Yield-Crazed Day Traders Pony Up for ‘169%’ Option-Income ETFs

Feb 23, 2024

Observations & Insight

From Open Outcry to Electronic Trading: Andy Tan’s Journey Through the Evolving World of Finance

Andy Tan was interviewed by Robert Lothian of John Lothian News at the SGX Center in Singapore for the Open Outcry Traders History Project during FIA Asia Week 2023. Tan shared that he had been fascinated by finance from a young age. However, it was a visit to Singapore’s central business district, known as Raffles Place, that truly captured his attention.

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Options Discovery Episode 30: Risk Management For Options Portfolios; Hilary Till, Principal At Premia Capital Management, Discusses This And More With JLN’s Asma Awass.

In this episode of Options Discovery, Asma Awass discusses the benefits and risks of options portfolios. This episode includes a breakdown of why a trader might want to create an options portfolio as well as how beta affects the risk of a portfolio. Asma then sits down with Hilary Till, principal of Chicago-based Premia Capital Management, LLC and a consultant with Premia Research LLC, who shares more insight on risk management for portfolios. You can check out Premia Research LLC here: https://www.premiaresearch.com/

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Lead Stories

Yield-Crazed Day Traders Pony Up for ‘169%’ Option-Income ETFs; Assets in single-name option products rise above $1.7 billion; Critics say the investment case of the trade is hard to fathom
Denitsa Tsekova and Katie Greifeld – Bloomberg
How many Wall Street buzzwords can you fit into one security? The limit is being tested by a new breed of options-fueled exchange-traded funds making inroads with the retail crowd. Nosebleed yields. Elevated volatility. Single-stock ETFs. They all come together in a parlay of complex risk taking marketed with mundane labels like the “option income strategy,” with around $1.7 billion flowing into such products since catching on last year. Issuers are planning more. Skeptics wonder if buyers know what they’re getting into.

Bond Traders Brace for Another US Selloff, Unwind Bullish Bets; Brisk demand for options targeting 10-year yield over 4.5%; New bond short positions appeared to build after Friday’s PPI
Edward Bolingbroke – Bloomberg
Bond traders are bracing for the risk of a renewed selloff, driving a surge of trading in options targeting higher yields and prompting investors to unwind long Treasury positions by the most in nearly two years.The trend gained momentum this week, when there was strong demand for contracts wagering that 10-year yields will breach 4.5%, a level they haven’t exceeded since November. Tuesday’s flows included a position targeting yields as high as 4.85% while other flows last week included positions targeting 4.55% and 4.60%. The 10-year yield was just over 4.3% late Wednesday. The positioning comes after the bond market was hit by a fresh round of losses this year after sticky inflation and still strong growth drove traders to dial back estimates for how deeply the Federal Reserve will lower interest rates this year.

Making EU Capital Markets More Competitive
Cboe – Nick Dutton
As the European Commission nears the end of its current term, it’s a good time to reflect on the state of the EU’s regulatory landscape and the key priorities during the next mandate. In the capital markets domain, we should consider what aspects of the regulatory framework have performed well and what the focus of regulators should be to ensure EU markets are competitive and grow in the years to come.
The decisions facing EU policymakers are pivotal: across many metrics EU markets have underperformed compared to those in other developed countries in recent years, including trading volumes, liquidity and listings. We should therefore be ambitious in our efforts to increase the visibility of EU issuers to the rest of world, make our markets easier and cheaper to access for end investors, and be more attractive to investors globally.

Citadel Made More Than $4 Billion From Commodities in 2023; Commodities business led by Barrack has been boon for Citadel; Merchant-trading unit, European gas, power helped drive gains
Devika Krishna Kumar – Bloomberg
Citadel’s commodity-trading business made more than $4 billion in 2023, people familiar with the matter said, helping drive profits for one of the world’s largest hedge funds. The gains came in part from strong performances by Citadel Energy Marketing, its merchant-trading business, as well as European gas and power trading, the people said. A spokesperson for Citadel, which was founded by Ken Griffin, declined to comment.

Reddit users made meme-stock prices go crazy — now they could do the same with Reddit’s own stock IPO
Meghan Morris – Business Insider
GameStop, AMC, and other companies saw huge swings in their stock prices starting in 2021, thanks to chatter on the social-media platform Reddit.
As Reddit gears up for its much-anticipated initial public offering next month, it’s publicly cautioning investors that meme-stock mania — often fanned on Reddit’s own “r/wallstreetbets” forum — could cause volatility in its own stock once it starts trading.


