Considered in Combination
ISDA
In about 18 months, the first US Treasury securities will be mandated for clearing under new Securities and Exchange Commission (SEC) rules. As demonstrated by the efforts to introduce clearing in the derivatives markets a decade ago and, more recently, the implementation of margin requirements for non-cleared derivatives, a structural change of this scale will take time and careful thought. But we also can’t consider this requirement in isolation – we should think hard about the impact of various rules in combination to ensure policymakers achieve the outcome they want: a resilient, efficient Treasury market.
/jlne.ws/4cglNfP

SEC, MSRB, FINRA to Hold Hybrid Compliance Outreach Program
SEC
The Securities and Exchange Commission, Municipal Securities Rulemaking Board (MSRB), and Financial Industry Regulatory Authority (FINRA) today announced the opening of registration for both in-person and virtual attendance of their Compliance Outreach Program for municipal market professionals. The event is open to the public and will take place on Wednesday, Nov. 20, and Thursday, Nov. 21, 2024, at the Byron Rogers Federal Building in Denver, Colorado. The program will provide municipal market participants an opportunity to hear from SEC, MSRB, and FINRA staff on timely regulatory and compliance matters for municipal advisors and dealers. Panel topics will include compliance pain points for municipal advisors and broker-dealers, exam and enforcement priorities, a regulatory outlook, net capital requirements, federal fiduciary duty, post-trade monitoring, and other municipal market hot topics.
/jlne.ws/3VNiLIX

Technology

Trading Technologies launches day-one connectivity to Abaxx Exchange
Abaxx Exchange
Trading Technologies International, Inc. (TT), a global capital markets technology platform provider, announced today that it is now offering its clients access to Abaxx Exchange, a global commodity futures exchange and clearinghouse based in Singapore. The market launched on June 28, with the first trade executed through the TT platform by StoneX Financial. Clients are able to use TT to trade the exchange’s energy and carbon derivatives contracts. Products currently offered on Abaxx include five new commodity benchmark futures contracts. These first-of-their-kind, centrally cleared, physically deliverable contracts better enable market participants to execute their energy transition strategies, providing improved price discovery and enhanced risk management tools in liquefied natural gas (LNG) and carbon markets, to be soon followed by solutions for battery metals.
/jlne.ws/45QiKZo

****** OK, so you get in on day one. What do you do on day two?~JJL

Strategy

Beyond the Efficient Frontier with SynthEquity – Using Call Options to Modernize MPT
Guest Author Alexander Flecker, Head of Sales and Marketing, Measured Risk Portfolios – Cboe
“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.” – Harry Markowitz
Since Harry Markowitz introduced the concept of the Efficient Frontier in his seminal 1952 paper “Portfolio Selection,” Modern Portfolio Theory (MPT) created a rational and scientifically grounded way to construct portfolios for investors with varying risk tolerances. MPT advocates for diversification to optimize the risk-return trade-off. The theory suggests that for a given level of risk, there is an optimal portfolio allocation that maximizes expected return, and this optimal portfolio lies on the efficient frontier.
/jlne.ws/4cpUSyg

Volatility and Skew
tastytrade (Video)
Mike and Nick explain why products with sub-100% IV can have put skew or call skew, where products with over 100% IV will almost always have call skew.
They explain with visual examples and take a look at SPY vs GME to show a real life example of the difference in skew.
They also field questions from the YouTube chat related to earnings trades, options strategies, and much more!
/jlne.ws/4cLJJHL

Pity Hedge Funds That Lost in Electricity Chaos — No, Really

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The Spread

Past Options Newsletters

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