Mutual funds dialled up bullish bets with stock options in Q1

Counterparty Radar: Market contracted by $3.9 billion as US managers decreased sold calls

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US mutual funds reduced sold stock calls in the first quarter of the year, softening the defensive positioning built during the final months of 2021, while adding more to bullish bets.

The market for single-stock options contracted $3.9 billion to roughly $34 billion in Q1 2022, with the primary driver being a $4.7 billion decrease in sold calls. Managers also cut $387 million of bought puts, boosted bought calls by $602 million and added $564 million in sold puts, according to data from US Securities and Exchange Commission filings.

T Rowe Price fronted the cuts to sold calls, sawing $2.9 billion off its books, which are virtually comprised only of those options, with $3.8 billion in remaining positions. This is the second consecutive quarter that the firm has reduced its volume, dropping from second to third place in the manager rankings.

Franklin Templeton made the second-largest decrease to sold calls – $947 million in total – but also changed its portfolio tilt by adding $348 million sold puts, growing their share from 24% to 35% of its book.

In a similar strategy change, Calamos added $875 million of bought calls, growing their share from 22% to 75% of the total. The manager also cut $516 million in bought puts and $165 million in sold calls, leaving them with a 9% share each.

The two managers showed up in the largest trades of the first quarter, Franklin Templeton having two sold puts and Calamos two bought calls – in line with their larger portfolio shifts. The trades underscore the larger increase in bullish bets, with only one sold call present, compared to five sold calls in the fourth quarter of 2021.

Amid the contracting market, Oakmark funds took credit for the largest increase – $613 million – joining the ranking at seventh spot, up from twentieth in Q4 2021. The manager bucked the general trend by adding $230 million in sold calls. However, it also created a $310 million sold puts position, taking up 39% of its book, in line with other market participants.

Cuts to sold calls drove the contractions in the top five stocks of the quarter, with T Rowe Price reducing positions on all five stocks. With each stock the manager was responsible for at least 60% of the sold calls volume decrease.

 

About this data 

The information used in this analysis comes from Nport-P filings to the US Securities and Exchange Commission. This is a relatively new form, introduced at the end of 2019, which requires mutual funds and exchange-traded funds to file monthly summaries of their portfolio holdings to the SEC.  

The filings include over-the-counter derivatives trades that were live at the time of the filing, and show details such as bank counterparty names, currencies, trade sizes and remaining maturity.

The forms are filed to the SEC on a monthly basis, and the regulator makes the final filing of each fund’s quarter public 60 days after the end of that period. The filings are in a structured XML form, making it possible to download and parse the data for trends.  

It’s important to caveat the information. While these are pro forma regulatory filings to the SEC and should be accurate, mistakes and miscategorisations do occur. The data was cleaned and obvious errors excluded. 

Notionals for equity options are not included in the filings, so have been calculated independently by Counterparty Radar. This involved multiplying the reported number of contracts by the number of shares per contract, and then multiplying this figure by the strike price.

The resulting strike-adjusted notional may differ from funds’ annual or semi-annual reports, which often use the spot price at time of filing instead of the strike. We chose to use the strike price to allow for quarter-to-quarter comparability – otherwise notional amounts might change solely due to changes in spot prices. The methodology is based on feedback from market participants, but if you have any comments please contact us, using the details below.

As the database is updated and improved periodically, data presented may not mirror information published in previous stories. Each story reflects the most accurate representation of data at the time of publication. 

Information from these filings is the basis for the new Risk.net service, Counterparty Radar, which allows users to search the filings information themselves to discover the most popular dealers and most active managers for a range of OTC derivatives. We will track these stats every quarter, so please get in touch if something doesn’t look right, or to suggest other ways to present the data: [e-mail]