Friday Was The Highest Put Option Volume Session In History
Friday was a bad day for stocks, and while spoos managed to stage a tiny end-of-day bounce to avoid sliding below the 2022 June closing low of 3,666, one can only describe Friday's action as a crash - which is what we did - especially in the bond world where things are starting to break, as Michael Hartnett explained in "The Bond Crash of 2022"
But even just looking at equities, it was a full-blown capitulation: as Goldman's flow trader John Flood observed, the last day of trading saw continued Long Only (L/O) derisking in broken names (Goldman's asset manager sell skew peaked at 21% Friday which was 91st $-ile vs 52 week look back), at the same time as Goldman saw meaningful supply in growth complex.
Away from L/Os, hedge funds added to macro shorts (this dynamic keeping grosses higher than expected in this tape). And while stocks remain in a buyback blackout until the start of earnings season in roughly 3 weeks time, month-end pension rebalance sees a modest $7bn for sale, while CTAs are now at -100% net shorts, and are mostly done shorting here (Goldman calculates some -$1BN a day for the next week but doesn't get much bigger even if the market breaks lower). Still, the lack of major forced selling is hardly sufficient to bring buyers back into the market, especially ahead of another low-liquidity week where ascendant bears will again set the market tone - as a reminder, with Rosh Hashanah on Monday and Tuesday, attendance will be light and liquidity will be tough to come by.
However, what was perhaps the most notable market feature of Friday's (orderly) selloff is the record surge in hedging: while call buying has collapsed, Friday saw the highest put option volume in historyat just shy of 34 million contracts.
Of course, the last time put buying soared to a fresh high, was June 13 which also marked the market's lows for the year.
That's why as Goldman's Flood writes, "we are now officially primed for a nasty move higher at some point next week that will promptly be re-shorted."
Still, absent a dovish pivot by the Fed - which will come the moment the BLS admits it missed some 10 million unemployed workers in a gross, pre-midterm election "oversight" - the broader market trend into year-end still points lower as neither depressed sentiment not positioning alone can push market higher for a sustained period of time (although they certainly can for a several day stretch).
Meanwhile, as we noted extensively on Friday, the move higher in yields - both int he US and across the pond - is starting to get some real attention as the "market is sniffing out that these European Governments are between a rock and a hard place: adding fiscal support to safeguard from higher energy prices is making inflation problem worse and leading CB's to be more aggressive."
And while the VIX will likely stay below 30 next week, especially if those who just bought puts in record amounts are forced to monetize (i.e., sell) should we avoid another trapdoor move lower, and we get another poweful delta meltup, the real volatility these days is in the "bond VIX", the MOVE, which is about to take out its March 16, 2020 covid all time highs, even as stock VIX simply refuses to move above 30 in any sustained move.
Still, an eventual convergence between these two series is the only option - unless the market is terminally broken - and either VIX will explode to the 60-80 zone in the coming days, or else yields will have to tumble down on either recession fears or a hint by central banks that QE is coming back even as rate hikes persist for a few more months, until the entire global economy tumbles into a very steep and very disinflationary recession.
UAE agrees LNG deal with Germany as Berlin looks to replace Russian gas
Chancellor Olaf Scholz visits Gulf states in drive to secure energy imports
The United Arab Emirates has agreed a deal to supply liquefied natural gas to Germany as chancellor Olaf Scholz visited the Gulf state as part of a regional tour seeking to drum up alternatives to Russian energy.
Abu Dhabi National Oil Company will supply Germany utility RWE with 137,000 cubic metres of LNG later this year, which will be the first delivery to the under-construction import terminal on the north-west coast at Brunsbüttel, RWE and the UAE state media said.
Adnoc was expected to reserve another five LNG cargoes for German customers in 2023, a person briefed on the matter said on Sunday.
Germany has been seeking to secure energy imports from sources outside Russia since the invasion of Ukraine began in February. The oil-rich UAE, while a relatively modest gas exporter, has plans to double its LNG production to 12mn tonnes a year by 2026.
“We need to make sure that the production of LNG in the world is advanced to the point where the high demand that exists can be met without having to resort to the production capacity that exists in Russia,” Scholz said before the deal was announced, according to Reuters.
RWE said the deal marked “an important milestone” in creating LNG supply infrastructure.
But the amount of LNG so far secured by Scholz during his visit to the Gulf — starting with just one tanker in December — is tiny compared with the quantities Germany needs in order to replace the natural gas Russia has stopped supplying. Before Moscow’s invasion of Ukraine, Russian natural gas accounted for more than half of Germany’s total supplies.
Scholz, who met the Saudi crown prince, Mohammed bin Salman, in Jeddah on Saturday, headed to Qatar on Sunday for meetings that could yet unlock larger gas supplies for Europe’s largest economy.
