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How Early Exercise Order Flow Impacts Equity Option Put/Call Ratios

Thanks to a subscriber for this article from the Cboe which may be of interest. Here is a section:

Historically, dividend related ITM [Ed. In-the-money] call exercises have resulted in some of the highest call volume days of the year, including March 15, 2012, when a record 9M calls traded in SPY, but changes to the clearing process since then have dampened that activity. 

Mathematically, the decision to exercise a call or put early is related to the extrinsic value of the contract. For calls, if the dividend(s) amount exceeds the extrinsic value, a long holder is usually better off exercising. For puts, the decision is a bit more subtle, with extrinsic value compared to the carry cost on the strike. As U.S. interest rates have increased sharply to decade-highs this year, the cost of carry for deep positions has increased, while the selloff in many popular stocks has resulted in large blocks of deep put open interest. Unlike dividend-related call exercises, which tend to happen quarterly, put exercise dynamics may repeat daily if positions are open. In practice, put exercises are more common on Wednesdays based on the timing of settlement. Puts exercised on a Wednesday result in a stock sale on Thursday, which settles Monday.

Fortunately, early-exercise candidate call and put strikes for all listed products are calculated intraday and available in a subscription product on the Cboe DataShop.

A sample from the file for December 7 shows that all the active Amazon deep put strikes were considered optimal to exercise as of 2 p.m.



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Tesla Offers $7,500 Discount in Rare Move to Lift Deliveries

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

Tesla Inc. is offering US consumers $7,500 to take delivery of its two highest-volume models before year-end, adding to indications the carmaker is struggling with demand.

The discount on new Model 3 sedans and Model Y sport utility vehicles is double what the company was offering earlier this month. It mirrors an anticipated change in how much of a tax credit certain consumers will be eligible for early next year.

It’s highly unusual for Tesla to offer such perks, as Elon Musk has for years enforced a no-discounts policy. The company also departed from its chief executive officer’s insistence against spending on traditional advertising last month by promoting its wares on a local television shopping channel in China. Tesla also has cut prices and production in that market this quarter.



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Bitcoin Miner Greenidge Warns of Bankruptcy, Debt Restructuring

Bitcoin Miner Greenidge Warns of Bankruptcy, Debt Restructuring 

Greenidge’s average monthly cash burn rate in the past two months was approximately $8 million. That is typically used to describe the rate at which a company spends capital to finance overhead before generating a profit or loss from operations. About $5.5 million of that cost was associated with principal and interest payments to NYDIG. The firm expects to have a similar cash burn rate and similar payments to NYDIG in December, according to the filing.

The Fairfield, Connecticut-based miner has a natural gas plant that powers its Bitcoin mining facility in Dresden, New York. It is one of the earliest and largest crypto-mining firms in the state. While Greenidge’s current operations remain intact, New York Governor Kathy Hochul signed one of the most restrictive laws in the US on crypto mining last month with a two-year moratorium on new permits from the miners that are powered by fossil fuel. 



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Sea Change

Thanks to several subscribers for sending through Howard Marks’ latest memo. Here is a section:

As I’ve written many times about the economy and markets, we never know where we’re going, but we ought to know where we are. The bottom line for me is that, in many ways, conditions at this moment are overwhelmingly different from – and mostly less favorable than – those of the post-GFC climate as described above. These changes may be long-lasting, or they may wear off over time. But in my view, we’re unlikely to quickly see the same optimism and ease that marked the post-GFC period.

We’ve gone from the low-return of 2009-21 to a full-return world, and it may become more so in the near term. Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Lenders and bargain hunters face much better prospects in this changed environment than they did in 2009-21. And importantly, if you grant that the environment is and may continue to be very different from what it was over the last 13 years – and most of the last 40 years – it should follow that the investment strategies that worked best over those periods may not be the ones that outperform in the years ahead.

That’s the sea change I’m talking about.



