Market Research Jan 20 - 2023
Let's start, as mentioned in my tweets on January 15. On January 20th there's $2.7 trillion of options will expire in the US-listed options market.
So today's expiry of single stock options and index/ETF options. A total of $797 billion of single stock options will expire today, the largest amount since January of 2022 and the fourth largest on record. From an index perspective, a total of $1.3 trillion worth of options will expire, the largest non-quarterly expiry on record.
Additionally, $514 billion worth of notional ETF options will expire, consistent with December expiration and above historical levels.
Over the last year, index options trading has increased, most likely owing to the macro-focused environment of recent markets.
If you are a premium subscriber, you can use the audio player to listen to the article instead. I know we all have a short attention span and like to skim
At major options expirations, it is important to pay particular attention to the open interest in at-the-money (ATM) options set to expire at the end of the week.
This is because the size of the open interest (OI) in these ATM options and the direction of the positions held by options traders can indicate whether delta hedging activity is likely to positively or negatively influence the underlying stock's trading day.
If net long delta-hedgers hold the bulk of open interest in ATM options, the expiration-related flow will likely put downward pressure on the stock price and "pin" the stock near the strike with large open interest.
On the other hand, when net short delta-hedgers hold the bulk of the positions in ATM options, expiration-related flow is likely to cause the stock price to become more volatile and have an upward effect. In either case, knowing the open interest and direction of ATM options expiring on Friday can be useful information for managing positions before the market closes.
You may wonder what "pin" or "pinning" means in this context. Let me try to explain it briefly.
The price “pins” or "pinning" is a situation where expiration-related flow causes the stock price to settle near the strike with large open interest.
This situation is caused by the delta-hedging activity of market makers or other options traders who are net long in at-the-money (ATM) options expiring at the end of the week.
Delta hedgers who are net long will buy the underlying stock when they hedge, dampening stock price movements and causing the stock price to settle near the strike with large open interest. This can be ideal for a large investor trying to enter/exit a stock position.
If you have no idea of what the hell I just said, please read my free 8-article series about options trading and delta hedging with options
Netflix Q4 Earnings Report
Netflix had a successful fourth quarter of 2022, with better-than-expected subscriber net, adds, and a solid operating performance in revenue growth and margins. Forward strategies such as ad-supported tiers and password-sharing restrictions could open up avenues of new subscriber growth and higher margin revenue dollars; however, they risk making Netflix stock overvalued.
(This was an article for premium members, which has now been released for free 6 days later. Not every post will be released for free later)
Netflix stock has moved 46% since its Q2 '22 earnings report means the risks associated with the strategies may not be worth the reward, and they have adjusted their estimates and increased their target price from $225 to $230.
Update (unfortunately, when writing this, Netflix already went up in price by 9%)
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ECB Minutes Counter Earlier Claim that Interest Rate Hikes will Slow
European Central Bank (ECB) president Christine Lagarde and the December meeting minutes have cast doubt on a previous “ECB sources” article that suggested the pace of interest rate hikes could be slower from 50 basis points (bps) to 25bps as soon as March.
This did not align with the hawkish ECB staff forecasts made in the December meeting nor with the economic data released since the article.
The minutes of the December meeting revealed that a “large number” of policymakers wanted to raise rates by 75bps, and “some” wanted a faster reduction in Asset Purchase Programme (APP) reinvestments.
The ECB staff also projected a possible "inflation hump" in 2024 owing to a decline in the gas TTF, and the tone of the debate was hawkish. This info might be important in assessing the impact on the ECB's future policy choices. It seems probable that the ECB will need more than two meetings to make any policy shift.
Wait, what is Asset Purchase Programme (APP)?
Asset Purchase Programme (APP), also known as Quantitative Easing (QE), is an "unconventional" monetary policy tool used by the ECB (European Central bank) to increase liquidity in the European banking system and to stimulate economic growth.
APP involves the purchase of financial assets from banks, such as bonds or other securities, with newly "printed money."
These asset purchases serve a "dual purpose": they decrease the supply of bonds available in the market, lowering interest rates on bonds, and they also provide banks with access to more cash, allowing them to grant new loans and investments.
In addition, the proceeds from the APP are also invested in government bonds, incentivizing governments to pursue fiscal policies that will continue to support growth and inflation.
Improved Domestic Growth Prospects in Europe Could Spur Equity Flow Rotation
The FX (foreign exchange) market reflects Europe's diverging economic and financial fortunes.
I think the US Dollar will weaken as a result, which could mean that the Euro will gain in value. This could threaten European earnings relative to the US, as they have experienced a tailwind with the weaker Euro.
However, it seems like Barclays believes that the improving domestic growth prospects in Europe and better Chinese demand could reduce the contraction of European earnings in the upcoming year.
There is a possibility that equity flows may rotate from the United States to Europe as a result of a stronger Euro brought on by the continent's brightening economic prospects and diminished geopolitical risks. More money coming into Europe is something that may benefit from this.