Qatar, the world’s largest exporter of LNG, has already signed a provisional LNG supply agreement with Germany, but talks over the contracts have run into difficulties over issues such as pricing and the length of contracts.
In Doha, the German chancellor met Qatari Emir Sheikh Tamim bin Hamad Al Thani, and said he wanted to “achieve further progress” in LNG deliveries to Germany, Reuters reported.
The bilateral deal with the UAE, signed with UAE president Mohammed bin Zayed al-Nahyan, also covered other energy agreements, including a deal with Germany’s Steag and Aurubis for the supply of low-carbon ammonia to fuel hydrogen, with the aim of decarbonising industrial sectors. The first cargo arrived in Hamburg this month.
Masdar, the UAE’s renewables vehicle, will explore offshore wind projects in the North Sea and the Baltic Sea off the German coast in an effort to generate 10GW of renewable energy output by 2030.
Adnoc also delivered its first diesel delivery to Germany this month as part of an agreement to supply 250,000 tons of diesel a month next year to a German company.
“This landmark new agreement reinforces the rapidly growing energy partnership between the UAE and Germany,” said Sultan Al Jaber, chief executive of Adnoc.
The deal comes after some difficult years in the bilateral relationship since Germany halted arms exports to the UAE’s regional ally Saudi Arabia in the wake of the murder of Saudi journalist Jamal Khashoggi.
The UAE’s involvement in the war in Yemen also exacerbated tensions with Berlin, where many have criticised moves to overlook human rights issues for the sake of facilitating energy supplies.
In a statement on Sunday, Robert Habeck, the German economy and climate minister, said companies and citizens urgently needed help to “survive the crisis caused by the Russian war of aggression”.
“Gas prices must be reduced, the costs for the economy and households must be limited,” he said. “Overall, in this complex crisis, these are hard times.”
The Week’s 10 Biggest Funding Rounds: Pie Insurance Gets Large Slice, Therabody Massages Huge Round
Big funding rounds again seemed to slow down this week, as only one U.S.-based startup saw a round of more than a quarter-billion dollars. The week also highlighted the diverse interests of investors, as large rounds went to companies in sectors ranging from insurtech to cybersecurity to health care—with no real strong central investment theme emerging.
1. Pie Insurance, $315M, insurtech: Funding numbers for VC-backed startups in insurtech are not what they were last year, but Pie Insurance tried to help change that this week. The Denver-based workers’ compensation insurance platform for small businesses locked up a $315 million Series D led by Centerbridge Partners and Allianz X. The round more than doubled Pie’s total capital raised to over $615 million since being founded in 2017, according to the company. The round is the second largest in the insurtech space this year—behind only Berlin-based wefox’s $400 million raise in July—per Crunchbase. Nevertheless, funding numbers are still down in the space, according to Crunchbase numbers. Last year, startups in the space saw more than $8 billion in investment, but this year similar startups have realized less than $3.5 billion roll into the sector.
2. Therabody, $165M, health care: Taking care of oneself has certainly hit new heights in recent years, and the use of technology in that endeavor also has increased. Los Angeles-based wellness tech startup Therabody nailed down a $165 million growth equity round led by private equity firm North Castle Partners. The company is best known for its massage guns, which it claims can help with physical performance, pain, stress and sleep. Therabody announced the funding in connection with the launch of eight new products. The new raise and product launch comes as the company is seeing significant growth—increasing its revenue by more than 13x between 2018 and 2021. Previously, the company announced a capital raise of an unspecified amount in February 2021.
3. Opto Investments, $145M, financial services: The private markets have become a popular area as more investors are looking for access to alternative assets. However, that access is often limited, with private markets making up only about a 10th of the investment market compared to the public markets. That is where New York-based Opto Investments comes in. The startup has created a platform that offers private-market access for independent investment advisers. The company came out of stealth this week and announced it has closed a $145 million Series A led by Tiger Global. Opto has already partnered with more than 80 registered investment advisers and will use the new money to grow that number.
4. Rivus Pharmaceuticals, $132M, biotech: Earlier this year, Charlottesville, Virginia-based Rivus Pharmaceuticals announced it saw positive results in clinical trials for a drug candidate to address cardio-metabolic disease and obesity. Not surprisingly, that news seemed to have brought the investors, as the pharmaceutical startup raised a $132 million Series B led by RA Capital Management, with participation from others like Bain Capital Life Sciences and BB Biotech AG. The new cash will be used to further push its drug candidate, HU6, through clinical trials. Research has so far shown the drug to be able to aid in weight loss while conserving muscle—unusual for such a drug. Founded in 2019, the company has now raised $167 million, per Crunchbase.
