Observations & Insight
The Spread: Far From Business As Usual
This week on The Spread – Eurex adds new options on an MSCI index, Craig Donohue is re-elected chairman of the OCC’s board of directors, phishing scammers use fake COVID-19 alerts, and more.
Produced by Mike Forrester.
Banks Poised to Open Earnings Season With Surge in Volatility
Gregory Calderone – Bloomberg
Options investors are betting the big banks reporting this week will see much wider earnings-linked swings in their share prices than usual after historical volatility jumped to the highest levels since the global financial crisis.
Bank stocks have plunged about 35% so far in 2020, almost entirely erasing last year’s 36% gain, which was their best annual performance in two decades. Options set to expire Friday show investors leaning generally bullish ahead of the reports. Of the six major financial institutions reporting this week, Morgan Stanley is the only one with puts outnumbering calls.
Peak6 Says Trading Floor Closures Hurt S&P Product Liquidity
Joanna Ossinger – Bloomberg
The closure of U.S. trading floors has taken some liquidity out of the options market, according to Peak6 Investments LLC.
It has become more difficult to trade options on certain S&P 500 products, said Neel Shah, a senior trader at the options trading firm. Some of the volume has migrated to the all-electronic SPDR S&P 500 ETF Trust.
Here’s proof about whether short sellers are making this bear market more painful
Mark Hulbert – MarketWatch
Short sellers are being accused of making this bear market worse, but are they? It’s human nature to find bad guys to blame, and short sellers are easy targets. What could be more objectionable than traders who bet that stock prices will go down even more?
I differ with this argument. There is no evidence that restricting short sales prevents the market from going down. At the same time, there is plenty of evidence that such restrictions impose many other costs on all investors.
Trump Says OPEC+ Planning To Cut Production 20 Mn Bpd
Top global oil producers are considering cutting production by 20 million barrels per day under the terms of a deal to boost prices, US President Donald Trump said on Monday.
Trump, who took credit for brokering the deal, said the agreement was bigger than expected and will help the energy industry recover from the impact of the coronavirus pandemic.
A hedge fund betting on turbulence raked in a 400% return last quarter as coronavirus sent markets spinning, report says
Ben Winck – Markets Insider
A hedge fund that doubled down on bets for a volatility spike posted outsized gains when the coronavirus intensified, according to a report from The Wall Street Journal.
California firm LongTail Alpha saw its OneTail Hedgehog Fund II post a 156% return in March alone, bringing its first-quarter return to 400%, the Journal reported Thursday, citing letters sent to the fund’s clients. Its TwoTail Alpha Fund inked a 65% gain through March.
Exchanges and Clearing
The Ghost Of 2018 Returns To Haunt CBOE Once Again
In 2018, extreme volatility resulted in material harm to CBOE’s VIX transaction business, which contributed to the stock underperforming the market that year.
The 2020 coronavirus crisis and economic fallout has resulted in extreme volatility in the markets, and the VIX complex looks to be materially impacted once again.
CBOE is diversifying towards Europe & market data, but will the market buy it?
Binance Officially Launches Bitcoin Options Trading on Mobile App
Marie Huillet – CoinTelegraph
Top cryptocurrency exchange Binance has officially launched Bitcoin (BTC) options on its futures trading platform.
Confirming hints earlier this month, the rollout was announced this morning, April 13. It is, for now, limited to the exchange’s mobile app.
Funds sell CBOT futures but keep bullish soy, wheat bets
Karen Braun – Reuters
Speculators’ views toward Chicago-traded grains and oilseeds remain relatively mixed amid historic uncertainties in agricultural supply chains due to the virus, and those impacts have pushed futures prices to extreme levels. Most-active CBOT corn and soybean oil futures are at 14-year lows for the time of year, soybeans are at 13-year lows and soybean meal is at four-year lows. But CBOT wheat is trading at the highest April levels in six years, though open interest has fallen dramatically in recent weeks.
Earnings Season During Coronavirus Pandemic: A Daredevil’s Guide
Matthew Townsend and Tara Patel – Bloomberg
Four times a year, investors assess the performance of companies worldwide with a fairly standard toolkit: revenue growth, net income, gross margin, free cash flow, debt — all weighed in comparison to analysts’ predictions and what rivals report.
This earnings season, with the coronavirus pandemic claiming lives and sowing chaos across the globe, those yardsticks are mostly meaningless, leaving the investment community lost in a fog at a time market volatility has hit historic levels.
Coronavirus: is investment management the weak link?
Robin Wigglesworth – Financial Times
Even at the depths of the 2008 financial crisis, Cirque du Soleil’s acrobats kept twirling. While other companies tightened their belts or went under, the Canadian circus expanded its roster of flamboyant shows. But the coronavirus crisis proved a vault too far.
Last month, Cirque du Soleil was forced to cancel all shows and lay off 95 per cent of its employees. Two weeks ago, it missed a payment on its $900m of debts — sourced from the riskier leveraged loan market — and became the latest corporate victim of the virus. “The situation has been sudden and has put a very difficult strain on the company that we are actively working to manage,” Cirque du Soleil said.
Will the coronavirus trigger a corporate debt crisis?
Andrew Edgecliffe-Johnson, Peggy Hollinger, Joe Rennison and Robert Smith – Financial Times
Since 1925, the Grand Ole Opry has featured the music of countless country and bluegrass stars, from Bill Monroe to Dolly Parton.
As Ryman Hospitality Properties built a hospitality and entertainment empire around the original Nashville radio show, the parent company’s debt grew to over $2.5bn, but its chairman insisted that its balance sheet was “really strong”.