Trader Makes $50 Million Options Bet That S&P 500 Will Rally

Sep 23, 2021

Observations & Insight

Brendan Bradley’s Front Row Seat to the Path to Electronic Trading
JohnLothianNews.com

Brendan Bradley had a front row seat for the major exchange battles between open outcry trading and electronic trading after starting at the London International Financial Futures Exchange (LIFFE) in the 1980s and then moving to DTB in the mid-1990s. While there he saw the German Bund contract battle that shocked the global derivatives trading world and then later witnessed the competition between Eurex and the Chicago Board of Trade (CBOT) that he said ultimately led to the global leading exchange’s demise.

Bradley shared a historic overview of the development of markets in Europe as electronic trading developed for The Path to Electronic Trading from John Lothian News’ MarketsWiki Education video series.

Watch the video »

Lead Stories

Trader Makes $50 Million Options Bet That S&P 500 Will Rally
Lu Wang – Bloomberg
One trader just took on a massive bet that U.S. stocks will rally into the end of 2021.
The flurry of trades with the SPDR S&P 500 ETF Trust (SPY) — which took place between 10:34 a.m. and 10:41 a.m. New York time — involved call spreads maturing in each of the next three months. The total cost was about $50 million. Should all the contracts be in the money by their respective expiration dates, they would be worth $136 million — for a profit of roughly 70%, according to an estimate from Chris Murphy, co-head of derivatives strategy at Susquehanna.
/bloom.bg/3EOK3VS

Ahead of bitcoin’s $3 billion options expiry this Friday, 5 experts told us how much the crypto and other leading altcoins can surge or fall from here: ‘if markets bleed, they will bleed as a group.’
Vicky Ge Huang – Business Insider
Despite over $3 billion worth of bitcoin options expiring this Friday, traders and analysts are not expecting a notable impact on the crypto market, but some are bracing for rising volatility and downward pressure on the largest cryptocurrency.
A total of 73,702 options contracts worth $3.2 billion are due for expiry this Friday, according to data provided by Skew. The majority of the contracts are expected to expire without value as call option interest is concentrated at strike prices that are currently above bitcoin spot price ($42,529 as of midday Wednesday) and the majority of put options are positioned at lower strikes, as noted by Armando Aguilar, a digital asset strategist at Fundstrat Global Advisors.
/bit.ly/3i313hr

Opinion: Stock-market bears fail to seize control after S&P 500 support breaks
Lawrence G. McMillan – MarketWatch
The S&P 500 index broke down below significant support areas in the past week. However, as has been the case for several months, the bears have not been able to keep control even after a significant breakdown such as the one that just occurred.
That significant support level was at 4370, where three declines had ended previously. But on Monday, the S&P SPX, 1.38% blew right through there and declined to nearly 4300. More importantly, it closed below 4370.
/on.mktw.net/3CEM84X

Cautious Stance on Stocks Makes Sense, Says Deutsche Bank’s Puri
Vildana Hajric – Bloomberg
Risks are piling up ahead of the year’s end, according to Deutsche Bank Wealth Management’s Deepak Puri.
Stocks have gone up too far, too fast since the lows of March 2020, he said. And while they can continue climbing, there are a number of concerns on the horizon.
/bloom.bg/2XTe06H

Coinbase is planning to be the top dog, but how will Bitcoin, altcoins react
Biraaj T – AMBcrypto
United States’ largest cryptocurrency exchange is planning to dive into the derivatives market and it is not surprising at all. It is also borderline gutsy, especially since it was amidst tensions with the SEC that Coinbase publicly announced applying with the National Futures Association to register as a Futures commission merchant.
While Bitcoin and altcoin markets have been correcting somewhat, Coinbase’s eventual entry into the derivatives market can have major implications for other exchanges. It is also likely to bring forth a different wave of adoption.
/bit.ly/3nW6i6u

JPMorgan Team Says Flows Show the Buy-the-Dip Mantra Is at Risk
Joanna Ossinger – Bloomberg
Flow measures for the S&P 500 Index signal that the psychology of buying the dip in U.S. equities is fraying, according to JPMorgan Chase & Co. strategists.
An outflow of $11 billion from equity exchange-traded funds on Sept. 20 — the biggest on a down day this year outside of quarterly options and futures expirations — is “rather concerning” because it’s inconsistent with the buy-the-dip behavior that’s helped propel equities higher for months, JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a note Wednesday.
/bloom.bg/2Zh1Q7U

Exchanges

Eurex Takes First Step in Crypto Derivatives
Eurex has launched Bitcoin ETN Futures and could eventually launch options or futures on other crypto exchange-traded notes if the derivatives arm of Deutsche Börse Group receives regulatory approval.
Randolf Roth, member of the executive board at Eurex, told Markets Media: “The Bitcoin ETN future is our first product in the crypto space and is most likely not going to be our last, but the space is receiving heavy regulatory attention.”
/bit.ly/3o1BCko