5. Malwarebytes, $100M, cybersecurity: It’s been an eventful 30 days for Santa Clara, California-based Malwarebytes. The cybersecurity firm cut 14% of its workforce last month—about 125 employees—and this week received a $100 million investment from private equity firm Vector Capital. Not many specifics were released about the investment deal, but it seems logical to assume Malwarebytes can use the cash infusion. Founded in 2008, the company has received $180 million in funding, according to Crunchabse.
6. Swiftly, $100M, retail: Swiftly is an appropriate name for a startup that has now raised $200 million in six months. The Seattle-based retail technology platform locked up a $100 million Series B in March, and then this week closed a $100 million Series C led by BRV Capital Management at a valuation of more than $1 billion. The startup offers a retail tech platform for brick-and-mortar retailers to compete in the growing online marketplace. Founded in 2018, the company has now raised more than $210 million, according to the company.
7. Kate Farms, $75M, organic food: Santa Barbara, California-based plant-based shake- and formula-maker Kate Farms raised a $75 million Series C led by Novo Holdings. Founded in 2010, the company has raised $188 million in total funding, according to Crunchbase.
8. SpinLaunch, $71M, aerospace: Long Beach, California-based space tech firm SpinLaunch closed a $71 million Series B led by ATW Partners. Founded in 2014, SpinLaunch has raised a total of $150 million, per the company
9. Deep Instinct, $62.5M, cybersecurity: New York-based cybersecurity startup Deep Instinct received $62.5 million in a new financing led by funds and accounts managed by BlackRock. Founded in 2015, the company has raised more than $320 million, according to Crunchbase.
10. AccessFintech, $60M, fintech: AccessFintech closed a $60 million Series C funding round led by WestCap. The company, which offers risk management services, has headquarters in New York, as well as Israel and the U.K. AccessFintech says it has raised $97 million since 2018.
Big global deals
Despite some big rounds by U.S.-based startups, the largest round of the week went to an India-based startup.
- New Delhi-based Hero Future Energies, an independent power producer, closed a private equity round worth approximately $442 million.
Gucci, Burberry Join Booming Secondhand Luxury Trade
But some high-end fashion giants are shunning the used goods market, splitting the industry
LONDON—The booming market for secondhand luxury goods is creating a dilemma for makers of high-end handbags, fashion and jewelry: Join the trend, or ignore it.
Secondhand luxury isn’t new, but its popularity is surging. Steep price hikes by prestigious brands like Chanel SA are driving some luxury buyers to look for less expensive used items. Others are seizing on secondhand goods’ sustainability bona fides: A used pair of designer jeans doesn’t cost any more of the planet’s resources to make.
Used luxury sales were up 65% last year relative to 2017, compared with a 12% rise in new luxury sales, according to Bain & Co. It forecasts that over the next five years, secondhand luxury sales will increase annually at around 15%, double the expected rate of new sales.
For big luxury brands, the trend threatens to cannibalize sales of new products or weigh on pricing power, executives say. Luxury-industry standard bearers like Hermès RMS -3.02% International, LVMH Moët Hennessy Louis Vuitton SE and Chanel have said they aren’t interested in reselling their wares.
But it is also an opportunity. Gucci maker Kering, Burberry Group BRBY -4.60% PLC and Stella McCartney have started participating in the secondhand market. In some cases, they have offered to buy back new items from customers and resell the goods themselves, or route them to other online secondhand fashion sites, which often give the brands a cut of any sales.
Rachelle Kebaili, from Port Tobacco, Md., a 48-year-old who owns and operates an e-commerce book business, said she recently found a vintage Gucci handbag for around $250 on resale site Vestiaire Collective SA. New Gucci bags typically cost around $2,000.
“I like to have things that other people don’t have, something unique,” she said. “And who doesn’t want a good deal?”
Tech platforms such as The RealReal Inc. REAL -2.76% and Vestiaire have emerged in recent years as popular online marketplaces for used luxury products. Kering joined with Real Real in 2020 to start selling used Gucci products online, and last year took a roughly 5% stake in Vestiaire.
Other industry heavyweights are pushing back. Promoting secondhand sales threatens the high-margin, firsthand sales on which a large part of the industry depends, some industry executives say.
“This is not something that is encouraged by Hermès,” said Axel Dumas, chief executive of the Birkin handbag maker, when asked about the rise of secondhand luxury on a July earnings call. A sideline in preowned products would be “to the detriment of our normal customers that come to the stores,” he said.
Chanel said earlier this year that it may limit the number of products individual customers can buy in specific markets. It cited the growing practice of individuals buying items in bulk and reselling them. In a few cases, items such as the most desirable Chanel and Hermès bags can cost more secondhand than they do in the boutique because of high demand and lack of supply.