Bringing Cboe’s U.S. Retail Playbook Abroad
Cboe – David Howson
If you’re anything like me, 2020 feels like it was only yesterday. It wasn’t long ago that we shut down our offices, businesses and even the Cboe trading floor – retreating to our homes, then re-emerging to a world forever changed. In reality, it’s been four years since the start of the COVID-19 pandemic, which also marks four years since the unprecedented rise of the retail trader.
Retail trading had been on the rise when the sudden move to fully-remote work for most people in 2020 ushered in a major shift in the U.S. market landscape as even more new retail traders flocked to the market. Enabled by an array of mobile-first brokers offering low or $0 commissions and stimulus payments, and emboldened by online communities that flourished while people were stuck inside. There was plenty to catch new traders’ eyes: “meme stocks” gained national attention, oil prices went negative, and uncertainty about COVID’s impact led to plenty of opportunities for new entrants to develop opinions and engage in two-sided markets. It is not surprising that these events drew in new market participants. A FINRA survey found that 38% of U.S. investors who opened a taxable brokerage account in 2020 had never held a taxable brokerage account before. Moreover, 22% of those new investors were between the ages of 18 and 29 and 66% were under 45 years old.

HKEX To Include Currency Futures And Options In Derivatives Holiday Trading From 29 March
Hong Kong Exchanges and Clearing Limited
Hong Kong Exchanges and Clearing Limited (HKEX) is pleased to announce today (Friday) the inclusion of HKEX’s currency futures and options to the list of eligible products for Derivatives Holiday Trading, effective 29 March 2024. HKEX Group Head of Emerging Business and FIC Glenda So said: “We are delighted to be announcing the expansion of our Derivatives Holiday Trading offering to include our highly-popular currency futures and options products, supporting investors’ FX risk management needs during Hong Kong holidays.”

Regulation & Enforcement

Q&A – How is the EU cracking down on derivatives?
The European Parliament’s economic affairs committee approved a draft law to tighten regulation of derivatives on Tuesday.
The law requires derivatives contracts to be centrally cleared where possible so trades are backed by a default fund to curb risk. Transactions must be reported to a repository so that supervisors see who is exposed to which trades if they go wrong.

SEC seeks comments on Bitwise, Grayscale Bitcoin ETF options; The U.S. SEC is seeking comments on a proposed rule change that would allow investors to trade options on Bitwise and Grayscale Bitcoin ETFs.
Ana Paula Pereira – Cointelegraph
The United States Securities and Exchange Commission (SEC) is seeking comments on a proposed rule change that allows the listing and trading of options for Bitcoin exchange-traded funds (ETFs).
According to a Feb. 23 notice, the NYSE requested a rule change to permit the listing and trading options on the Bitwise Bitcoin ETF (BITC), the Grayscale Bitcoin Trust (GBTC), and “any trust that holds Bitcoin.”


What’s Behind Trading Technologies’ Agreement to Acquire ATEO?
A-Team Insight Blog
In a significant move that will augment its post-trade services, Trading Technologies International, Inc. (TT), the global capital markets technology platform provider, recently agreed to acquire ATEO SAS, specialists in post-trade solutions for listed derivatives. The acquisition marks a pivotal step for TT in extending its capabilities into clearing and other essential middle-office technologies and services. This is the latest in a string of acquisitions by TT over the last two years, including RCM-X, a provider of algorithmic execution strategies and quantitative trading products, fixed income solutions provider AxeTrading, and transaction cost analysis (TCA) specialists Abel Noser Solutions.


Volatility Spikes Offer Inverse Play on S&P 500
Ben Hernandez – ETF Trends
Investors have been basking in the sunlight of a year-end market rally in 2023 that appears to be continuing in 2024 after a slow start to January. However, a Fed that’s keeping rates steady amid hotter-than-expected inflation is allowing volatility to spike, but offers a potential inverse ETF play for traders.
The prime volatility indicator, the Cboe Volatility Index, or simply the VIX, is up over 25% for the year. The VIX has seen momentary spikes so far in 2024, as interest rate cuts that investors were hoping for in 2024 continue to be pushed back.

Uptick In Volatility
Cboe (Video)
In #Vol411, Dan Deming @Djd551 lets us know that overall, the markets are seeing a bit more intraday and day-over-day volatility, the $VIX Index is at the low end of the range for the week and more.


The Hedge Funds That Changed the Game
Caitlin McCabe and Peter Rudegeair – The Wall Street Journal
Billions of dollars have poured into multimanager firms in the past few years, but few have managed to match the success of Citadel, Millennium and Point72.

Reddit users made meme-stock prices go crazy – now they could do the same with Reddit’s own stock IPO
Meghan Morris – Business Insider
GameStop, AMC, and other companies saw huge swings in their stock prices starting in 2021, thanks to chatter on the social-media platform Reddit. As Reddit gears up for its much-anticipated initial public offering next month, it’s publicly cautioning investors that meme-stock mania – often fanned on Reddit’s own “r/wallstreetbets” forum – could cause volatility in its own stock once it starts trading.

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