Options Trader Alert #2021 – 54
Nasdaq
Nasdaq Introduces Monday and Wednesday Weekly Expirations For IWM Options
SEC Notice of Filing
Subject to regulatory approval, Nasdaq PHLX (Phlx), Nasdaq BX Options (BX), The Nasdaq Options Market (NOM), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX), and Nasdaq MRX (MRX) will expand the Short Term Option Series Program (STO) to list for trading options series on the iShares Russell 2000 (IWM) ETF which expire on Mondays and Wednesdays.
/bit.ly/3CIyc9Z

Uncleared Margin Rules and Fixed Income – firms should start clearing
Eurex
With Phases 5 and 6 of the Uncleared Margin Rules (UMR) becoming effective in September 2021 and 2022, respectively, it is interesting to look at the impact this will have on fixed income as an asset class. We asked Phillip Simons, Global Head of Fixed Income Sales, Derivatives, Funding and Financing at Eurex Clearing, to provide us with some valuable insight.
/bit.ly/3CA5jg8

Moves

Trumid hires Cboe electronic trading expert as chief revenue officer
New CRO will focus on the growth of Trumid’s existing business as well as protocol, product and geographic expansions.
Wesley Bray – The Trade
Fixed income platform Trumid has appointed Cboe’s former head of markets for the newly created role of chief revenue officer.
Bryan Harkins will take on the role, bringing experience in the development, operation and growth of electronic trading platforms for clients across a range of asset classes.
/bit.ly/3ABrRMV

Strategy

Robinhood Stock Is Under Fire. Here’s How to Play It Now.
Steven M. Sears – Barron’s
Time and volatility. If you are at peace with them, the market’s occasional paroxysms are generally of little consequence.
As investors confront the market shadows that have been cast by China Evergrande Group (ticker: 3333.Hong Kong), they should remember the advantages of investing for the long term—while taking advantage of short-term volatility.
/bit.ly/3kBhB1P

Dark Pool Sold Some Order Flow
Also IPO order books, Reddit algorithms, Evergrande and front-running.
Matt Levine – Bloomberg
Bad PFOF
A rough, inaccurate but useful way to think about U.S. equity market structure is that the prices on the stock exchange are bad. You can go to a public stock exchange and see a “lit,” public bid and offer for every stock; the exchange will tell you at all times, like, “you can buy this stock for $10.05 or sell it for $9.95.” (The best buying and selling price available on all the lit exchanges is called the “national best bid and offer” or NBBO.) But if you ever find yourself paying the lit price to buy a stock, or accepting the lit price to sell it, you have done poorly. That is just the sticker price, the advertised price, the price for rubes. Somewhere, in the dark, there are hidden orders at better prices, and if you and your broker are any good you will find them.
/bloom.bg/3CH156I

OPR 381: ITM Spreads and Adjustments In SPX
Options Playbook Radio – The Options Insider
In this episode, Brian first discusses using a long call spread in the S&P 500. Then he looks back at the skip strike butterfly trade that he did in Coinbase (Ticker: COIN) last week.
/bit.ly/2XNT7tM

Education

What Happens to Options When a Stock Splits?
Mark Henricks – SmartAsset blog via Yahoo Finance
An investor who owns call options on a stock that splits will wind up owning more options on the stock. However, having a larger number of options won’t increase the value of the options. That’s because the price of the underlying stock will be decreased when the stock splits. The change in stock price is directly related to the number of new shares that will be issued in the split. A 2-for-1 split would reduce the value of a $10 per share stock to $5 per share. There are other share-related events that can affect options. Consider working with a financial advisor as you pursue trading in options or other types of derivatives.
/yhoo.it/3EW8Rvs

Events

International Derivatives Expo (IDX)
27 September 2021 – 28 September 2021 • 8:00 AM – 6:00 PM BST
FIA
Standing still is not an option in today’s evolving cleared derivatives environment. Without adapting to new products, processes, technologies and regulations, your business won’t meet the needs of tomorrow’s industry. That’s why IDX — the International Derivatives Expo — is the ideal place to be: an event that brings together industry leaders, vendors and policymakers to discuss what’s “now” in derivatives, and what lies ahead.
It’s time to say good-bye to Zoom and hello to the in-person IDX experience this 27- 28 September. We’re creating a unique IDX experience at our new venue – the Park Plaza Westminster Bridge – that keeps you safe while allowing you to connect with clients, colleagues and friends from the local cleared derivatives community.
Registration is now open.
/bit.ly/39x3DYE

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