Latest news with #hedging
Yahoo
a day ago
- Business
- Yahoo
Traders Hedging Record Rally Dabble in Exotic Options
(Bloomberg) -- Investors looking to protect against a pullback with stocks at peaks are venturing beyond plain-vanilla options. The High Costs of Trump's 'Big Beautiful' New Car Loan Deduction Can This Bridge Ease the Troubled US-Canadian Relationship? Budapest's Most Historic Site Gets a Controversial Rebuild Trump Administration Sues NYC Over Sanctuary City Policy The steady grind higher in the S&P 500 Index has pushed most gauges of implied and realized volatility to the lowest levels in months — in some cases years. The collapse in volatility after the April tariff shock has surprised many investors, given the geopolitical tensions and uncertainty around the impact of levies on corporate earnings. With a whiff of complacency in the market and a resurgence of meme-stock mania signaling euphoria among investors, strategists across Wall Street are talking more about picking up some protection against a retreat from the highs. Hedging is likely to gain traction both in the context of upcoming earnings and tariff deadlines, and the seasonal trend for the Cboe Volatility Index to rise through the third quarter from July lows. But simple strategies can be tricky in a rising market, where the few, small dips are seen as buying opportunities. Vanilla put options quickly fall out of the money as the index rises, forcing investors to keep shifting positions higher to maintain their desired level of downside protection. So strategists are pitching over-the-counter alternatives. At UBS Group AG and JPMorgan Chase & Co., they have recently recommended so-called lookback or re-settable put options, where the strike follows the market higher and — in the case of lookback puts — is set at the highest closing print during the life of the trade. Those are currently trading at a historically narrow premium to vanilla puts, JPMorgan strategists including Bram Kaplan wrote in a note earlier this month. 'Hedging is very much in focus,' said Antoine Porcheret, head of institutional structuring for the UK, Europe, Middle East and Africa at Citigroup Inc. 'We have seen decent buying flows in the lookback put as it is cheap by historical standards since the value of the lookback feature is a function of implied volatility, which is low.' UBS strategist Kieran Diamond wrote in note last week that historically, a market on the highs is more likely to go higher than reverse, thus increasing the chance of a vanilla put struck today becoming deeper out of the money. A lookback put implemented from a market high would have shifted the strike of a two-month put at 95% of the spot level 3.4% higher on average over the past 10 years, and the lookback feature costs only 0.4% more than the vanilla put, he said. The best scenario to buy a lookback put is when the market rallies and then collapses. In such cases, the additional payoff versus the vanilla version can be significant. 'There was a wave of interest in the lookback hedge payoff earlier in the year, when spot was near highs and vols had dropped towards lows,' said Pete Clarke, UBS's global head of volatility strategy. 'Following the latest rally and vol reset, we've seen them actively quoted once again.' S&P 500 futures were 0.2% higher as of 6:40 a.m. New York time on Monday. Markets get another test in the coming week with the Federal Reserve rate decision, US employment and gross domestic product data, and the tariff deadline — plus a slew of big tech earnings. Meanwhile, the re-emergence this month of wild swings in meme stocks will also likely have institutional investors reaching for protection trades, rather than chasing further gains. In 2021, retail-frenzied gains marked a spurt of euphoria for stocks, with moves that quickly faded. The interest in lookback puts 'is mostly from accounts other than hedge funds, such as long-only asset managers and private banks,' Porcheret said. 'Hedge funds and especially volatility-arbitrage accounts tend to opt for cheapened downside structures as opposed to a lookback which carries additional cost.' Volatility on technology stocks has been hit especially hard, with Asym 500 founder Rocky Fishman pointing out in a note last week that 10-day realized volatility on the Nasdaq 100 Index had fallen to the lowest level since 2021. 'Nasdaq and generally Tech has been a popular underlying as the volatility there has been especially crushed,' Porcheret said. (Updates with S&P 500 futures in 11th paragraph. An earlier version corrected spelling of firm name in penultimate paragraph.) Burning Man Is Burning Through Cash It's Not Just Tokyo and Kyoto: Tourists Descend on Rural Japan Elon Musk's Empire Is Creaking Under the Strain of Elon Musk Confessions of a Laptop Farmer: How an American Helped North Korea's Wild Remote Worker Scheme Scottish Wind Farms Show How to Counter Nimby Opposition ©2025 Bloomberg L.P.
Bloomberg
a day ago
- Business
- Bloomberg
India's Insurance Giant Turns to Wall Street Banks to Hedge Risk
Life Insurance Corp. of India is working with some of Wall Street's largest banks to hedge its liabilities, according to people familiar with the matter. The nation's largest insurer has entered into $1 billion worth of bond forward rate agreements with banks including JPMorgan Chase & Co. and Bank of America Corp. over the past two months, the people said, asking not to be identified as they are not authorized to speak publicly.
