Observations & Insight
Futures Discovery: Regulation & Do You Need to be Registered
Today, we’re diving head first into a crucial topic that affects every trader’s journey in the world of futures trading – “Regulation & Do You Need to be Registered.” Buckle up as we unravel the intricate web of rules and regulations that shape the landscape of the futures market.
Term of the Week – The Price of an Underlying Asset
The basics of how the price of an underlying asset affects options prices.
Traders Boost Bearish China Options Bets Even as Stocks Surged
Sangmi Cha and Jeanny Yu – Bloomberg
Traders seeking to hedge bets on Chinese stocks piled into bearish options Tuesday even as an underlying benchmark notched one of its strongest rallies since the economy reopened from Covid lockdowns.
Wall Street’s ‘fear gauge’ poised for longest stretch of subdued readings since 2018
Joseph Adinolfi – MarketWatch
Wall Street’s “fear gauge” hasn’t been this subdued in years.
According to Dow Jones Market Data, the Cboe Volatility Index, otherwise known as the Vix or Wall Street’s “fear gauge,” is on track to close below 15 on Tuesday for the 59th consecutive trading day. That would be the longest such stretch below that level since a 66-day stretch that ended on Oct. 5, 2018.
Ether options open interest indicates bullish sentiment about potential May spot ETH ETF approval, analyst says
Brian McGleenon – The Block
The crypto derivatives market is suggesting continued excitement in the market regarding the potential approval of a spot Ethereum ETF by the end of May, an analyst said.
“Traders seem to be adjusting their ether options contracts with the May 23 date in mind,” Bitfinex Head of Derivatives Jag Kooner told The Block.
It’s Really, Really Quiet Out There in the Stock Market
Gunjan Banerji – The Wall Street Journal
The Cboe Volatility Index is on track to close below 15 for 59 consecutive trading days, the longest stretch since 2018.
Oil Traders Are Piling Into a Market That’s Not Going Anywhere; About 660 million barrels of oil derivatives added this year; Crude benchmarks remain trapped in a tight $10 a barrel band
Alex Longley, Devika Krishna Kumar, and Yongchang Chin – Bloomberg
Oil derivatives are booming, belying the lackluster price moves in a market that’s largely shrugged off a tumultuous start to a year fraught with geopolitical risks. Open interest across the main oil futures contracts – the total volume of futures and options held by oil traders – climbed to the highest since March 2022, according to data compiled by Bloomberg. So far this year, the equivalent of about 660 million barrels of oil derivatives have been added, despite crude prices being firmly stuck in a $10-a-barrel trading band.
Big Oil offers record returns to lure investors back
Ron Bousso – Reuters
Big Oil firms are handing shareholders more money than ever and are promising more going forward in an attempt to reassure investors of their discipline and resilience in the face of an uncertain outlook for fossil fuels.
The top five Western oil and gas firms – BP, Chevron, Exxon Mobil, Shell and TotalEnergies – returned to shareholders over $111 billion in dividends and share repurchases in 2023, according to Reuters calculation.
Decline of the star stockpicker: investors pull $150bn from equity hedge funds; Clients tire of managers’ poor returns in bull and bear markets; ‘Equity long-short funds’ have underperformed the US stock market in nine out of the
Costas Mourselas – Financial Times
One of the oldest and best-known hedge fund strategies has suffered nearly $150bn in client withdrawals over the past five years, as investors tire of their inability to capitalise on bull markets or protect them during downturns. So-called equity long-short funds, which try to buy stocks likely to do well and bet against names set to perform poorly, have underperformed the US stock market in nine out of the past 10 years, according to Nasdaq eVestment, after failing to adapt to markets largely dominated by central banks.
****** The long and short of this is eeny, meeny, miny, moe is not working as well anymore.~JJL
Investors have pulled $150 billion out of stockpicking hedge funds over the past 5 years
Aruni Soni – Markets Insider
They were once thought of as the market’s star stockpickers. Now, they’ve suffered major outflows over the past decade.