More often, luxury goods can be resold for around three quarters of their original price, provided they are relatively new and in mint condition, according to industry executives. Prices for used vintage ware can vary widely depending on the item in question. Vintage is a subset of secondhand fashion that includes items that are typically older and rarer.
Most secondhand trades involve individuals using an online resale platform serving as the middleman. They take place without the involvement of luxury goods makers. But companies are testing ways to get a slice of those sales.
Kering’s British label Alexander McQueen, for instance, offers to buy back its products directly from customers and then resells them on Vestiaire with a “brand approved” sticker. The label demonstrates the brand’s participation in verifying the item as genuine.
Burberry and Stella McCartney have similar deals with RealReal.
Some brands are reluctant to work with tech platforms, which charge a commission on each sale, because they want to keep control over their products and don’t want to share revenues, said Max Bittner, Vestiaire’s chief executive.
“They would like to build this themselves, but we really don’t think they can,” he said.
Preowned luxury is growing in popularity, especially among young consumers, partly because in many cases it offers a chance to buy products that cost less than firsthand equivalents and have less impact on the environment, said Mr. Bittner. That contrasts with many other product categories where consumers are expected to pay a premium for going green, he said.
Soaring prices for new luxury goods also are driving secondhand sales. Some consumers buy luxury goods with the intention of using them for a time, then selling them again to recoup most of the cost, said Rati Sahi Levesque, RealReal’s recently appointed co-chief executive.
“People are saying, ‘I can buy this item, and I may be able to earn 70-80% of it back when I’m done with it,’” said Ms. Levesque.
Demand for preowned luxury has been growing strongly among affluent European women who previously only bought new, said Italian fashion consultant Cecilia De Fano.
“The prices in the boutiques are insane now,” she said.
Helping clients to buy and sell vintage products for a 10% commission, Ms. De Fano sources pieces through her network of private individual clients and boutiques as well as online, chiefly on Vestiaire, she said. Farfetch Inc., FTCH -4.46% which is best known as an online marketplace for new luxury products but also operates a preowned channel, is another useful source, she said.
She says it is easier to find good-quality second hand items because the market has grown so much. But great deals are harder to find because buyers and sellers have grown savvier as the market expands.
For Sale: The Phoenix Suns and Mercury — and the NBA’s dignity
Phoenix Suns’ Chris Paul: rising from the ashes © Paul Sancya/AP
The National Basketball Association‘s Phoenix Suns and the WNBA‘s Phoenix Mercury are for sale, but the transactions may carry as much reputational damage for the NBA as they are likely to be empire-building chips for a lucky billionaire.
On Wednesday, the teams’ current owner Robert Sarver said he would put both clubs up for sale, just a week after Sarver was handed a one-year suspension and $10mn fine for using racist language and demeaning female employees in the front office, including saying the N-word at least five times and denying professional opportunities to a pregnant staffer.
Sarver’s behaviour was documented in a 36-page independent investigation commissioned by the league, confirming an earlier report by ESPN, incorporating interviews with hundreds of current and former employees during the real estate developer’s 18-year ownership period. Almost immediately after the NBA levied its sanctions, star players including LeBron James and Suns point guard Chris Paul blasted the punishment as too lenient, and sponsor PayPal threatened to end its relationship with the club.
Sarver buckled under the pressure, writing in a statement that he’d hoped a year’s suspension would give him enough time to make amends, “but in our current unforgiving climate, it has become painfully clear that is no longer possible”.
The looming sales now create an awkward dynamic for the rarefied club of NBA owners: just a week ago, commissioner Adam Silver went to great pains to defend their weak punishment, and now all stakeholders — including Sarver — stand to benefit if the Suns and Mercury sell in the region of $2bn, based on a current valuation, and well above the $401mn Sarver paid for them in 2004.
Front offices and boutique investment firms have speculated for months that the Suns may come up for sale, given the public disclosure that the league was investigating Sarver’s conduct. Scooping up 1/30th of the NBA, particularly before the league negotiates its next media rights contract (its current deals with ESPN and TNT expire after the 2024-25 season), is a rare investment. As of press time, definitive bidders for the Suns have yet to come forward, though former Disney chief executive Bob Iger has been rumoured to have an interest. A spokeswoman for him declined to comment.
The Suns were most recently valued at $1.8bn by Forbes, slightly higher than the 2020 sale of the Utah Jazz for just over $1.6bn. It remains unclear if both the Suns and the Mercury — the WNBA home of Brittney Griner — would sell as a package or as individual entities.
For interested parties, the teams are an asset worth evaluating. For Sarver and Silver, their sale will still somehow yield benefits despite misdeeds and missteps.