Observations & Insight
Term of the Week – The Price of an Underlying Asset
The basics of how the price of an underlying asset affects options prices.
We’re heading for new cryptocurrency crisis, predicts Wall Street veteran
Leah Montebello – The Daily Mail
The crypto industry is doomed to repeat the mistakes that led to the collapse of FTX, a top Wall Street short seller has warned. Cryptocurrencies were plunged into crisis in 2022 after one of the biggest trading platforms FTX went bankrupt. Thousands of people lost a combined GBP7billion after boss Sam Bankman-Fried funnelled customer deposits into a separate company he owned. This turned out to be one of biggest ever US financial frauds and led to his conviction last year.
Traders Look to Bitcoin ETFs to Patch ‘Alameda Gap’ in Crypto Market
Suvashree Ghosh – Bloomberg
The era of US spot Bitcoin exchange-traded funds is a chance to repair the decay in crypto markets caused by the collapse of the FTX exchange and its sister hedge fund Alameda Research, according to market makers.
The implosion of the two former linchpins of digital assets in late 2022, after a rout in token prices and a huge fraud, left an “Alameda gap” in crypto trading of stunted volumes alongside a reduced capacity to absorb orders smoothly.
Top Economist David Rosenberg Sounds Alarm As More Stocks In Red Than Green Spark Worry Over Current Rally Stability
Benzinga via Markets Insider
The stock market has experienced a rare occurrence, raising concerns about the sustainability of the current rally. This development has been flagged by a leading economist, who has also highlighted the potential risks associated with the overvalued tech sector.
Top Chinese Hedge Fund Banxia Slashes Stocks for ‘Survival’ in Rout; Li Bei’s fund decided to ‘lose an arm’ as declines deepen; Firm says in letter policy moves fell short of expectations
Bloomberg News – Bloomberg
A top Chinese macro hedge fund said it slashed stock positions last month as the nation’s market rout deepened, taking losses after acknowledging mistakes betting on a rapid economic recovery. Shanghai Banxia Investment Management Center “significantly reduced” its equity assets in the middle of January to cut losses, only keeping exposure to safer high-dividend stocks and bigger companies in the CSI 300 Index, according to its January letter to investors.
Liquidity Is Top Concern for Volatile 2024, JPMorgan Finds
Greg Ritchie – Bloomberg
Reliable sources of liquidity are at the top of traders’ minds as they brace for another year of turbulence, according to a JPMorgan Chase & Co. electronic trading survey.
Volatile markets are predicted to be the greatest daily challenge for a second year in a row, the annual poll of institutional traders found. Access to liquidity is the biggest concern about market structure, ahead of regulatory change and data costs.
Cboe Global Markets Reports Trading Volume for January 2024
Cboe Global Markets, Inc.
Cboe Global Markets, Inc. (Cboe: CBOE), the world’s leading derivatives and securities exchange network, today reported January monthly trading volume statistics across its global business lines.
Fidelity Investments Canada Returns To Cboe Canada For Launch Of 7 New ETFs And ETF Series
Cboe Canada is proud to announce the return of Fidelity Investments Canada ULC (“Fidelity”) for the launch of seven new ETFs and ETF series listing today. The new offerings are now trading on Cboe Canada under the following names and symbols:
CME Group to Launch U.S. Corporate Bond Index Futures in Summer 2024
CME Group, the world’s leading derivatives marketplace, today announced that its interest rate complex will expand in summer 2024 with the launch of U.S. Corporate Bond Index futures, pending regulatory review. The new futures contracts will be based on the Bloomberg U.S. Corporate Index, which measures the performance of investment grade corporate bonds, and the Bloomberg U.S. High Yield Very Liquid Index, which is designed to measure a liquid, diversified component of the high yield corporate bond market.
Weakened commodity prices cast a shadow on farmer sentiment
The most recent findings from the Purdue University/CME Group Ag Economy Barometer reveal a downturn in farmer sentiment at the start of 2024. The January barometer fell to a reading of 106, 8 points lower than in December. Producers expressed a more pessimistic perspective about their farms’ current situation and future prospects. The Current Conditions Index fell 9 points, and the Future Expectations Index dropped by 7, both compared to December. The anticipation of weaker farm income in 2024 contributed to the overall decline, reflected in the Farm Financial Performance Index at 85, a 12-point decrease from the previous month. This month’s Ag Economy Barometer survey was conducted from Jan. 15-19.