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Moderna, Merck Cancer Vaccine Combination Cuts Deaths in Trial

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

A personalized Moderna Inc. cancer vaccine combined with collaborator Merck & Co.’s biggest-selling drug reduced melanoma deaths in a mid-stage trial, helping for now to ease concerns about the biotechnology company’s second act following the success of its Covid-19 vaccine.

The combination of the vaccine with Merck’s Keytruda cut the risk of death or recurrence of the lethal skin cancer by 44%, the companies said Tuesday in a statement. The drugmakers plan to move the combined treatment into final-stage studies next year. Moderna shares rose as much as 26% as of 1 p.m. in New York, while Merck’s gained as much as 2.1%. 



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Stocks Pare CPI-Fueled Rally With Fed Set to Hike

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

“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

The CPI-fueled stock rally fails to recognize that corporate earnings are just starting to see the impact of tight monetary policy, James Athey, investment director at Abrdn.

“As the full effects of the Fed’s aggressive actions this year play out next year, it seems inevitable that we will see a significant repricing lower in EPS forecasts and thus the broad market,” Athey said.



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Tesla Stock Is the Cheapest Ever After This Year's 52% Slump

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

“My biggest concern is the slowdown they’re seeing in China,” Matt Maley, chief market strategist at Miller Tabak + Co. said, adding that “as long as Elon Musk is spending a lot of time with Twitter, it’s going to keep a lid on the stock.”

Bloomberg News reported Friday that Tesla plans to suspend output in stages at its Shanghai electric car factory from the end of the month until as long as early January, amid production line upgrades and slowing consumer demand. 

Meanwhile, Twitter is more than a distraction. Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla, people with knowledge of the matter told Bloomberg.   



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Here's What We Know So Far About Amgen's Obesity Drug As It Trails Novo Nordisk, Eli Lilly

This article from Investors Business Daily may be of interest to subscribers. Here is a section:

Amgen is years behind rivals Novo Nordisk and Eli Lilly in developing an obesity treatment, but the company says its experimental drug could prove superior. And investors seem to agree, as news of the drug helped Amgen stock go on a tear recently.

Shares of Amgen now are taking a breather after a run-up in late October and early November. Last week, the biotech giant unveiled another  batch of official data, showing that its drug requires less-frequent injections and leads to faster weight loss.

Over three months, patients who received three high-dose shots of Amgen's drug lost 14.5% of their body weight. That beat out the 8% weight loss for Lilly's weekly injection over the same time period, according to one analyst.

Now, the question is how durable the weight loss will be for recipients of Amgen's AMG 133.



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AI Homework

This article by Ben Thompson for his Stratechery letter may be of interest to subscribers. Here is a section:

The difference is that ChatGPT is not actually running python and determining the first 10 prime numbers deterministically: every answer is a probabilistic result gleaned from the corpus of Internet data that makes up GPT-3; in other words, ChatGPT comes up with its best guess as to the result in 10 seconds, and that guess is so likely to be right that it feels like it is an actual computer executing the code in question.

This raises fascinating philosophical questions about the nature of knowledge; you can also simply ask ChatGPT for the first 10 prime numbers:

Those weren’t calculated, they were simply known; they were known, though, because they were written down somewhere on the Internet. In contrast, notice how ChatGPT messes up the far simpler equation I mentioned above:

For what it’s worth, I had to work a little harder to make ChatGPT fail at math: the base GPT-3 model gets basic three digit addition wrong most of the time, while ChatGPT does much better. Still, this obviously isn’t a calculator: it’s a pattern matcher — and sometimes the pattern gets screwy. The skill here is in catching it when it gets it wrong, whether that be with basic math or with basic political theory.



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CATL to Deepen Ties With Honda on Battery Development

This note from Bloomberg may be of interest. Here is a section:

China’s Contemporary Amperex Technology, the world’s biggest maker of electric-car batteries, signs a global partnership agreement with Honda Motor, according to an exchange filing to Shenzhen Stock Exchange.



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