Volatility Selling Is Back as Ex-Harvest Traders Join the Fray; Block Trade Mess Revives Fierce Debate on ‘Leverage Gone Wrong’

Mar 30, 2021

$32,426/$300,000 (10.8%)

Observations & Insight

JJL: CME Group is launching Micro Bitcoin futures, which will be 1/10 of the size of one bitcoin, which would be worth about $5,800 as of this morning. That compares with the $17,000 price of bitcoin when the CME launched bitcoin futures on the 17th of December in 2017. Some in the crypto community blamed the CME for the cratering of bitcoin prices after the launch of their futures contract made shorting easier. This will significantly reduce the cost of participation in terms of margins, while also giving the options traders a more precise tool to hedge their positions.

Lead Stories

Volatility Selling Is Back as Ex-Harvest Traders Join the Fray
Yakob Peterseil – Bloomberg
New fund Carrick Lane will focus on put-selling for income; Move follows launch of volatility firm by another Harvest alum
An options-powered strategy betting on calmer markets is roaring back as the Cboe Volatility Index, known as Wall Street’s fear gauge, recovers from pandemic-spurred gyrations. Two former executives of $3.5 billion Harvest Volatility Management are starting investment firm Carrick Lane, which will initially focus on selling equity derivatives for income, according to a press statement.

Block Trade Mess Revives Fierce Debate on ‘Leverage Gone Wrong’
Katherine Greifeld and Vildana Hajric – Bloomberg
Margin debt, levered funds spark alarm after Archegos unwind; Market participants debate over how much worry is warranted
What might be the largest margin call in history is ringing fresh alarm bells on Wall Street among those worried about hidden leverage and its potential to fry the financial system. The forced selling of more than $20 billion of apparently swap-linked shares at Bill Hwang’s Archegos Capital Management has set off a hunt for other areas of excess — from margin debt to options and bloated balance sheets — after stocks at the center of the fiasco plunged and investment banks warned of losses.

Derivatives Don’t Cause Market Crises, People Do
John Authers – Bloomberg
As with guns, so with equity derivatives. Two mass shootings this month have brought back the eternal American issue over how to limit gunshot deaths while maintaining the Second Amendment’s promise not to infringe the right to bear arms. And in the markets, another accident, in which a big investor called Archegos Capital Management is imploding after using derivatives to obscure how much risk it was taking in just a few stocks, brings back the issue of how to control financial innovation while maintaining a free market.

U.S. Rate Volatility Primed to Drop With April Lull on Horizon
Edward Bolingbroke – Bloomberg
If seasonal patterns are anything to go by, volatility in U.S. rates could slump next month.
In nine of the past 10 years, a volatility gauge based off 3-month 10-year at-the money swaptions fell in April. And there’s little reason to suppose that the market won’t witness a similar drop this time around in gamma — a derivative that measures how quickly the price of an option moves. For that reason, Citigroup Inc. strategists are advising clients to hedge by selling a so-called straddle that involves both bullish and bearish options.

The Week that Was: March 22 to March 26
Kevin Davitt – Cboe
Last week (March 22 to March 26), the S&P 500 Index completed its largest 12-month advance in its 64-year history. The only comparable 1-year (rolling) bull market occurred in the 1930s. The index gained 77% between closing lows in March 2020 and highs this past Friday. Meanwhile, vaccination efforts continue to improve, with a one-day record of 3.4 million doses administered on Thursday. Additionally, the latest stimulus package has bolstered consumer spending and spirits. Further, unemployment readings continue to improve – the weekly jobless claims number was the strongest it’s been in a year. Finally, as the first quarter comes to a close, the tug-of-war between small and large caps remains, while market participants monitor interest rates and inflationary pressures as the global economy continues to improve.

Exchanges and Clearing

CME Group Announces Micro E-mini Equity Options Reach More Than 1 Million Contracts Traded
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that more than 1 million options on its Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures contracts have traded since launch on August 31, 2020. In addition, options on Micro E-mini Nasdaq-100 futures achieved a single-day trading record of 1,948 contracts on March 25, surpassing the prior record of 1,934 contracts reached on March 10.

*****JJL: For an institutional market, the CME keeps having success with retail-friendly contracts, and should expect a big winner on their Micro Bitcoin futures.

Interview with SIG on the launch of seven new equity options on Xetra listed U.S. underlyings
Paraic Rogan, Volatility Trader and Market Structure Specialist at Susquehanna International Group. Paraic Rogan started his career with SIG in 2008, trading everything from carbon futures to volatility options. An expert in market structure and product design, Paraic answered some questions we posed on Eurex’s recent introduction of equity options on Xetra U.S. underlyings.

