Trader Bet $65 Million in Options on Stock Rebound Into Holiday

Dec 15, 2021

Observations & Insight

The FIA and SIFMA’s Asset Management Group are hosting the annual Asset Management Derivatives Forum at The Ritz-Carlton Laguna Niguel in Dana Point, California this coming February. It is an opportunity to meet with market participants from all sides of a trade to examine the latest developments impacting the use of derivatives by asset managers. You can go here for more information and to register.~SR

Lead Stories

Trader Bet $65 Million in Options on Stock Rebound Into Holiday
Lu Wang – Bloomberg
While U.S. stocks fell Tuesday ahead of what’s expected to be a hawkish Federal Reserve policy meeting, one investor just bet $65 million on a quick market rebound.
The trade saw someone purchase roughly 20,000 call spreads that are linked to the S&P 500 and expire right before the Christmas holiday. The transaction involved selling calls with a strike price at 4,750 to fund bullish options exercisable at 4,650. The benchmark slipped 0.8% to 4,634 Tuesday.

Traders See More Currency Volatility No Matter What Omicron Does
Robert Fullem – Bloomberg
Options activity suggests swings will continue into 2022; Central banks balance inflation with Covid’s threat to growth
Volatility traders are betting that gyrations in foreign-exchange markets will likely last well into next year — even if fears of the omicron Covid variant subside.

Wild Leveraged Note Offering 5 Times Nasdaq Moves Just Launched
Denitsa Tsekova – Bloomberg
With inflation surging and investors adjusting to a more hawkish monetary outlook, U.S. tech stocks face major headwinds in 2022. Fortunately for bulls, there’s a new — and extreme — way to boost returns.
Leverage Shares has just launched an exchange-traded note in Europe that aims to deliver five times the performance of the biggest ETF tracking American technology shares. The Leverage Shares 5x Long US Tech 100 ETP (ticker 5QQQ) uses margin to amplify the $205 billion Invesco QQQ Trust (QQQ), which follows the Nasdaq 100 Index.

‘We are clearly in a bubble right now’: A Wharton blockchain and digital assets professor breaks down why the metaverse and web 3.0 are still ‘too early to be real’ — and why investors should…
Vicky Ge Huang – Markets Insider
With just over two weeks left in the year, the crypto market, which has struggled to bounce back since the derivatives-driven sell-off on December 4, is likely to finish 2021 in a sea of red.
Bitcoin, the largest cryptocurrency, has seen a 32% drawdown since reaching its all-time high of nearly $69,000 in November, according to Arcane Research. The price ratio of ethereum against bitcoin, which had spiked to 0.087, fell back to 0.080 as the second-largest digital token retreated.

Hedge funds set to end 2021 with inflows for first time in three years
Patturaja Murugaboopathy – Reuters
Global hedge funds are poised to achieve positive inflows in 2021, for the first time in three years, data from Preqin shows, thanks to strong returns and an investor shift to alternative assets during a period of volatility and rising inflation.

FX options wrap – Showing the extent of central bank expectations
Overnight FX option expiry now captures the U.S. Federal Reserve, UK and euro zone policy meeting announcements, so the gains in related implied volatility can offer some indication of the expected reaction in the major currency pairs.


Binance curbs UK trader access to risky crypto derivatives; Exchange makes renewed push to charm regulators after summer FCA censure
Joshua Oliver – FT
Binance has moved to restrict UK customer access to crypto derivatives after its chief executive said the exchange plans to renew its push for regulatory approval to operate in the country. The crypto exchange, which clashed with the Financial Conduct Authority earlier this year, sent notices to UK customers on Tuesday requiring them to provide additional information to continue to access derivatives and other features on the platform.

SGX’s new 65% iron ore options well received by market
Metal Bulletin
The Singapore Exchange’s newly launched Fastmarkets index-based options for its high-grade iron ore derivative have been well received by the market, with trading volumes exceeding 120,000 tonnes in just over a week.
As of December 14, trading volumes for the options on MB 65% Fe fines swaps and futures based on Fastmarkets’ iron ore 65% Fe Brazil-origin fines, cfr Qingdao, index had reached 1,240 lots, or 124,000 tonnes, since its inception on December 6.