Emirates 24/7
6 days ago
- Business
- Emirates 24/7
DGCX Reports Strong H1 2025 Performance With Over 1 Million Contracts
DGCX has announced a robust performance in the first half of 2025, with over 1 million contracts traded by the end of June, marking a 30% year-on-year increase in average daily volumes. The strong performance reflects the heightened demand for hedging instruments amid global market volatility, with gold contracts and the INR Quanto product leading the uptick in trading activity. The standout performer of the period was DGCX's Shariah-compliant Gold Spot Contract (DGSG), which saw the value of trades increase from USD 15.6 million in H1 2024 to USD 46.8 million in H1 2025 – a remarkable 199.84% year-on-year increase. In volume terms, DGSG contracts rose 118% in the 12 months. The INR Quanto futures contract, a synthetic contract that enables global market participants to hedge Indian rupee exposure against the US dollar without requiring access to the underlying Indian markets, continued to attract strong trading interest. This growing popularity signifies its importance as a regional risk management tool amid ongoing FX market fluctuations. Ahmed Bin Sulayem, Chairman and Chief Executive Officer, DGCX, said: 'DGCX has seen exceptional momentum in the first half of the year, with nearly USD 47 million traded through our spot gold contract alone – a 200% year-on-year increase – and a 30% rise in daily volumes across the exchange driven by demand for DGSG and INR Quanto futures. This performance not only places DGCX firmly on course to surpass its 2024 results but reinforces its role as a critical pillar in the region's financial infrastructure. As global market conditions grow more complex, the exchange's rising adoption by Shariah-based investors, bullion traders, and institutional participants alike highlights the growing demand and broad appeal for sophisticated, secure, and transparent hedging tools – a position we expect will get stronger as we continue to reinforce Dubai's standing as a world-class centre for commodities and derivatives trading.' Part of DMCC's dedicated support for the precious metals industry, DGCX plays a pivotal role in Dubai's status as one of the world's largest trading hubs for gold. With over 1,500 member companies operating in the gold and precious metals sector within DMCC, the exchange complements the international district's broader offering in physical and financial trading infrastructure. The strong H1 2025 performance builds on DGCX's full-year 2024 results, which saw 1.56 million contracts traded with a notional value exceeding USD 37 billion. The exchange is well on track to surpass that figure in 2025, reinforcing its position as the region's leading derivatives marketplace.
Bloomberg
7 days ago
- Business
- Bloomberg
Japan's power trading set to surge with end of key deal
The shakeup is already driving hedging activity in the futures market, as traders position for potential changes in supply and demand. Trading volumes on the European Energy Exchange AG — the largest bourse for Japanese power derivatives — more than doubled in June from the same month last year. 'We have seen very active hedging trades in the EEX Japan Power futures market to cover the risk exposure from those physical positions for the same period,' said Bob Takai, chief executive officer of EEX Japan. While traders usually hedge summer and winter 2026 contracts at the end of the year, volumes for those seasonal products are already picking up, he added. Still, some traders remain cautious as it's still unclear how much electricity the major retailers will actually procure. Jera, a 50-50 venture between Tepco and Chubu, was founded in 2015 to combine power generation assets and overseas fuel procurement. A spokesperson for TEPCO Energy Partner, the utility's retail arm, declined to comment on specific plans for power procurement. The company will make use of the market and various products for an optimal procurement method and balance, the spokesperson said. Chubu Electric's retail arm will continue to build an appropriate procurement portfolio taking into account factors like economics and stable supply of electricity, a spokesperson said, declining to comment on the details of its contract with Jera. Jera will offer wholesale electricity on equal terms to all retailers, including those at Tepco and Chubu, which must participate in public and brokered sales like any other firm, a spokesperson said. The company plans to expand wholesale offerings to a wider range of retailers from fiscal year 2026, the spokesperson added. Demand has become increasingly difficult to forecast amid extreme weather and natural disasters, highlighting the growing importance of hedging strategies. The recent heat wave pushed day-ahead spot prices to a four-month high on Sunday, making weather a major driver of short-term volatility. In response, EEX is preparing to launch a daily futures product for the Kansai area, giving traders more tools to hedge against regional price swings.
South China Morning Post
22-07-2025
- Business
- South China Morning Post
Singapore boosts currency market dominance as daily volume jumps 12% to US$1.27 trillion
Singapore's foreign-exchange market expanded this year, doubling in size over the past four years and widening its lead over Hong Kong, as activity rebounded after the Covid-19 pandemic and demand for hedging climbed amid heightened geopolitical tensions. Advertisement Average daily turnover reached a record US$1.273 trillion in April, according to a semi-annual survey published by the Singapore Foreign Exchange Market Committee on Tuesday. Volume jumped 12 per cent from October 2024, and doubled from April 2021, the survey showed. Traditional foreign-exchange trades – including spot transactions, outright forwards and swaps – amounted to US$1.14 trillion per day, while daily turnover of over-the-counter currency derivatives stood at US$133 billion, the committee said. They increased by 8 per cent and 50 per cent, respectively, from October 2024. The growth reflects a broader trend of investors and multinational firms turning to the Southeast Asian financial hub for liquidity and currency risk management as trade wars and military conflicts in some regions spooked global markets. Investors also stepped up asset diversification as the US dollar depreciated amid US President Donald Trump's tariff war. 02:39 US-China trade remains 'critical', despite fraying relations and trade wars US-China trade remains 'critical', despite fraying relations and trade wars 'Singapore's FX surge reflects its deepening role as a regional liquidity hub, with structural demand from asset managers and corporates amplifying post-pandemic flows,' said Charu Chanana, Singapore-based chief investment strategist at Saxo Bank. Rising hedging needs and interest-rate volatility could also have driven the uptick, she said after the report.
