U.S. rate options market bets on aggressive Fed hikes

Oct 29, 2021

Observations & Insight

Post-Expo, FIA will offer Its quarterly update on trading activity in the global futures and options markets in a webinar scheduled for Tuesday, November 9, from 10:30 a.m. to 11:30 a.m. ET. In addition to covering volume by category, region and exchange ranking, the session also will feature a buy-side look at trends in equity index and FX futures with Lisa Cavallari, director of Fixed Income Derivatives and Commodities for Russell Investments. Registration details are here.~SC

Lead Stories

U.S. rate options market bets on aggressive Fed hikes
Gertrude Chavez-Dreyfuss – Reuters
Investors in U.S. interest rate options are paying for trades that benefit from a much earlier-than-expected monetary tightening by the Federal Reserve to fight off stubbornly high inflation, including multiple hikes from next year until 2023.

This Halloween, These Are the Charts That Scare Wall Street
Vildana Hajric and Emily Graffeo – Bloomberg
Halloween — a time when terrifying things pop out from around every corner but none do you harm. That’s also a good way to describe markets at the end of 2021.
It hasn’t escaped Wall Street that 2021 has been mostly treats and no tricks, with the S&P 500 up 22% so far. But investors see plenty of dangers ahead, including corporate debt levels, lofty valuations and inflation’s persistent grip.

Traders Bet Tesla Stock’s Rally Isn’t Over Just Yet
Gunjan Banerji – WSJ
Traders are swarming the market for Tesla Inc. options to bet on a continued stock rally.
Almost one out of every two dollars spent in the U.S.-listed options market through Wednesday went to Tesla options, according to Cboe Global Markets CBOE +0.04% data. On Monday, traders spent more money on Tesla bets, in what’s known as options premium, than they did on every single other option in the market combined. There are more than 5,000 stocks and exchange-traded funds to trade.

Bad bets trigger waves of tumult in short-term bond markets
Tommy Stubbington in London and Kate Duguid – Financial Times
A violent shake-up in bond markets has intensified as fund managers are wrongfooted by a global drop in short-term debt, say analysts and investors.
Stubbornly high inflation around the world and a hawkish response by some central banks have fuelled a rapid rise in short-dated government bond yields. At the same time, concerns about growth prospects in the coming years have kept a lid on long-term bond yields, resulting in a dramatic “flattening” of yield curves.

Bitcoin Drops About $3,000 in a Flash as Volatility Increases
Vildana Hajric and Emily Graffeo – Bloomberg
Bitcoin’s wild price fluctuations continued, with the largest cryptocurrency spiking downward by about $3,000 in a matter of seconds during mid-afternoon trading.
The dramatic price move followed a similar pattern seen on Wednesday, when Bitcoin slumped quickly in early trading for no identifiable reason. The digital asset, which has traded within a range of about 8% Thursday, bounded back to recoup all of the move and was up about 4.7% to $61,682 as of 4:20 p.m. in New York.

Market Wrap: Bitcoin Heads to $61K Ahead of Options Expiry
Analysts expect short-term choppiness ahead of the next leg higher.
Damanick Dantes – Coindesk
Bitcoin rose toward $61,000 on Thursday, albeit within a choppy trading range. Analysts have mixed views about the short-term direction of BTC’s price, which is up about 2% over the past 24 hours.
On Wednesday, El Salvadorian President Nayib Bukele tweeted that his government had “bought the dip,” adding an additional 420 BTC to the treasury, the equivalent of around $25 million. That purchase was one reason behind today’s price bounce. Bitcoin’s price has whipsawed over the past few days after failing to sustain the all-time high around $66,900 last week.


Cboe Options Exchange to list three long-dated SPX options expirations; LEAPS options based on S&P 500 are similar to standard options, but with extended expiration dates of several years into the future.
Wesley Bray – The Trade
Beginning 1 November, Cboe plans to list additional LEAPS (Long-term Equity AnticiPation Securities) options on the S&P 500 Index (SPX). The new options will offer expiration dates in December 2024, December 2025 and December 2026.

Exchange operator Cboe’s 3rd-qtr profit boosted by VIX franchise
John McCrank – Reuters
Exchange operator Cboe Global Markets Inc on Friday said its third-quarter profit jumped 9%, driven by higher trading levels across nearly all of its segments, notably in index options and volatility products.
Cboe, which provides trading platforms and products in equities, derivatives and foreign exchange across North America, Europe and Asia Pacific, last week said it agreed to acquire cryptocurrency trading platform ErisX for an undisclosed amount.

Cboe Global Markets Reports Results for Third Quarter 2021
“In the third quarter Cboe posted double-digit year-over-year earnings growth, reflecting accelerated trading in our proprietary products throughout the quarter, coupled with continued higher demand for our suite of data and access solutions. In addition, Cboe delivered on a number of significant strategic milestones, including the successful launch of our European Derivatives platform,” said Edward T. Tilly, Cboe Global Markets Chairman, President and Chief Executive Officer. “Furthermore, we welcomed Chi-X Asia Pacific into the Cboe network, further expanding our global footprint. By leveraging our technological expertise, customer relationships, and capital markets capabilities, we plan to continue to unlock additional revenue opportunities across our businesses through expanded access to existing products and new product launches. We are particularly excited about our plans to enter the digital asset market through the planned acquisition of ErisX and look forward to partnering with industry leaders to further evolve this rapidly growing market. Furthermore, we look forward to the planned launch of 24×5 trading in our SPX and VIX Options in November and the planned launch of our Nanos product in the first quarter 2022. Overall, we exit the third quarter on stronger footing than ever, and we look forward to continuing to execute on our growth opportunities ahead.”


MIAX Options Exchange – Technology Refresh of FOI Gateways in NY4 Postponed
As previously announced in the September 27th Alert, the refresh, originally scheduled for November 1st through November 8th, 2021, has been postponed until the first quarter of 2022. The new date for the technology refresh will be announced in a future alert.


Carry Trade Comes Surging Back With Biggest Gains Since 2016
Robert Fullem and Brody Ford – Bloomberg
The returns on carry trades are roaring back in the currency markets of the world’s major developed countries, thanks to surging commodity prices, low volatility and the growing ranks of central banks moving to tighten monetary policy.
The combination has allowed traders to reap the biggest profits in five years from such trades, which involve borrowing in nations where interest rates are still low and investing in those where yields are higher.

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