Eurex launches Mid-Curve Options on EURO STOXX 50 Index Dividend Futures
Maria Nikolova – FX Newsgroup
Eurex is expanding its dividend derivatives offering with the introduction of Mid-Curve Options on EURO STOXX 50 Index Dividend Futures as of 5 February 2024. Mid-Curve Options on index dividend futures, currently only available as an OTC product, can now be traded at Eurex. Mid-Curve Options (Eurex), or Swaptions (OTC terminology), are listed options that expire on an underlying future with a longer expiry date than the next settling future. These options focus on the next five years of dividends, allowing participants to fine-tune risk management or anticipate changes in dividend expectations.
EEX Group Monthly Volumes – January 2024
EEX Group reports its January volumes with the following highlights: 2024 saw a dynamic start with the total monthly trading volume on global power markets of EEX Group at 938.4 TWh, a 45% increase year-on-year and a 21% growth compared to December 2023 (775.4 TWh). Volumes on the EPEX European power spot markets grew by 27%, reaching a record monthly level of 74.8 TWh, while European power derivatives volumes reported a remarkable 88% YoY expansion to 589.9 TWh. Several of the core power derivatives markets continued strong growth in January 2024, including records reported on the German, Spanish, Swiss, Dutch and Belgian markets.
JPX Monthly Headlines – January 2024
JPX group companies undertake various initiatives and disseminate information with the aim of providing the most attractive markets to all users. Every month, we showcase the highlights of these efforts in short and concise summaries just for you.
Regulation & Enforcement
Hedge Funds Trading Treasuries to Be Tagged Dealers by SEC
Lydia Beyoud – Bloomberg
Hedge funds and proprietary trading firms that regularly trade US Treasuries are set to be labeled as dealers by the Securities and Exchange Commission — a tag that brings greater compliance costs and scrutiny.
The SEC on Tuesday boosted oversight of trading by the firms, which are increasingly responsible for liquidity in the world’s biggest government bond market. The new regulations also apply to market participants in other government bonds, equities and other securities.
SEC forces hedge funds, high-frequency traders to register in latest showdown with industry
Chris Matthews – MarketWatch
The Securities and Exchange Commission imposed new rules that will require many private funds to register with the agency as so-called dealers, a move that regulators say will help them better monitor a sometimes wobbly market for U.S. government debt.
15% Election Bump for VIX October Futures
Matt Moran – Cboe
A recently published Bloomberg News article noted that traders have begun trading the newest VIX Futures contract to hedge potential U.S. election risks and highlighted that the gap between September and October VIX Futures contracts are currently wider than in 2016 and 2020.
VIX Futures were in contango on January 31 and the October VIX Futures were priced at 20.65, 15% higher than the 17.90 price for September futures.
Traders abandon hopes of March interest rate cut but keep betting against Federal Reserve
Kate Duguid, Harriet Clarfelt and Nicholas Megaw – Financial Times
The market’s stubborn hopes of a first cut to US interest rates in March were finally crushed over the past week by strong economic data and firm messaging from Jay Powell, chair of the Federal Reserve.
Beyond next month, however, traders have a different outlook for the Fed’s monetary policy than officials inside the US central bank. The divergence sets the stage for volatility and potential losses if the Fed sticks with its plans.
Option Strike IV – Does it Matter?
In this video, Nick Battista and Mikey Butler discuss trading concepts, strategies, and trade ideas. They also touch on their personal trading experiences, such as Mikey’s trade in Eli Lilly and Nick’s trade in Starbucks. They provide updates on the market, including the E-mini S&P 500 futures, and discuss the performance of various stocks, such as NVIDIA, Amazon, Google, Apple, and Microsoft. The hosts also talk about per-strike implied volatility and explain how it can vary depending on the option’s value and the potential for multiplication. They mention the volatility smirk and smile, and how it is influenced by factors like price uncertainty, interest rates, and skew. The hosts provide trade ideas for stocks like DraftKings, DDOG, and KWEB, discussing strategies like Iron Condors, Call Calendars, and Ratio Spreads. They also mention upcoming earnings reports for companies like CVS, SNAP, Uber, and BABA.