US life insurers piled into index options in Q2

Nov 21, 2023

Observations & Insight

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Lead Stories

US life insurers piled into index options in Q2
Michael Paterakis –
Options trading by US life insurers surged 21% in the second quarter, pushing the sector’s total exposure to $1.3 trillion in notional terms – the highest level since’s Counterparty Radar service began tracking this data in early 2022.
Life insurers added $223 billion notional of options positions in the reporting period.

Nvidia stock options ready for some fireworks after earnings
Tomi Kilgore – MarketWatch
The options market is ready for Nvidia Corp.’s stock to post a bigger-than-average move in reaction to the semiconductor maker and artificial intelligence play’s earnings report, which is due after Tuesday’s close.
An options strategy known as a “straddle” is priced for the Nvidia’s stock NVDA to move $35.75 in either direction, according to data provided by Matt Amberson, principal at Option Research & Technology Services. At current prices, that represents a move of about 7.15%.

Hedge funds plow cash into top tech stocks leading to record levels of crowding
Louis Goss – MarketWatch
Hedge fund crowding hit record highs in the third quarter as the world’s top funds piled into a selection of popular stocks in the face of widespread market volatility, Goldman Sachs’ analysis of 13-F filings from 735 hedge funds with $2.4 trillion in assets shows.
The convergence of strategies saw Goldman Sachs’ crowding index hit its highest levels in its 22-year history as hedge funds invested heavily into the world’s top technology stocks and reduced their exposure to the energy, healthcare, and industrials sectors.

The Middle East is hotter than ever in the hedge fund world
Bradley Saacks – Business Insider
One of the hottest markets in hedge funds is one of the hottest places, temperature-wise, in the world.
The Middle East, especially Dubai, has become a magnet for hedge funds recently, with firms like Millennium and ExodusPoint setting up outposts and Bridgewater founder Ray Dalio purchasing a penthouse in the city.

Blackstone to End Legacy Strategy That Gave Money to Hedge Funds
Nishant Kumar – Bloomberg
Blackstone Inc. is winding down a strategy that allocated capital to hedge funds ranging from Two Sigma Investments to Magnetar Capital. The Blackstone Diversified Multi-Strategy fund will shutter by the end of the year. The fund operates under the European Union’s UCITS Directive and provides investors daily access to their capital, a structure that has come under pressure. It manages about $200 million in assets, down from its peak $2.3 billion in 2018.

BNP Paribas Picks Up Hedge Fund Clients With HSBC Agreement; BNP is taking over HSBC’s hedge fund administration business; HSBC says alternatives sector continues as ‘focus of growth’
Alexandre Rajbhandari – Bloomberg
BNP Paribas SA is taking over part of HSBC Holdings Plc’s business that caters to hedge funds as the French lender looks to deepen its business with those asset managers. BNP’s securities services unit signed an exclusive agreement to take over HSBC’s hedge funds administration business, according to a statement Tuesday. The agreement allows the 25 institutional clients affected by HSBC’s decision to shut down the business to transfer their hedge fund administration requirements to BNP.

Hedge fund herding is worse than ever; Magnificent momentum jockeys
Robin Wigglesworth – Financial Times
The US stock market’s “Magnificent Seven” have been a headache for mutual fund managers, who have mostly eschewed them and are paying the performance price. Hedge funds have taken a different tack – in short, they yelled “YOLO” and jumped in with both feet. From Goldman Sachs this morning (their emphasis):

Fed Minutes Show Consensus: Rates Need to Stay High
Megan Leonhardt – Barron’s
All members of the Federal Open Market Committee agree that monetary policy must remain restrictive “for some time” until inflation is clearly moving toward the 2% goal, according to the minutes from the Oct. 30-Nov. 1 meeting.


SoFi launches ‘credit spread’ option income ETF
James Lord – ETF Strategy
SoFi Technologies has launched a new actively managed ETF designed to provide a high level of income that is not tied to conventional sources of yield.
The ETF seeks to deliver a high level of income that is uncorrelated with traditional sources of yield.
The SoFi Enhanced Yield ETF (THAT US) has been listed on NYSE Arca with an expense ratio of 0.49%.


The Options Trader’s Hotlist: 7 Stocks with Compelling Prospects
Josh Enomoto – Nasdaq
Even if you don’t have any intention of trading in the derivatives market, you’ll still want to consider top stocks for options trading. How come? Options provide leverage, typically in the form of 100 shares of the underlying security or asset per every one contract. You can accelerate your profits – and your losses to be sure – over a short time.
Given the “energy density” of the best options trading stocks, institutional investors – the smart money – love the derivatives market. Again, if you have zero intentions of participating, you’ll want to know what the big dogs are doing with their money. In other words, it’s financial intelligence.

15-Day Straddle
Cboe (Video)
In #Vol411, Tim Biggam @Delta_Desk tells us that the $VIX Index is currently below 14, so far the put/call ratio is about 2 to 1 calls as we near the Thanksgiving holiday, gives us updates on the 15-day straddle and more.


Don’t Worry About Early Assignment With European Style Index Options
When it comes to trading options, the choice between European style and American style options can significantly impact your trading strategy and risk management. Cboe Global Markets (BATS:CBOE) offers European style index options, and understanding the key differences between the two styles can help traders make informed decisions. In this article, we will explore the advantages of European style options and why they can be a preferred choice for many investors.

Diagonals: A Cheap Way to Get Long IV Without Using Much Capital
Anton Kulikov – tastylive
One of the key aspects of being a premium seller is that you generate positive theta in your portfolio. This means that every day that the market moves less than expected, you get paid. Theta refers to the rate of decline in the value of an option over time.
The problem is that when implied volatility drops below historical averages (currently, VIX is trading below 15) it becomes harder to sell premium and generate theta in our portfolios.
For premium sellers, we are left with a question, do we continue to sell into low implied volatility, or do we start buying premium and start paying theta in hopes of a big market move? How about neither?


Is the US Headed for a Recession? Look at What Richer Americans Do on Black Friday; The upper middle class powered a spending boom that kept the US out of recession, but there are increasing signs of a slowdown.
Leslie Patton and Laura Bejder Jensen – Bloomberg
Richer Americans are curtailing their spending ahead of Black Friday, a worrisome sign for an economy that has so far depended on the US consumer to stave off a recession.
In the three months ahead of the all-important holiday shopping season, a group of retailers that cater to the upper middle class — including Apple, Coach and Nordstrom — saw its biggest sales drop in two years, according to an exclusive analysis of Bloomberg Second Measure data1. The malaise also hit top-performing malls in wealthier areas, even as overall retail-sales figures march higher.

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