Wall Street Dealers in Hedging Frenzy Get Blamed for Volatility; Bitcoin Options Market Suggests Investors Preparing for All-Time High

Nov 25, 2020

$16,461/$300,000 (5.5%)
Steve Auerbach

Observations & Insight

JJL:I interviewed CBOE trader Sheldon Cohen, a long time options trader, and Tom Ascher, a former CBOE vice chairman and now executive chairman of Quantitative Brokers, for the Open Outcry Trades History Project. Tom Ascher’s interview also had some The Path to Electronic Trading in it as he was the CEO of Nasdaq-Liffe, which helped bring electronic trading to single stock futures.

Lead Stories

Wall Street Dealers in Hedging Frenzy Get Blamed for Volatility
Yakob Peterseil – Bloomberg
Two professors have just lent academic heft to a suspicion running rampant on Wall Street all year: The options market is whipsawing share prices like never before. As retail investors spur a boom in derivatives trading to rival actual stock volumes, dealers rushing to hedge themselves are said to have fueled the 2020 melt-up in tech names from Netflix Inc. to Microsoft Corp. They’re also suspected of amplifying two big drawdowns in September and October. New research sheds light on just how this dynamic tends to play out.
/bloom.bg/2KJRHJX

Bitcoin Options Market Suggests Investors Preparing for All-Time High
Omkar Godbole – Coindesk
Activity in bitcoin’s options market shows investors are eyeing more gains for the top cryptocurrency, which is now just 2.8% below a record high. Bitcoin’s one-month implied volatility, which is influenced by demand for call (bullish) and put (bearish) options, has risen to 81%, the highest level since May, having begun the month at 58%, according to data source Skew.
/bit.ly/33c3PcX

Behind Dow 30000: A Self-Perpetuating Upward Spiral
Gunjan Banerji, Akane Otani and Michael Wursthorn – WSJ
The U.S. stock boom has its roots in tactics that fund managers, small savers and Robinhood traders alike have applied over the past decade: Don’t hide from markets by hoarding cash. Keep hold of your investments, and returns will follow. When there’s a crisis, buy. The Dow Jones Industrial Average closed above 30000 on Tuesday for the first time, extending an eight-month rebound that has taken many analysts by surprise. The blue-chip gauge advanced 454.97 points, or 1.5%, to 30046.24, continuing a recent winning streak that has put it on track for the best month since 1987.
/on.wsj.com/37eB9RU

Exchanges and Clearing

Options Regulatory Alert #2020 – 41 UPDATED – PHLX, NOM, BX, ISE, GEMX and MRX – Quarterly Quote Spread Parameter Relief through December 18, 2020
NasdaqTrader.com
Effective November 25, 2020, the updated market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through December 18, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.
/bit.ly/366wv90

MIAX Exchange Group – Options Markets – Corporate Action Alert: Natural Grocers by Vitamin Cottage, Inc. (NGVC) and Qurate Retail, Inc. (QRTEA)
MIAX Options
Natural Grocers by Vitamin Cottage, Inc. (NGVC) and Qurate Retail, Inc. Series A (QRTEA) have announced Special Cash Dividends. Associated strike price adjustments will become effective on Friday, November 27, 2020. NGVC and QRTEA options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in NGVC and QRTEA will be canceled at the close of business on Wednesday, November 25, 2020. Additional details about the Natural Grocers by Vitamin Cottage, Inc. (NGVC) and Qurate Retail, Inc. Series A (QRTEA) dividends are provided in the attached OCC Memos.
/bit.ly/3nWl9dY

MIAX Exchange Group – Options Exchanges – Have Declared Self-Help on ARCA Options Exchange
MIAX Options
MIAX Options, MIAX PEARL & MIAX Emerald have declared self-help on the ARCA Options Exchange as of 13:56. All MIAX systems are operating normally. If you have any questions please contact Trading Operations at (609) 897-7302 or TradingOperations@MIAXOptions.com.
/bit.ly/3q0zdVA

CME Globex Notices: November 23, 2020
CME Group
To CME Globex and Market Data Customers
From Global Market Solutions & Services (GMSS)
# 20201123
Notice Date 25 November 2020
/bit.ly/2J9SzGL

CME STP Notices: November 25, 2020
CME Group
To CME STP Customers
From Global Market Solutions & Services
# 20201125
Notice Date 25 November 2020
/bit.ly/3m9YLx5

Regulation & Enforcement

CFTC Approves Transfer of Minneapolis Grain Exchange’s Contract Market Designation in Connection with Acquisition by Miami International Holdings; Parties Target December 4, 2020 Closing
MIAX Options
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Exchange Group, and the Minneapolis Grain Exchange, Inc. (MGEX), a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), today announced that in connection with MIH’s anticipated acquisition of MGEX, the Commodity Futures Trading Commission (CFTC) has approved the transfer of MGEX’s Contract Market Designation to Minneapolis Grain Exchange, LLC, an entity created for purposes of the transaction.
/bit.ly/2HBNSoT

