UBS Sued Over YES Options Strategy

Jan 12, 2022

Lead Stories

UBS Sued Over YES Options Strategy
Andrew Welsch – Barron’s
An investor is suing UBS over alleged misrepresentations with regard to a multi-billion-dollar options investment strategy that went awry in 2018. The lawsuit comes as the company faces dozens of arbitration cases with regard to the strategy.
Christian Dumontet is seeking class action status on behalf of himself and 1,500 other clients who invested approximately $5.7 billion in the firm’s Yield Enhancement Strategy, or YES, according to the lawsuit, which was filed Dec. 5 in federal court in New York. He is asking the court for damages, restitution, and disgorgement of allegedly ill-gotten gains.
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Bitcoin’s Options Market Trims Bearish Bias as US Inflation Report Looms
Omkar Godbole – CoinDesk
The demand for bitcoin puts appears to have waned in the lead-up to a U.S. inflation report that could strengthen the case for faster liquidity withdrawal by the Federal Reserve, indicating that investors are less inclined to seek protection against a decline in the cryptocurrency.
The one-week put-call skew, which measures the cost of puts – or bearish bets – relative to calls, has come off sharply from 17% to nearly 0% since late Monday, according to data provided by the crypto derivatives research firm Skew.
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Morgan Stanley, BNP Paribas See Return of Big Currency Swings
Libby Cherry and Greg Ritchie – Bloomberg
As waves of volatility lash bond and stock markets, currencies are an island of relative calm. Wall Street says that’s about to change as rifts open between central banks the world over.
At Morgan Stanley and BNP Paribas SA, strategists are predicting greater price swings as policy makers scale back on stimulus at different rates, opening fault lines under usually stable Group-of-10 currencies. BNP’s Oliver Brennan is predicting one-year implied volatility between the euro and the dollar will advance to around 9%, a level last seen at the height of the pandemic — and before that, back in 2017, when the Federal Reserve’s previous hiking cycle was in full swing.
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The Fed Hasn’t Yet Lifted Rates. Some Stocks Have Begun to Feel the Pain.
Jacob Sonenshine – Barron’s
The Federal Reserve hasn’t even lifted interest rates yet, but economically sensitive stocks have begun to feel the pain.
Among the most affected are the industrial, materials, and transport sectors. All rebounded in Tuesday’s market rally, but are likely to stay pressured in a rising-rate environment.
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US companies tipped for strong earnings season despite growing threats
George Steer – Financial Times
Big US companies are expected to demonstrate their health by reporting strong profits for the past quarter even as high inflation, wage pressure, supply chain disruption and the Omicron coronavirus variant cloud the outlook.
As earnings season kicks off this week, companies in the S&P 500 stock index are forecast to deliver year-on-year earnings growth of nearly 22 per cent for the final three months of 2021, following an increase of almost 40 per cent in the previous quarter, according to Wall Street estimates collated by data provider FactSet.
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Exchanges

Cboe FX Yearly Recap and Look Ahead
Cboe
Cboe FX continued to go from strength to strength in 2021 and in spot FX it was our best year on record, with a market share of 16.6%*, compared to 16.1% in 2020.
Our Full Amount offering, which provides clients with a solution for larger order risk transference with low market impact, had another strong year. Full Amount ADV topped $9.6 billion in 2021, representing a 22.2% increase year-over-year.
/bit.ly/3qk4Tar

Equity Index market briefing January 2022
Eurex
Looking back at the tremendous equity market returns, one could easily conclude that 2021 was a steady and typical bull market. However, nothing would be further from the truth. IPO markets remained hot in Europe with a similar picture in the U.S., where the SPAC activity remained buoyant. The crypto market capitalization set new records amid high trading volatility. Violent short squeezes in meme stocks pushed the balance of power away from hedge funds into the hands of the retail herd. The macro-economic picture also shifted from the initially positive but bumpy recovery from the pandemic to real fears of surging global inflation. Unfortunately, some dismal records were also set in terms of extreme weather conditions and further evidence of highly damaging global warming.
/bit.ly/33wJNwR

HKEX Signs New Strategic Cooperation Agreement with SZSE to Support Greater Bay Area Development
HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is today (Wednesday) pleased to announce it has signed a new strategic cooperation agreement with Shenzhen Stock Exchange (SZSE) to further enhance market connectivity and facilitate the development of the Guangdong-Hong Kong-Macao Greater Bay Area. Under this expanded agreement, HKEX and SZSE will work closely together to support the development of Hong Kong and Mainland China’s capital markets. The two exchanges will conduct joint marketing and promotional activities on a regular basis, such as forums and workshops, on relevant topics including Stock Connect, index and derivatives product development and cross-border regulatory updates.
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Strategy

Markets Are Changing Fast. What to Do With Your Favorite Stocks.
Steven M. Sears – Barron’s
We are about to see just how in love investors have become with their stocks over the past 20 years.
The onset of earnings season, coupled with the looming reality that the Federal Reserve will raise interest rates from historically low levels, means that many stocks that have done well for a long time could struggle under the new realities.
/bit.ly/3rfPU0u

Mini Index Options: A Retail Trader’s Gateway Into Institutional Trading
Benzinga
Trading options can be a daunting task.
Whether it’s figuring out how delta, gamma and theta influence the option premium or how option spreads and implied volatility impact position sizing protocols, wary options traders constantly monitor their trade to ensure they’re trading the right way.
/bit.ly/3GCWa9n

Get ready for both FOMO and fear, says Evercore strategist. Here are the heights and depths that the S&P 500 could reach.
Steve Goldstein – MarketWatch
The current bull market has been a largely one-way arrow, pointing up and to the right.
Julian Emanuel, a strategist at Evercore, says this is the year where the swim upstream continues but the river gets wider.
/on.mktw.net/3GoZF30

The yield curve is no longer sending a ‘don’t worry be happy’ signal, warns bond king Jeffrey Gundlach
Barbara Kollmeyer – MarketWatch
Are stocks ready to break away from that rocky start to 2022?
The S&P 500 snapped a five-session losing streak on Tuesday, after Federal Reserve Chair Jerome Powell vowed the central bank will use its “tools” to get inflation under control without damaging the economy. And equity futures are rising, even after data showing the fastest annual rise in consumer prices since 1982.
/on.mktw.net/3Gp5aPd

Miscellaneous

US inflation soars to 7% for first time since 1982
Colby Smith and James Politi – Financial Times
US consumer price growth rose at the fastest pace in almost four decades in December, stoking the Federal Reserve’s fears about the threat of elevated inflation and its consequences for the economic recovery.
The consumer price index (CPI) increased at a 7 per cent year-on-year pace last month, a step up from the 6.8 per cent rate registered in November and the largest jump since June 1982.
/on.ft.com/3GomGmE

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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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