Ethereum Network Activity Reaches Extreme High
Bitcoin's price action, or its fluctuations, has generally stuck to the pattern set in 2017 and 2018, but current trading volumes are still relatively low. As a result, the market is unstable and prone to increased volatility, and crypto companies' credit risks persist.
The ETH PAVA speculative indicator from Morgan Stanley hit a record high of 0.32 on January 16, 2023, giving us further insight into the state of the cryptocurrency market. Price Adjusted by Network Volume Per Address, or ETH PAVA, is a metric that takes into account information from Ethereum and other blockchains to calculate the total number of times an asset was transacted over a specified time frame.
A high ETH PAVA score, such as 0.32, indicates that the Ethereum network and blockchain are seeing a lot of usages, which could lead to a rise in price.
Remember, Ethereum's recent EIP1559 protocol aims to reduce network fees and provide control over the supply of Ethereum.
You know, "Ultrasound money."
The improvement protocol that went live in the summer of 2022 changes how fees are paid and collected by the Ethereum network, effectively making the network more efficient. EIP1559 improves the network's security by reducing transaction fees and introducing a “burn” fee, which reduces the overall supply of ETH in circulation.
(As some of you remember, the Ethereum difficulty bomb)
With these changes in place and with the Ethereum network experiencing an extreme amount of activity, as indicated by the ETH PAVA speculative indicator, the impending price increase could be due to increased investor confidence in Ethereum's future.
With the EIP1559 protocol expected to reduce fees and increase the security of the Ethereum network, investors may be more eager to invest in Ethereum, driving up the price of ETH as a result.
Bitcoin anticipated breakout?
BTC implied volatility is a measure of the expected volatility of the Bitcoin market over a certain period. In recent sessions, BTC implied volatility has decreased.
I tweeted about this earlier.
The skew 25 delta (C-P), a measure of the pricing of options contracts relative to the cost of putting them on, has risen, indicating increased buying of call options.
This means market participants anticipate that Bitcoin prices could break above the 22K level. In light of this, I suggest that playing a possible break-out move with shorter-dated call spreads may be a relatively attractive option for those who had previously followed my tweet about the call spread.
Just a quick rundown, a call spread is an options strategy that involves buying and selling call options at different strike prices to profit from a moderate rise in bitcoin price with magnitude (gamma). By buying short-dated call options and, for example, longer-dated call options, you can benefit if the underlying asset experiences a break-out move.
Gold has recently seen a price surge, but the asset volatility has remained relatively low. Usually, when gold prices rise, so does the volatility (the "upside skew" feature) as traders become more bullish.
But this time, there's something strange. However, volatility did not increase with the surge in gold prices, as traders remained relatively cautious.
As a result, a call option based on this recent surge in gold prices may look attractive. This "might" potentially lead to a profit if gold prices continue their current trend. The GVZ (Gold Volatility Index) indicates the current volatility of gold, which is currently at 16.4. The current price of gold is 1929.
I'm not going to play this, but still worth mentioning.
I've been recommending Blockwallet in several tweets.
I made the switch from Metamask to Blockwallet.
The user interface and functions are much better; it works better with my Trezor and switching between accounts. Extra privacy, flash bot protection & anti-phishing. You can also import your Metamask seed, etc.
However, I've seen one of their latest tweets, the wallet has a token called "BLANK"
If I were a betting man, which I am. I will assume that Blockwallet users are eligible for a nice airdrop. I would recommend installing Blockwallet and making some transactions.
You can export your Metamask seed and import it into Blockwallet. There's no need to reshuffle your assets etc., as some people think. Some people don't want to make the switch because Blockwallet has no mobile app right now. It doesn't matter. You can install Metamask or 1inch wallet on your phone and import your seed on your mobile wallet, which is not Blockwallet.
Chrome extension link: https://chrome.google.com/webstore/detail/blockwallet/bopcbmipnjdcdfflfgjdgdjejmgpoaab
I've noticed this interesting DEX. So gTrade has a really nice UI but also has forex and stocks. I am still playing with the DEX. I recommend using the Polygon network to trade on the.
Again, switching from network and bridging is easy with blockwallet
Apex Dex by ByBit
Reminder Apex incentive program, which pays you to trade and keep tour trade open, is ongoing.
If you need a referral link: https://pro.apex.exchange/trade/BTC-USDC/register?affiliate_id=46&group_id=83
My referral code is: 46
In my opinion, this is the best DEX for trading bitcoin futures.
They also have a mobile app, Android:
Also, an app for iPhone
Ref code = 46
To wrap it all up
There's something I've learned ..... I have to wake up earlier and analyze markets in the morning instead of at night.
I figured I start the morning with some warm-ups, like small bits of coding, and write articles later at night; however, I should wake up really early instead and write in the morning.
Like, really early because reading and writing usually take 3-4 hours. I have older articles on this blog with explanations I once write which I copy/paste again sometimes instead of explaining again. It saves some time.
This whole article would have been useful if I had woken up at 7 AM to write instead of going to bed at 5 AM.
I swear I could write all day even though it takes so much time, but I enjoy it.