Stockpicking hedge funds have seen investors pull out $150 billion over the past 5 years, the Financial Times reported on Wednesday. That’s as the strategies have underperformed amid central bank bond-buying and low interest rates.
Why ETFs work better in illiquid markets
Robin Wigglesworth – Financial Times
A lot was happening in markets when Covid-19 shut down the world in March 2020. One of the most noted happenings was how the price of many fixed-income ETFs became unmoored from the value of the bonds they contained.
It seemed like vindication for people like Carl Icahn and Michael Burry, who had warned that ETFs had become so big that they were dangerous — especially in less traded markets like bonds. Finally, the illusory liquidity of the ETFs had collided with the harsh reality of the illiquid assets they held!
Get to Know OCC’s Operational Risk Management and Controls Team
The Operational Risk Management and Controls (ORMC) team’s mission at OCC is to enable effective oversight of OCC’s operational and enterprise risks and to foster a strong culture of safeguarding OCC.
The team provides independent oversight, guidance, challenge and monitoring to the organization on its risk identification, assessment, and treatment, including its internal controls, in order to manage the organization’s risk in accordance with OCC’s risk management framework and tolerances.
Brussels agrees new rules to shift derivatives clearing from London; EU-based traders required to send ‘minimum’ amount of swaps contracts through ‘active accounts’
Paola Tamma – Financial Times
Brussels has agreed rules that will force derivatives traders to funnel part of their deals through accounts at clearing houses in the bloc, in a plan to wrestle a share of the vast market away from the City of London. The revised rules, agreed early on Wednesday, will force EU-based banks trading quantities of contracts that are deemed “systemic” by regulators to send a minimum amount of business to an EU clearing house.
CME Group to Launch U.S. Corporate Bond Index Futures in Summer 2024
CME Group, the world’s leading derivatives marketplace, today announced that its interest rate complex will expand in summer 2024 with the launch of U.S. Corporate Bond Index futures, pending regulatory review. The new futures contracts will be based on the Bloomberg U.S. Corporate Index, which measures the performance of investment grade corporate bonds, and the Bloomberg U.S. High Yield Very Liquid Index, which is designed to measure a liquid, diversified component of the high yield corporate bond market.
Regulation & Enforcement
FIA response to provisional EMIR 3.0. agreement
FIA congratulates the Council of the EU and the European Parliament on reaching a provisional political agreement early this morning on the review of the European market infrastructure regulation and directive (EMIR 3.0).
The review aims to make the EU clearing landscape more attractive and resilient, support the EU’s strategic autonomy, and preserve the EU’s financial stability.
The 3 Advantages of Undefined-Risk Strategies
Dr. Jim Schultz – tastylive
Naturally, defined-risk strategies are attractive because your overall risk in the trade is fixed over the life of the position. But that safety net comes with several disadvantages not found with undefined-risk positions.
Volatility Is Good. How to Use It.
Steven M. Sears – Barron’s
If interest rates aren’t going to increase, does it matter when the Federal Reserve cuts rates?
So far today, the $VIX Index is around 13 as markets continue to rally following the Fed rate decision last week. All this and more in #Vol411 with @JoeTigay.
The significance of ‘Theta’ for options traders: Options 101
Jared Blikre – Yahoo Finance
When it comes to options trading, there is so much to keep in mind — from calls and puts (and whether they’re short or long), but even that just scratches the surface.
RBC Capital Markets Managing Director and Equity Derivatives Strategy Amy Wu Silverman joins Jared Blikre for Yahoo Finance’s Options 101 special, helping explain the phenomenon known as theta — or options’ value decay as time passes — and using Meta Platforms (META) and Uber (UBER) as examples for call and put option trades.
AI ETFs Are Here. Do Investors Really Need Them?
Lauren Foster – Barron’s
Artificial-intelligence stocks are all the rage these days, and several thematic exchange-traded funds are hoping to cash in on investors’ enthusiasm. But it turns out that some AI ETFs are smarter than others.