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Rush Into Meme Stocks, Zero-Day Options Fuels Latest Frenzy in the Wall Street Casino

Now, insouciant speculation has returned in another acronym, 0DTE, which stands for Zero Days to Expiration options. Short-term calls and puts have long been favorites of speculative traders because they cost less than lengthier contracts. To help traders scratch that speculative itch, the exchanges have been offering ever-shorter options until they got to 0DTE.

And their growth has been explosive, so much so that their trading volume is swamping the turnover in the underlying securities, reports Doug Kass, who heads Seabreeze Partners and flagged the 0DTE phenomenon for us. He likens it to the speculative frenzy once seen in the trading of hot initial public offerings, when new shares would change hands several times on their first day, he said in a phone interview.

These short-term options have succeeded meme stocks as the Street’s gambling vehicle of choice, adds Peter Tchir, the derivatives maven who heads macro strategy at Academy Securities. About 90% of his recent conversations are about 0DTE, he relates in an email. And Thursday saw record call-option volume, with the vast majority of expirations on Feb. 2 and Feb. 3. The SPDR S&P 500 exchange-traded fund (ticker: SPY), usually leads the most-active list; Tesla (TSLA) does the same among single stocks.



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Sentimental Journey

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section: 

Where next? The best comment, as it also applies to us, comes from one of our managers, Terry Smith: “Our companies should demonstrate a relatively resilient fundamental performance in such circumstances, and the only type of market which ends in a recession is a bear market.”

We are reminded by another market veteran we’ve followed for 40 years, Ed Yardeni, that the FAANGS, the mega tech US stocks which led the 2014 to 2021 bull market, still inflate the PER market rating. Without the FAANGS, the forward market multiple is only 16.7x, making it barely 2 points higher than the long-term average. Bearish commentators claim that earnings are about to take a hit, raising the PER, and rate rises are still in store. (Remember that 2 main factors influence share prices: the valuation of earnings, influenced largely by interest rates, and the earnings themselves). There may indeed be something to the bears’ claim.



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Ken Griffin's Citadel Securities Discloses 5.5% Stake in Crypto Bank Silvergate

This article from CoinDesk may be of interest. Here is a section:

Market maker Citadel Securities has disclosed a 5.5% stake in Silvergate Capital (SI) worth about $25 million.

According to a Form 13G filed with the Securities and Exchange Commission (SEC), Citadel Securities is now the owner of roughly 1.73 million shares or a 5.5% stake in Silvergate, valued at $25 million based on Monday's closing price of $14.71.

A person familiar with Citadel Securities told CoinDesk that the filing is a result of the firm's options market making activities rather than a directional investment or stake in Silvergate. Citadel Securities makes markets in more than a million individual options at any time. For 13G filings, options positions are calculated based on long call positions, regardless of any offsetting short calls or puts, explained the person.

Meanwhile, trading firm Susquehanna also reported in a filing that it bought about 2.37 million shares, or a 7.5% stake, in Silvergate. The investment would be valued at about $35 million, based on Monday's closing price.

Alongside a modest rally in the price of bitcoin, Silvergate shares are higher by just over 5% on Tuesday at $15.53. Shares are down about 87% over the past year.

The moves come after BlackRock said it boosted stake in Silvergate last month. A filing showed that the asset management giant had a 7.2% stake in Silvergate Capital as of Dec. 31, as oppose to a 6.3% stake, reported a year earlier.



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US Air Force looks into flying robotic multi-engine jet transports

This article from NewAtlas may be of interest to subscribers. Here is a section: 

One key component for the United States and its global military commitments is its fleet of transport planes, including the Lockheed Martin C-5 Galaxy and the Boeing C-17 Globemaster III. These provide the US Air Force with the ability to deliver soldiers and their equipment anywhere in the world in short order and keep them supplied indefinitely.

