This week on The Spread: record high $1 billion worth of bitcoin options expire, the OCC publishes best practices and a plan for the future, and more.
Produced by Mike Forrester.
Welcome to The Spread, I’m Matt Raebel. I see a lot of people on the Internet joking that these days feel apocalyptic, and I gotta say – if gargantuan forest fires, economic turmoil and a worldwide plague failed to make you feel like it’s the end of the world, well here’s one for you – according to the Bloomberg Galaxy Crypto Index, bitcoin’s returns have outperformed commodities, bonds (no surprise there), stocks, and even gold – which I think is the financial markets equivalent of Hell freezing over. Much of bitcoin’s positive performance this year is probably due to a combination of things. For one, bitcoin options are becoming insanely popular; at time of recording, September 25th, a record high one billion dollars’ worth of bitcoin options are set to expire. Speaking of bitcoin, some FX trading veterans are comparing the volatility of the current cryptocurrency markets to FX trading in the ’90s. I legally can’t give anyone any investment advice, but I will say that if you’re gonna get into trading bitcoin, save your receipts or be ready to get several tersely-worded letters from the IRS, because they’re not messing around with that stuff these days. In non-bitcoin news, Citigroup, which formerly served as broker-dealers for retail trading businesses like Charles Schwab and Fidelity, closed its market-making business for retail options – turns out, offering your customers trading with zero fees means you have zero revenue with which to pay your broker. A report by the International Financing Review said that buying call options on Tesla stocks, as well as Tesla’s convertible bonds and equity derivatives, helped Goldman Sachs’ equities trading division make a hundred million dollars this year. Barclays said that the ratio of demand for single-stock call options compared to puts is higher than it’s been in five years – a stampede of bullishness, if you will. Last thing on the docket for this week: our sponsors at the OCC published a couple of documents this week. The first is entitled, “Optimizing Incentives, Resilience and Stability in Central Counterparty Clearing,” which explains in detail how CCPs like the OCC serve the derivatives industry. It also outlines how the OCC is currently seeking to improve its operational resilience based on feedback from the industry. To name just a few examples, they’re attempting to do this by strengthening their risk management framework and re-evaluating their approach to covering potential defaults, even in the case of “extreme but plausible” market conditions. Good timing, that. The second paper, entitled, “OCC Recovery and Orderly Wind-Down Plan Participant Guide,” is also worth reading, particularly if you work at a CCP. You can find links to both below this video. That’s gonna do it for The Spread this week. Check out John Lothian News dot com for more news and videos like this one, including a new edition of our “Path to Electronic Trading” series featuring Dan Gramza. I’ll see you next week, until then, happy trading.
Crypto Is Beating Gold as 2020’s Top Asset So Far
Joanna Ossinger – Bloomberg
Bitcoin Options Open Interest Hits Record High in Expiry Week
Omkar Godbole – Coindesk
IRS memo: Cryptocurrency earned from a microtasking job is taxable income
Michael McSweeney – The Block
Citigroup halts market making in retail options; Closure of business is latest sign of computer-driven rivals forcing out Wall Street banks
Richard Henderson in New York and Philip Stafford – FT
Tesla’s rally this year has reportedly earned Goldman Sachs $100 million
Saloni Sardana – Markets Insider
Veterans of FX’s Wilder Days Are Loving Bitcoin’s Volatility; Some Wall Street traders have embraced the cryptocurrency because its manic moments remind them of yesteryears.
Vildana Hajric – Bloomberg
OCC Issues Paper on Central Clearinghouse Resiliency and Stability
OCC Recovery and Orderly Wind-Down Plan Participant Guide
Dan Gramza – The Path To Electronic Trading
John Lothian – JLN