| May 16, 2022 | | | | | Jeff Bergstrom
Editor
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| | | | | | Lead Stories | | | Wild Commodities Run Gives Options Their Moment
Devika Krishna Kumar and Alex Longley - Bloomberg
Commodities traders are increasingly turning to the options market to hedge their risk, as surging volatility reshapes derivatives markets for the world's raw materials.
Open interest in U.S. West Texas Intermediate crude options is 15% higher compared to this time last year, while for Henry Hub Natural gas options it is up 44% according to data from CME Group Inc. There have been seen similar booms elsewhere, with CME's rival in the energy space, Intercontinental Exchange Inc., saying its oil options open interest is up 15% since the start of the year.
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Individual Investors Step Back From Options Bets
Punishing stretch of stock-market volatility has prompted some individual investors to abandon options trading
Gunjan Banerji - WSJ
Options trading by individual investors is fading, the latest sign that the stock market's speculative fever has broken.
Those individual investors had embraced options as a way of riding the stock market's momentum that drove shares of companies from Apple Inc. to Nvidia Corp. to new heights. Now, the Federal Reserve's move to raise interest rates to tame inflation has thrown that dynamic into reverse, sending the prices of stocks skidding.
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How a Fed Rate Hike Can Affect Option Prices
OIC
The price of every listed option is the result of many factors, one of which is interest rates. As a result, it is important for option investors to be aware of Federal Reserve policy decisions.
While rates may not be as influential on option prices as other factors, their impact is nonetheless a component of major pricing models. When rates change, the effect on option premium is represented by one of the option Greeks, called Rho. Specifically, Rho measures the impact of a 1% change in interest rates on an option price. If the Federal Open Market Committee (FOMC), the Fed's policy-setting group, alters its target federal funds rate, that would subsequently affect option premium, in theory, by the amount of Rho.
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The LME Boss Has a Plan to Catch the Next Big Short; Proposal marks the first major move to expand visibility of global commodity markets after wild price swings spooked regulators.
Mark Burton - Bloomberg
The London Metal Exchange's demand for details of private deals between its members and their clients marks a line in the sand by chief Matthew Chamberlain, as he seeks to repair the market's reputation and avoid a repeat of this year's nickel-market chaos. Yet it's likely to reverberate far beyond the metals world. The LME's proposal represents the first major move to increase oversight of global commodity markets as wild price swings following Russia's invasion of Ukraine leave regulators increasingly uneasy. There's a growing worry about the risks hidden in opaque corners of the trade in natural resources â and the vast ecosystem of privately negotiated over-the-counter derivatives deals is a prime example.
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Warren Buffett Spends Big as Stock Market Sells Off
Akane Otani - WSJ
The stock market's selloff has been bad news for most investors.
Not for Warren Buffett and his team.
Mr. Buffett's Berkshire Hathaway Inc.has used the slump as an opportunity to increase spending on stocks, deploying tens of billions of dollars the past couple of months after ending 2021 with a near-record cash pile.
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'Big Short' investor Michael Burry reveals bet against Apple stock â and built stakes in Alphabet and Meta last quarter
Theron Mohamed - Business Insider
Michael Burry, the investor of "The Big Short" fame, placed a bet against Apple and loaded up on other stocks last quarter, a Securities and Exchange Commission filing revealed on Monday.
Burry's Scion Asset Management held bearish put options against 206,000 Apple shares as of March 31. The iPhone maker's stock price has roughly quadrupled since the start of 2019, but has slumped by 16% this quarter alone.
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Oil hedge funds caught between sanctions and recession
John Kemp - Reuters
Portfolio investors have left their petroleum positions essentially unchanged for the last nine weeks as loss of production from Russia is matched by loss of consumption from China and Europe.
Hedge funds and other money managers held a net position in the six most important petroleum-related futures and options contracts of 548 million barrels on May 10 compared with 553 million on March 15.
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Funds stage sizable soy, soymeal selloff ahead of USDA data
Karen Braun - Reuters
Speculators have been easing massively bullish bets in Chicago-traded grain and oilseed futures in recent weeks, though they have been hesitant to add too many shorts due to unprecedented price levels and continuing uncertainties over global supplies.
That sentiment may have been confirmed late last week with the U.S. government's first supply and demand outlooks for the upcoming year, which showed stocks remaining relatively narrow through mid-2023, especially for wheat.
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| | | | | | Moves | | | Nomura Hires Ten Traders to Build Out FX-Focused Macro Desks
Stefania Spezzati and Donal Griffin - Bloomberg
Dipak Shah, Sidi Mohamed Saaf, Matthew Rupsis and Christopher Torrington have recently joined Nomura from Citigroup in a variety of roles to help the Japanese lender boost its forward and options forex trading desks in London, New York and Singapore, according to people with knowledge of the matter. Shah will be European head of foreign exchange options trading based in London, the people said. Representatives for Nomura and Citigroup declined to comment. The hiring comes after the Tokyo-based lender tries to move on from a multibillion-dollar hit related to its dealings with Archegos Capital Management, which collapsed last year. Nomura saw growth in certain macro products in foreign exchange and emerging markets in its most recent earnings, yet its fixed income trading revenue slipped 5% from a year ago amid a "challenging quarter.
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| | | | | | Strategy | | | A smart way to play Tesla's big stock-market swings using options
Lawrence G. McMillan - MarketWatch
We can see that the stock was in a steady uptrend from May through October of 2021. Then, it experienced a strong rise into November. Since then, it has been volatile - swinging back and forth in wide ranges and generally moving lower. Note that the stock bottomed in the 550-570 area back in May 2021.
This action has increased both the realized volatility of Tesla stock and the price of its options. In reality, though, Tesla options are not very expensive on a historical basis. However, there is a pattern to the pricing of the Tesla options that presents itself as a highly viable strategy.
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How can I make a profit from investing in volatility?
Tom Boyle - FT Adviser
For the past 25 years or so the global investment backdrop has been largely focused on deflationary shocks, that is, falling demand as a consequence of competing macroeconomic forces.
In such conditions, cutting interest rates is fairly straightforward and at a time of falling inflation, bonds - especially as part of a typical multi-asset portfolio made up of 60 per cent equities and 40 per cent fixed income - might have provided enough diversification to shield against this economic environment.
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| | | Jeff Bergstrom
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