However, it is an extremely expensive capability to achieve and maintain, and it often means sending air crews into dangerous areas where they may encounter hostile anti-aircraft weaponry. It also requires a large number of pilots, who do not come cheap and are invariably in short supply.

To counter this, the Air Force has hired Reliable Robotics to look into automating existing cargo aircraft. The idea isn't new, but adapting the technology to large multi-engine jet transports flying military supply missions adds another level of complexity.



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EU Considers Granting Telecoms' Greatest Hopes and Dreams

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Top European Union officials raised the possibility last year of making major streaming operators like Netflix Inc. and YouTube help pay for 5G and fiber infrastructure. Telcos had been pushing for such a move for over a decade.

The EU’s executive arm is expected to publish a request for feedback on the idea this month, the first step toward a formal proposal. When a draft of this consultation was circulated around Brussels recently, telcos read it with glee — and tech companies with horror. The consensus was that the EU is no longer asking whether it will do something but rather, how.

Last week brought another cause for celebration, at least for the bankers who work with the likes of Deutsche Telekom AG and Vodafone Group Plc. Commissioner Thierry Breton said the EU should more closely consider cross-border mergers, which could create “a true single market for telecoms” in Europe. Telcos, again, have been lobbying for consolidation for a long time.



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Alphabet Falls Most in 3 Months on Chatbot Accuracy Concerns

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The scrutiny comes as the battle to build the most accurate and effective search engine is escalating. On Monday, Google introduced Bard, whose underlying technology will eventually be built into Google.com. The next day, Microsoft Corp. said it was integrating a cousin of ChatGPT into Bing. On Wednesday, Google hosted a news conference in Paris where it shared more details about the company’s progress integrating artificial intelligence into search.

“The general sentiment is that ChatGPT and the Microsoft Bing announcement have created a narrative that Google’s search business model is under threat,” said Mark Riedl, a professor at the Georgia Institute of Technology.



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Jerome Powell Speaks With David Rubenstein

This summary from Bloomberg may be of interest to subscribers. Here is a section: 

Powell says the labor market report from Friday “underscores the message” he sent last week, that there’s a significant road ahead to get inflation down. There’s an expectation that inflation can come down painlessly, but “that’s not the base case.”



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Big Ideas 2023

This report from ARK Invest may be of interest. Here is a section: 

AI Should Increase Knowledge Worker Productivity Dramatically
According to ARK’s research, AI should increase the productivity of knowledge workers more than 4-fold by 2030. At 100% adoption, AI spend of $41 trillion could increase labor productivity by -$200 trillion, dwarfing the $32 trillion in knowledge worker salaries and rivaling current projections for global GDP in 2030. If vendors were to capture 10% of value by their products, AI software could generate up to $14 trillion in revenue and $90 trillion in enterprise value in 2030. 



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What the War in Ukraine Says About Deterring China

This article by Max Hastings for Bloomberg may be of interest. Here is a section: 

Leaders go to war because they believe they can win, as did Putin in Ukraine. It is entirely feasible to reinforce both Taiwanese and US capabilities in the region, to a point at which Beijing must doubt its ability to prevail in the necessary amphibious assault, a perilous and difficult undertaking.

The Ukraine experience has rewritten in lights a towering lesson of history: To deter aggression, there is no substitute for credible armed forces. We in the UK and the rest of the West are supremely fortunate that America still possesses these, despite the caveats about the Navy’s vulnerabilities in the Pacific.

Yet more important even than weapons is will. Many people, sometimes including myself, have doubted and continue to doubt whether, if China does invade Taiwan, the US and its allies will undertake military action in response. This is a reprise of the 1950 Korean uncertainty, with one important difference: 73 years ago, there was nothing in South Korea of material value to the West; its armies fought instead to defend a principle. In modern Taiwan, by contrast, advanced semiconductors represent an industry of towering importance both to China and ourselves.



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Is this time different?

In watching to Jerome Powell’s press conference yesterday I was struck by the number of times he said this is not a normal business cycle. 

The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

And

I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

And

this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.



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