Big VIX Options Trade Braces for a 2008-Like Volatility Surge; Pound Traders Struggle to Unpick Headlines and Hypotheticals

Oct 28, 2019

Lead Stories

Big VIX Options Trade Braces for a 2008-Like Volatility Surge
Gregory Calderone – Bloomberg
Someone is betting big that the U.S. stock market is on track for the kind of turbulence not seen since the global financial crisis. Trading in call options on the Cboe Volatility Index, known as the VIX, outweighed puts by more than 2-to-1 on Friday with the index at its lowest level since July as stocks rallied. The standout trade was one block of 50,000 April $65 calls that were bought for 10 cents. Those contracts would imply a surge in the VIX of almost 500% from its current level.

Pound Traders Struggle to Unpick Headlines and Hypotheticals
Anooja Debnath – Bloomberg
A formal request to delay Brexit has all but removed the risk of a sterling crash triggered by a no-deal scenario in the coming week. Instead, it’s left the pound in limbo and exposed to a tangle of political quarrels on both sides of the English Channel. Where it goes from here depends in part on how long the European Union grants the U.K. beyond the mooted departure date of Oct. 31. Clarity on that may come by Tuesday. But it also depends on what happens in the interim — and a vote Monday on whether to have an election this year plays into that.

*****MR: For updates on this, check out FT’s live updates page. You can also read about the vote from today HERE

Volatility-Starved Yen Traders Feel Chills as Winter Comes Early
David Finnerty – Bloomberg
Traders searching for potential triggers for a pickup in dollar-yen volatility may have to wait until next year. The currency pair’s implied volatility has been slipping across the curve amid growing optimism about a partial U.S.-China trade accord. With odds of a no-deal Brexit evaporating, a gauge of the dollar-yen’s expected swings over three months has hit its lowest level since July and looks set for a new 2019-low.

Risk-Shy Investors Aren’t Hoarding as Much Cash as You Might Think
Akane Otani – WSJ
Investors seeking a refuge from market volatility have yanked billions of dollars out of stock funds this year while shifting money into bond and cash funds.
That hasn’t affected overall portfolio allocations as much as you might think.

China’s treasury futures activity gauge points to divided policy outlook
A gauge of activity in China’s financial futures market hit an all-time high this week as investors placed bets on the prospects for imminent policy easing to arrest a slowdown in the world’s second-largest economy.
Signalling disagreement over policy direction, some market players warn that it could foreshadow a surge in market volatility if investors close their positions in a hurry.

How Bakkt Bitcoin options could change the crypto market
Rakesh Sharma – Decrypt
The landscape for cryptocurrency investing expanded last week after Bakkt, the Bitcoin futures exchange backed by the owners of the New York Stock Exchange, announced that it would launch Bitcoin options on its platform on December 9. While such options are already available at unregulated exchanges like Netherlands-based Deribit outside the United States, the introduction of such products in the world’s biggest financial center is expected to pump up volumes and liquidity in crypto markets.

Exchanges and Clearing

CME Group Response to Allegations at LaSalle Street Protest
CME Group (PR Newswire)
CME Group is appalled by the allegations that an individual at the Board of Trade building spit on Chicago Teachers Union (CTU) members who were protesting on LaSalle Street yesterday. While our company no longer owns the 141 W. Jackson Boulevard facility and is headquartered on Wacker Drive, we are aware the landmark building still bears the name of one of our exchanges. As such, we want to assure all CTU members and the Chicago community that we do not in any way condone this behavior. We have spoken to the new building owners and understand that precautions are being taken to prevent this type of activity from occurring again.

New opportunities: option volatility strategies for Single Stock Equity Options
Eurex (press release)
As a further step to facilitate the off-book price formation process on our RfQ platform Eurex EnLight, Eurex Exchange is enabling option volatility strategies (OVS) for Single Stock Equity Options as of November 2019. We spoke with Philipp Schultze, Head of Equity & Index Sales EMEA at Eurex, about the benefits of the new offering and what market segment is going to be targeted with this new service.

Regulation & Enforcement

Proposal to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility. A proposal to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility

FINRA Publishes 2019 Report on Examination Findings and Observations
Trader’s Magazine (press release)
FINRA published its 2019 Report on FINRA Examination Findings and Observations. The report reflects key findings and observations identified in recent examinations, and contains effective practices that could help firms improve their compliance and risk management programs. It summarizes findings and observations across a range of topics, including supervision, cybersecurity, best execution, segregation of client assets, and Uniform Transfers to Minors Act (UTMA) and Uniform Grants to Minors Act (UGMA) accounts.

*****MR: You can read the full report HERE


Enhancing Traditional Approaches to Manage Cyber Security Risks
Mark Morrison – TABB Forum
Mark Morrison, OCC’s Chief Security Officer, talks about the cyber security challenges associated with implementing new and emerging technologies such as Blockchain, Distributed Ledger, Artificial Intelligence, Machine Learning, and Public Cloud in the financial sector.


The Easy VIX: It’s Complex; That’s Why It Gets Big Returns, Low Risk
Michael Gettings – Seeking Alpha
If you’ve never read Nasim Taleb’s “The Black Swan” or “Fooled by Randomness” I would highly recommend them. Options theory, volatility and risk assessments, etc. all require lots of mathematics, and once you’re done with the math you still don’t know if the theory will work in the real world because the real world can be very messy. Wikipedia describes Taleb as a practitioner of mathematical finance, a hedge fund manager, and a derivatives trader, but his most impressive skill was bringing an understanding of practical realities to the realm of quantitative finance – of how some things are unquantifiable and how statistics can distort perceptions.


The Business Case for More Diversity
Dieter Holger – The Wall Street Journal
Diverse and inclusive cultures are providing companies with a competitive edge over their peers. So concluded The Wall Street Journal’s research analysts in their first ranking of corporate sectors, as well as the individual companies in the S&P 500 index, based on how diverse and inclusive they are.

The $4 Trillion ETF Industry Is Creating More ‘Roadkill’
Michael Wursthorn – WSJ
Exchange-traded funds have swelled into a $4 trillion juggernaut over the past quarter of a century, but many asset managers say the industry is entering a new phase of competition and oversaturation that threatens to squeeze out smaller funds.

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