Delisting of the South American Short-Dated New Crop Soybean Options Contract
CME Group
Effective today, Monday, March 29, 2021, The Board of Trade of the City of Chicago, Inc. (“CBOT” or “Exchange”) delisted the South American Short-Dated New Crop Soybean Options contract (the “Contract”) as set forth in the table below. There is no open interest in the Contract.

Delisting of the South American Short-Dated New Crop Soybean Options Contract
CME Group
Effective today, Monday, March 29, 2021, The Board of Trade of the City of Chicago, Inc. (“CBOT” or “Exchange”) delisted the South American Short-Dated New Crop Soybean Options contract (the “Contract”) as set forth in the table below. There is no open interest in the Contract.

Block Trades
CME Group
Effective on trade date Tuesday, April 13, 2021, and pending all relevant CFTC regulatory review periods, this Market Regulation Advisory Notice will supersede CME Group Market Regulation Advisory Notice RA2102-5 from February 5, 2020. It is being issued to amend Section 6 to codify the minimum quantity thresholds for Ukrainian Wheat (Platts) futures and options on Ukrainian Wheat (Platts) futures contracts when they are part of certain inter-commodity spreads.

SGX welcomes Haitong International Singapore as Securities and Derivatives Clearing Member
Singapore Exchange (SGX) today welcomed Haitong International Securities (Singapore) Pte. Ltd. (Haitong International Singapore) to its securities and derivatives markets as a clearing member, and as a depository agent of The Central Depository (Pte) Limited (CDP). Haitong International Group has a global financial servicing network covering the world’s major capital markets including Hong Kong, Singapore, New York, London, Tokyo, Mumbai and Sydney. Haitong International Singapore has been a trading member of SGX’s securities and derivatives markets since 2014.

Regulation & Enforcement

SEC urged to scrutinise securities lending after GameStop frenzy
Rheaa Rao – Financial Times
The Securities and Exchange Commission should scrutinise the securities lending market and revisit who gets to invest in private markets, industry watchers have said during a hearing with the US House Committee on Financial Services.
During the meme stock frenzy in January, it became more expensive to borrow stocks that were in high demand from short sellers — such as GameStop, which two months ago had a 140 percent short interest, according to Dennis Kelleher, chief executive and cofounder of Better Markets, a nonprofit promoting economic security.

Archegos meltdown, GameStop drama underscore need for more hedge-fund disclosure, reformers say
Chris Matthews – MarketWatch
Financial markets remained somewhat volatile on Tuesday as investors surveyed the damage wrought by the failure of hedge fund Archegos Capital Management, an event that, along with the drama surrounding a recent short squeeze in shares of GameStop Inc. , underscores a continued lack of transparency in financial markets with respect to derivatives and short selling, financial reform advocates told MarketWatch.


10 Keys to Trading Options Like Liz & Jenny | tradeTALK Series
Mike Butler – tastytrade
Successful trading begins and ends with sticking to a set of solid mechanics. Ideally, those mechanics enable a trader to enhance profitability, reduce volatility, and keep emotions in check. Through the years, tastytrade’s Liz Dierking and Jenny Andrews have built their own set of options trading guidelines based on their experience. Get their advice in their tradeTalk presentation and learn more about each concept below.


Fundamentals of Futures & Options (also applicable to Series 3 Exam)
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lectures from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books – Futures and Options and the Guide to U.S. Futures Regulation.
Date May 10, 2021 12:00 p.m. – May 14, 2021 2:00 p.m.
Location: Virtual Live. 2-hour sessions over 5 days.
Early-bird $495
Fee $595
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.


A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.

DOJ enforcement priorities in commodities & derivatives markets: A discussion with DOJ leadership
April 13, 2021 • 1:00 p.m. – 2:00 p.m. ET
During this discussion, James McDonald, Sullivan & Cromwell Partner, will interview Robert Zink, U.S. Department of Justice, Acting Assistant Attorney General (and Chief of the DOJ Fraud Section from January 2019 to August 2020), regarding DOJ’s enforcement priorities in the commodities and derivatives markets and white collar area more generally.


(Podcast) OB 985: Not the Momma
Options Block – Options Insider Radio Network
Host: Mark Longo, The Options Insider Media Group
Co-host: Mark Sebastian, The Option Pit
Co-host: Mike Tosaw, St. Charles Wealth Management

Robinhood Traders Pack a Punch Five Times Size of Their Assets
Cormac Mullen – Bloomberg
Academics have quantified what many have long suspected, that retail investors are punching well above their weight in the stock market.
Individual investors had an impact five times the size of their estimated assets in the second quarter of 2020, according to recent research from the Swiss Finance Institute. They added 1% to the aggregate stock market valuation in that period, and 20% to the value of small cap shares, Philippe van der Beck and Coralie Jaunin wrote in a paper published in SSRN, a repository of academic research.

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Past Options Newsletters

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