Jeff Micsky is Head of Global Derivatives, JonesTrading Institutional Services.
What were the key theme(s) for your business in 2022?
In the equity options space it was helping clients structure positions via options to maximize returns for given levels of risk. Options were crucial to effectively navigate the volatility experienced in 2022 as they allow for risk mitigation not available when trading equities. We had great demand from our clients to structure option trades that helped limit risk while also leveraging returns depending on their views of a particular stock or the overall market. This trend helped us to record year in our options business.
What was the highlight of 2022?
Our highlight was becoming more integrated with our client’s position and risk management process. Clients were looking for capable hands to help monitor and manage existing option positions on post trade basis given the spike in volatility. Position sizes were changing at exponential rates, given the swings in security prices, and our team was diligent in monitoring these changes for our clients so they can determine how to best reposition or adjust their exposures given their views and investing criteria.
What are your expectations for 2023?
Many funds have cut gross and net exposure given the selloff and expected recession. These funds are at risk of underperforming the broader equity benchmarks if the unlikely scenario of a sharp rally should occur. To combat this, spending some premium buying ETF upside calls is worth considering. Traditionally most funds hedged downside risk via buying puts when they were more heavily invested. I expect in 2023 that under invested funds may think about hedging upside beta underperformance risk via buying calls.
What trends are getting underway that people may not know about but will be important?
JonesTrading feels the nature of volatility spikes in the markets are changing. Traditionally markets tended to grind higher and gap lower. Most large moves were to the downside vs the upside. Lately that dynamic has flipped where we’ve seen massive spikes to the upside when there is any hint of a datapoint allowing the Fed to pause. Those have been followed by more methodical grinds lower. We believe that this is in part due to positioning given how much long exposures have been reduced. Option skew feels like it’s been reversing and is going to be a trend to watch in 2023.