Order Granting Conditional Exemptive Relief, Pursuant to Section 36 of the Securities
Exchange Act of 1934 (“Exchange Act”) with Respect to Futures Contracts on the
SPIKES Index
Securities and Exchange Commission.
ACTION: Exemptive order.
SUMMARY: The Minneapolis Grain Exchange, Inc. (or any successor thereto) (“MGEX”) has expressed an interest in listing and trading contracts for sale for future delivery on the SPIKESTM Index (“SPIKES”) (such futures contracts (and any options thereon) hereinafter referred to as the “Product”). After careful consideration, the Securities and Exchange Commission (“SEC” or “Commission”) believes that the Product has the potential to offer competition with the only comparable incumbent volatility product in the market, and is therefore conditionally exempting the Product from the definition of “security future” for all purposes other than as follows: first, the anti-fraud and anti-manipulation provisions under the Exchange Act will continue to apply
/bit.ly/3q38QhB

FINRA Reminds Firms of Exercise Cut-Off Time for Options Expiring on the Friday After Thanksgiving
FINRA
The national options exchanges are closing at 1:00 p.m. Eastern Time (ET) on Friday, November 27, 2020 (the Friday after Thanksgiving), which will modify the exercise cut-off time for expiring options. FINRA reminds firms that pursuant to FINRA Rule 2360(b)(23)(A)(viii), if a national options exchange or The Options Clearing Corporation announces a modified time for the close of trading in standardized equity options, then the deadline for an option holder to make a final decision to exercise or not exercise an expiring option will be 1 hour 30 minutes following the time announced for the close of trading on that day instead of the 5:30 p.m. ET deadline. Accordingly, option holders must make a final decision to exercise or not exercise options expiring on November 27, 2020, by 2:30 p.m. ET.
/bit.ly/33j2Pnc

Technology

Glitches Hit Trading Platforms Run by Bank of America, TD Ameritrade, Vanguard
Alexander Osipovich – WSJ
Popular trading platforms run by Bank of America Corp., TD Ameritrade Holding Corp. and Vanguard Group suffered glitches Tuesday that rendered them inaccessible or slow to use, frustrating investors on a landmark day for the U.S. stock market. The snafus began as markets opened at 9:30 a.m. ET, before the Dow Jones Industrial Average surpassed 30000 for the first time, according to the tech-service tracker Downdetector.
/on.wsj.com/3nPdhL4

Strategy

Nikola Stock Is Like a Runaway Truck. Options Markets Imply More Big Moves.
Al Root – Barron’s
It has been an exhausting year for Nikola investors and it isn’t over yet. Two big events are hurtling down the turnpike like a Mack truck. One is only a week away. A big block of Nikola stock (ticker: NKLA) is coming off lockup, and those shares will hit the market at a time when General Motors (GM) and Nikola haven’t made a final decision about a potential partnership.
/bit.ly/39dNt7h

Education

The Black Scholes Model: An Options Pricing Formula
Brian M. Reiser – InvestmentU
The Black Scholes Model is a mathematical options pricing model used to determine the prices of call and put options. The standard formula is only for European Options, but it can be adjusted to value American Options as well. This mathematical formula is also known as the Black-Scholes-Merton (BSM) Model, and it won the prestigious Nobel Prize in economics for its groundbreaking work in pricing options. In this article, we will look at the basics of the formula to gain a better understanding of what it is and how it works. By the end of this article, you should have a foundation in how to price options using the Black Scholes Model.
/bit.ly/2Jf4h2J

Events

Asia Derivatives Conference
FIA.org
Join us virtually in December!
1 December 2020 – 3 December 2020 • 9:00 AM – 3:00 PM SGT Daily
Our annual Asia Derivatives Conference provides unique opportunities for the cleared derivatives community to build an understanding of how global forces and regional trends and issues are shaping Asia-Pacific markets. Register now and join us virtually, 1-3 December, to gain insights into what’s on the horizon for the Asia-Pacific region.
/bit.ly/36HKNMl

Miscellaneous

tastytrade Shows We Were Thankful For in 2020
tastytrade staff
2021 is just a few weeks away, and really who isn’t excited to leave 2020 in the dust? But not all of this year was doom and gloom, check out these bright spots in the year that we’re happy to look back on and look forward to seeing more of in 2021!
/bit.ly/3m5NRbz

OIR Interviews: AI Invades The Options Brokerage World
Options Insider Radio – Options Insider Network
/bit.ly/3l4pz0n

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