| Global coronavirus cases top 100 million. Ant gets a glimmer of hope for its IPO. Asian investment bankers see big bonus bumps. Global coronavirus cases surpassed 100 million, according to data compiled by Johns Hopkins University, marking another grim milestone in the pandemic. Meanwhile the U.K. became the first nation in Europe with 100,000 deaths, while New Zealand said it would likely keep its borders closed to the world through most of 2021. In the U.S. the Biden administration is reviewing whether more nations need to be added to a list of countries facing travel restrictions, while European Union governments plan to remove Japan from their list of countries whose residents should be allowed to visit the bloc. Hong Kong implemented a second sudden neighborhood lockdown in part of the densely-populated Kowloon area, as the city deploys targeted mandatory testing to try and end a persistent fourth surge of coronavirus cases. Asian stocks looked set to recover from their biggest slide in two months as investors mulled a slew of earnings reports amid worries over virus variants and hurdles to stimulus. A gauge of U.S. tech stocks rose after the market closed. Futures pointed higher in Japan and Hong Kong, while they slipped in Australia which reopens after a holiday. Nasdaq 100 contracts jumped after hours following a strong earnings report from Microsoft. U.S. stocks ended an up-and-down session slightly lower. Small-caps were among the worst performers as traders turned away from bets on an end to Covid lockdowns. Treasury yields were little changed. The dollar weakened. Oil edged lower and gold retreated. Morgan Stanley and Goldman Sachs investment bankers are getting the biggest bonus bumps among peers in Asia after revenue from the region climbed by about a third on increased deal flows. The total compensation for Morgan Stanley's investment bankers in Asia was boosted by about 20%, while at Goldman Sachs it will rise around 15%, people familiar with the matter said, asking not to be identified because bonus decisions aren't made public. Wall Street firms generated record investment banking revenue in the region as fiscal and monetary stimulus in the wake of the pandemic helped stoke stock and bond sales and trading. Ant Group could resume its plans for an initial public offering once problems are resolved, China's central bank chief said, offering some relief to global investors seeking signs on what the future holds for the world's largest fintech giant. People's Bank of China Governor Yi Gang said relevant agencies are still investigating issues related to monopolies at billionaire Jack Ma's Ant Group, adding that the matters were "complicated" and some risks were related to consumer privacy. To resolve the problems, regulators need a clear legal framework, Yi said on a panel at the World Economic Forum on Tuesday. Solar energy is back in favor with hedge funds. The sector was among the best investments in 2020 for Asia-based managers including LyGH Capital, Pinpoint Asset Management, Sylebra Capital and Zaaba Capital, helping them to beat global funds' 9.5% average returns. Investors have been piling in as solar becomes competitive and countries including China pledge to do more to curb climate change. They are betting the notoriously cyclical industry has moved past an over-reliance on government handouts that saw overstretched former market leaders such as Suntech Power and Yingli Green Energy go belly up. What We've Been ReadingThis is what's caught our eye over the past 24 hours: And finally, here's what Tracy's interested in todayWelcome back to the thing I am interested in today, usually a one-paragraph corner of a newsletter that is this week in danger of turning into an iterative essay on Reddit's Wall Street Bets. After writing yesterday about how r/wallstreetbets and its merry band of Robinhooders are moving markets, I had a few people point out that this couldn't possibly be the case because 1) this has all happened before, most notably during the tech bubble, and 2) retail investors couldn't be trading sizeably enough to impact the position of stocks. In other words, puny sardines with YOLO money can't have much of an impact on share prices when compared to the whales of Wall Street. These people are wrong, and here's why: options. After new and no-commission platforms began offering options trading to retail investors, total volumes hit a record 7.47 billion of contracts in 2020, 45% higher than in 2018. Much of that could be coming from big institutional investors, but a peek under the hood shows the biggest increase is coming in smaller lots of options — those typically bought by retail investors — rather than larger ones (a chart I included in this same space last week shows the dynamic pretty clearly). So what, you might, say. This pool of smaller retail options could never be enough to actually move the underlying stock. Again, wrong. The thing to look at here is not the amount of money that retail investors are spending, but the amount of leverage embedded in that spend. To understand, you'll need to learn a little Greek and you'll need to meet my fictional friend Bob. Bob has a Robinhood account and decided to buy weekly call options on Amazon stock in mid-August of last year. He bought a single $3,250-strike weekly call option contract on August 14 for $1,500. That option happens thanks to a market-maker — let's call her Jenn — sitting at a large dealer-bank. But Jenn isn't taking the other side of Bob's trade, instead she is aiming to, as much as possible, be a neutral facilitator in this transaction. Her job is to make markets, not bet on them, so she wants to hedge her position. She does this by buying Amazon shares, making a calculation based on what's called the delta of her position. The delta is how much the option will change in value based on the price of the underlying stock, and Jenn will use the delta, Amazon's share price and number of contracts sold to figure out how much stock she needs to buy. In this case, she judges that she needs to buy $66,100 worth of Amazon stock to get to neutral. If shares of Amazon go up, she might have to pay out on Bob's option, but at least that will be offset by the gain on her Amazon stock. A few days later Amazon stock does indeed rise, going up 5%, so Jenn needs to rebalance her books in order to keep her position neutral. This time, because the delta of her position has moved higher, she needs to buy even more stock. In fact, she needs to buy $230,000 worth of Amazon shares. Bob's puny $1,500 outlay has been transformed into $230,000 worth of share-buying. This is how a small options trade can lead to much larger flows in the market. I should note that the above example comes courtesy of Benn Eifert at QVR Advisors, who was initially skeptical this dynamic was having much impact on the market but has since changed his mind and explained why on an episode of Odd Lots last year. As he puts it: "Aggressive retail short-term upside call buying flow can propel equities higher — not because of the total size of the retail wallet, but because of the high leverage and strong acceleration effect of high-gamma weekly options." Gamma, incidentally, is another Greek letter that is getting more popular these days. By targeting dealers' exposure in a concerted way, some retail traders are in effect trying to take advantage of a phenomenon known as a "gamma squeeze" — betting that as the value of Amazon stock goes up and gets closer to an option's strike price, dealers will have to buy more and more of the underlying stock. Somewhat amazingly, the saga around GameStop has actually resulted in the phrase "gamma squeeze" ticking up on Google Trends. The other thing showing up is "short squeeze," since the gamma squeeze effect tends to get exacerbated in a short squeeze that forces the underlying share price to go up even further. This is what's different to previous episodes of unfettered retail buying. While people pumped dotcom stocks on internet chatrooms in the late 1990s and early 2000s, they did not (as far as I know) use options to try to force the stock higher. No one was throwing around Greek letters and talking about which specific contracts to buy in order to have the biggest impact. Whatever Wall Street Bets is, it is new. And rather weird. You can follow Tracy Alloway on Twitter at @tracyalloway. | 
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