Chaos is coming or just changing the way you invest

Chaos is coming or just changing the way you invest

By Demosthenes Tryga

There is an abundant literature tracing the motivations of individual investors (?) for frequent trading and how they can affect the lives of these individuals. Losses resulting from frequent trading can be seen as a reward for the fun and adrenaline that such an experience provides. A purchase in a derivative product with a horizon of one day with an amount starting from a few tens of euros with the aim of a return of 100% and more, if it is not gambling, then what is what it is ?

Stock markets, seeing demand grow, continue to add new products, as the speed of information flow is what shapes a new reality. In 2005, the CBOE (Chicago Board Options Exchange – the largest options exchange in the United States and beyond) introduced weekly options for the first time. Soon after, Monday and Wednesday options were added, and a few months ago, daily 0DTE (zero days to expiration) expiry was added to the S&P 500 index.

With options, like all derivative products, the individual investor can take hedging positions on the stocks or indices he holds. Options became known to the general public in 2020, during the quarantine, when many took positions for short-term movements with amounts not exceeding 50-200 euros with the aim of multiplying their money, giving a tendency to certain actions same as Gamestop!

When these options expire daily, it means that if today, for example, I bet $100 on the rise of the S&P 500 and the index moves strongly in the direction I choose, I can make a profit of 100 %, 200% or even and many times the money I bet. On the other hand, if today, when the option expires, the indicator moves in the opposite direction, the amount I bet does not just decrease, it goes to zero! If that’s not the definition of gambling, then what is?

However, the options above are constantly gaining traction, so nearly half of trades are in options that expire on the day they are traded. These short-term contracts allow investors to take more targeted positions around events such as the release of economic data or monetary policy meetings. However, this activity is not taken into account in the calculation of the VIX (Wall Street fear gauge).

This whole scenario has created a new reality not only in the derivatives market, but also in the stock market. So the CBOE (Chicago Board Options Exchange) just a few days ago created a new volatility index (VIX1D), which measures the expected volatility of the S&P 500 on the next trading day, instead of the next month, like the famous VIX.

The VIX tends to rise when stocks fall, but it can also jump if investors expect conditions to improve significantly. Conversely, if stocks fall slowly and steadily, as they did last year, the VIX may remain quite low. The short-term target of the 1D VIX should make it much more volatile than the original 30-day VIX.

In the days following the Silicon Valley Bank collapse last month, the VIX rose from 19 to 26.5 – above its long-term average, but don’t panic. HIV 1D, on the other hand, would have jumped from 15.3 to 40.2! At this time, the CBOE has no plans to offer contracts directly related to the VIX 1D, but it’s likely only a matter of time before that happens.

In conclusion, the development of short-term stock market betting comes to take a slice of the pie from bets played on online sporting and other event platforms or expect to change the way the small individual investor bets-invests, increasing thus the “rake” and the reduction of the profits of investment? Time will tell, but one thing is certain: short-term volatility will increase and it is possible that one day we will wake up to a stock market surprise that will leave us all speechless!

Resumption of sales for foreigners in April

The participation of foreign investors in the total capitalization of the Greek market in April amounted to 63.28%, compared to 63.91% on March 31, 2023, registering a contraction of 63 bps. Without taking into account the participation of the HFSF (3.23 billion euros or 4.79%) in the total capitalization of the Greek market, the participation of foreign investors amounts to 66.46%. The capitalization of AA at the end of April was estimated at 67.41 billion euros, against 65.89 billion euros the previous month, an increase of 2.3% and +2.89% of GDP.

In terms of capital flows, foreign investors were sellers on the AA with 72 million euros in April, against a net inflow of 64 million euros in March, with a balance of inflows since the beginning of the year of 196 million euros. The three largest net outflows of foreign investors for the month of April came from Cyprus with 28 million euros, the United States with 26 million euros and the United Kingdom with 24 million euros. At the same time, the three largest inflows came from Germany with €26 million, France with €15 million and Ireland with €6 million.

Foreign unitholders represented 57.2% of total transactions (purchases and sales) in April 2023 (compared to 52.1% the previous month). The countries with the highest portfolio value for April remain the United States with a total portfolio value of 8.02 billion euros, Cyprus with a portfolio value of 6.93 billion euros and the Netherlands with 4.76 billion euros.

Liquidation of bank stocks or opportunity?

Despite the fact that the vast majority of US corporate earnings estimates have been steadily falling since January and ahead of their results, the largest US banks have managed to not only beat recent market estimates, but January’s high estimates as well.

In particular, 4 of the 5 banks managed to outperform their relatively high January estimates, with JP Morgan and Bank of America around 20% higher.

Looking ahead, the only positive exception to the rule is JP Morgan, as estimates point to rising earnings over the next 4 quarters, while estimates for the other four are down.

In terms of valuations, based on the P/E ratio (price to earnings per share) and after the last decline in share prices due to the banking crisis, the average of the 5 banks for 2023 and 2024 is 9.8 and 9.2 times respectively.

Finally, if the interest rate curve for some reason does not follow the trajectory plotted by investors via derivatives, or if an extraordinary event occurs and interest rates do not fall as quickly as expected, it is clear that bank stocks will then and the current crisis will outperform the market. I’m not saying that’s the most likely scenario, but when something is so obvious, there’s a significant risk that it won’t materialize exactly as planned!

Agenda (16/5/2023 – 21/5/2023)

Focus on the results of Aegean and Fourlis, as well as the review of the FTSE Russell indices

Today, Tuesday, Aegean Airlines and Fourlis are expected to announce first quarter 2023 financial results, Profile has convened an ordinary general meeting, while Intercontinental International AEEAP shares will be traded without entitlement to the 2022 dividend. Wednesday Coca-Cola HBC and Alpha Trust Andromeda AEEX convened an ordinary general meeting, while Doppler an extraordinary general meeting. On Thursday, Revoil shares will trade without the right to the 2022 dividend. Friday is the expiration day for Equity & SME Rights and FTSE/ATHEX Large Cap Index Rights, while Premia Properties is expected to announce its financial results. a’ quarter 2023. Finally, the same day, the FTSE house announces the possible changes for the FTSE indices. The potential changes will be implemented on June 19, 2023, with the previous session seeing increased trading activity as index followers take positions on the stock and weighting changes. The next scheduled review announcement is set for August 18, 2023.

Interest in Eurozone Inflation and US Retail Sales

Overseas, next week starts early Tuesday when China’s April industrial production is announced, at 12:00 p.m. the results of the ZEW Institute’s survey of economic conditions based on May data, the GDP of the first Eurozone quarter are released, while retail sales for April in the United States are released shortly after. On the same day, the financial results for the first quarter of 2023 are announced by NN Group, Euronext and Home Depot (Dow Jones). On Wednesday, inflation in the euro zone for April is announced, building permits for April in the United States, while economic results are published by Commerzbank, Siemens and Cisco Systems (Dow Jones). On Thursday, the Swiss market will remain closed due to a public holiday, while in the United States, the Philadelphia Fed index (economic conditions in the Philadelphia area) and April existing home sales are published. Finally, Walmart (Dow Jones) announces its first quarter financial results.

* Demosthenes Trigas is a Certified Equity and Markets Analyst BETA Securities –

** Republished from Kefalio newspaper

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