SGX mandates climate and board diversity disclosures
Singapore Exchange (SGX) today unveiled its roadmap for issuers to provide climate-related disclosures based on recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
All issuers must provide climate reporting on a ‘comply or explain’ basis in their sustainability reports from the financial year (FY) commencing 2022. Climate reporting will subsequently be mandatory for issuers in the (i) financial, (ii) agriculture, food and forest products, and (iii) energy industries from FY 2023.

Regulation & Enforcement

SEC Proposes Tighter Rules on Insider Trading, Stock Buybacks
Paul Kiernan – WSJ
Wall Street’s regulator is putting forward tighter rules on how and when corporate insiders can sell their companies’ stocks, just as executives are cashing in at historic levels.
The Securities and Exchange Commission proposed new restrictions on executive stock trading and greater disclosure requirements around company share buybacks at a meeting Wednesday. If most of the SEC’s five commissioners support these proposals, along with two others, the agency will put the changes out for public comment before voting to complete them, potentially next year.

Matt Levine’s Money Stuff: Not Everything Is Insider Trading
Matt Levine – Bloomberg
If your brother-in-law is a senior accounting executive at a public company, and that public company is secretly in negotiations to be acquired at a premium, and your brother-in-law is working on the deal, and you talk to him regularly while the deal is being negotiated, “including by phone, at [your] daughters’ basketball events, and at multiple family gatherings over the Christmas holidays,” and after each time you talk to him you buy some short-dated out-of-the-money call options on his company’s stock, and you call your son and tell him to buy call options on the company’s stock, and you take out a loan on your car to buy even more call options on the company’s stock, and you make up 100% of the volume in those call options on some of the days you trade, and then shortly after Christmas the company announces the merger and the stock shoots up and you (and your son) make a ton of money on your call options — is that illegal insider trading?

SEC Plan Forces Firms Like Archegos to Reveal Swap Positions
Benjamin Bain – Bloomberg
U.S. regulators are seeking to restrict hedge funds and family offices from using complex derivatives to secretly build huge stakes in public companies — the types of trades that fueled the collapse of Archegos Capital Management.
The Securities and Exchange Commission proposed new rules to address a major regulatory blind spot exposed by fallout from the implosion of Bill Hwang’s firm earlier this year: Equity-based swaps that can be used to quietly build massive bets on companies.


5 Stocks to Hide Out in During Fed-Related Volatility
Jacob Sonenshine – Barron’s
The stock market has been volatile as the Federal Reserve looks to quickly tighten monetary policy. Stocks that provide stable cash flows and aren’t exorbitantly expensive should be good places for investors to hide out in if volatility remain high.
Strategists at Morgan Stanley screened for S&P 500 stocks such as Meta Platforms (ticker: FB) and Philip Morris International (PM) with reasonable valuations that shouldn’t be dented badly by less liquidity.


Nasdaq’s Shift to Cloud Commits to New Jersey, Avoiding Big Trader Hassle
Exchange inks deal with Equinix to expand Carteret data center
Means wireless backbone of stock market won’t need overhaul
Katherine Doherty – Bloomberg
In modern trading, where billionths of a second matter, knowing where exchanges stash their computers is crucial.
So when Nasdaq Inc. recently decided to start shifting its North American markets to the cloud, that raised the possibility traders would have a harder time sorting where to put their machines, and also force them to reroute wireless communications networks that serve as the backbone of finance. That’s because cloud platforms usually are based out of multiple data centers.

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The Spread

Hedges Across Assets Are Too Expensive, Morgan Stanley Says

Lead Stories Hedges Across Assets Are Too Expensive, Morgan Stanley Says Options imply broad range of outcomes, strategists say Morgan Stanley suggests positioning for a peak in volatility Joanna Ossinger - Bloomberg Long volatility is too expensive as hedging...

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