Chaos Is Coming Or You’re Just Changing The Way You Invest

By | May 16, 2023

By Demosthenes Tryga

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

The stock markets, seeing demand grow, continue to add new products, since the speed in the flow of information is what configures a new reality. In 2005, the CBOE (Chicago Board Options Exchange, the largest options exchange in the US and beyond) first introduced weekly options. Soon after, Monday and Wednesday options were added, and a few months ago 0DTE (zero days to expiration) daily expiries were 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 they own. The options were made known to the general public in 2020, during the quarantine, where 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 some meme actions like 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 chose, I can make a profit of 100%, 200%, or even 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 doesn’t just decrease, it goes to zero! If that’s not the definition of gambling, then what is?

However, the above options are steadily gaining ground, with the result that almost half of all trades are in options that expire on the day they are traded. Such short-term contracts allow investors to take more specific positions around events like economic data releases or monetary policy meetings. This activity, however, is not included in the calculation of the VIX (Wall Street fear meter).

This whole scenario created a new reality not only in the derivatives market, but also in the stock market. Thus, the CBOE (Chicago Board Options Exchange) created just a few days ago a new volatility index (VIX1D), which measures the expected volatility in the S&P 500 the following trading day, instead of the next month, as the well-known 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 can stay quite low. The short-term focus of the 1D VIX is expected to make it much more volatile than the original 30-day VIX.

In the days after Silicon Valley Bank’s collapse last month, the VIX jumped from 19 to 26.5, above its long-term average but no panic-inducing numbers. HIV 1D, by contrast, would have jumped from 15.3 to 40.2! Currently, the CBOE does not plan to offer contracts directly tied to VIX 1D, but it is likely only a matter of time before that happens.

In conclusion, the development of short-term stock betting comes to take a piece of the cake from the bets that are made on online platforms for sports and other events or intends to change the way in which the small individual investor bets-invests, increasing so the “rake” and reduced investment profits? The future will tell, but one thing is certain: short-term volatility will increase and we may one day wake up to a surprise in the stock markets that will blow our minds!

Return to sales for foreigners in April

The share 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 bp. Excluding the share of the HFSF (3.23 billion euros or 4.79%) in the total capitalization of the Greek market, the share of foreign investors amounted to 66.46%. The capitalization of AA at the end of April was estimated at 67,410 million euros, compared to 65,890 million euros the previous month, that is, an increase of 2.3% and +2.89% of GDP.

At the level of capital flows, foreign investors were sellers in the AA market with 72 million euros in April, compared to net inflows of 64 million euros in March, with a balance of inflows so far this year of 196 millions of euros. The three largest net outflows of foreign investors in April came from Cyprus with €28 million, the United States with €26 million and the United Kingdom with €24 million. At the same time, the three biggest inflows came from Germany with €26 million, France with €15 million and Ireland with €6 million.

Foreign participants accounted for 57.2% of total transactions (purchases and sales) in April 2023 (compared to 52.1% the previous month). The countries with the largest portfolio value for April remain the US with a total portfolio value of €8.02 billion, Cyprus with a portfolio value of €6.93 billion and the Netherlands with €4.76 billion.

Sale of bank shares or opportunity?

Despite the fact that the vast majority of US corporate earnings estimates have been steadily lowered since January and prior to their results, the largest US banks managed to not only beat recent market estimates, but also the high estimates for January.

Notably, 4 of the 5 banks managed to beat 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 higher earnings for the next 4 quarters, while estimates for the other four are down.

Regarding valuations, based on the P/E ratio (price to earnings per share) and after the last fall 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 whatever reason does not follow the path set by investors through derivative products, or if an extraordinary event occurs and interest rates do not fall as quickly as expected, it is clear that stocks banks will then continue and the current crisis will outperform the market. I’m not saying it’s the most likely scenario, but when something is so obvious, there’s a significant risk that it won’t materialize exactly as expected.

Schedule (16/5/2023 – 21/5/2023)

Aegean and Fourlis results in focus, as well as FTSE Russell indices review

Aegean Airlines and Fourlis are scheduled to announce first quarter 2023 financial results on Tuesday, Profile has called an ordinary general meeting, while Intercontinental International AEEAP shares will be traded without the right to the 2022 dividend. Coca-Cola HBC on Wednesday and Alpha Trust Andromeda AEEX have called an ordinary general meeting, while Doppler an extraordinary general meeting. On Thursday, Revoil shares will trade without entitlement 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, on the same day, the FTSE house announces the possible changes for the FTSE indices. The potential changes will be implemented on June 19, 2023, and the previous session saw increased trading activity as index trackers take their positions in both stocks and weight changes. The next announcement of the planned review is scheduled for August 18, 2023.

Interest for inflation in the Eurozone and retail sales in the US.

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

* Demosthenes Trigas is a certified stock and market analyst BETA Securities –

**Republished from the Kefalio newspaper

Leave a Reply

Your email address will not be published. Required fields are marked *