Observations & Insight
****SC: Cboe Options Exchange resumed pit trading Monday as planned. About half the usual number of traders came back to a reconfigured trading floor designed with social distancing and stringent health and safety protocols, the exchange said, returning the S&P 500 index options and VIX pits to their hybrid format of open outcry and electronic trading. The Cboe floor had been closed since March 16 due to precautions around COVID-19. In a statement, a Cboe Global Markets spokesperson said, “We remain vigilant in monitoring developments around COVID-19 and are continuing to closely monitor trading in this new trading floor environment.”
Bloomberg urges users to get set for negative US rates
Philip Stafford in London and Colby Smith – Financial Times
Data provider Bloomberg has urged users to switch the way they price US dollar interest rate options — in case they are caught out by a move by the Federal Reserve to push rates below zero.
In a note sent out across its terminals on Monday, the company recommended that customers review their computer models for calculating interest rate volatility — a key component in pricing options, which give holders a right to buy or sell an asset on a set date.
Stock Overvaluation Fears Engulf BofA Clients Like Never Before
Ksenia Galouchko – Bloomberg
Investors are sinking their cash in droves into a stock market that looks the most overvalued in decades as one of the most unloved rallies in history rattles the pros on Wall Street.
That’s the conclusion drawn from the latest seven-day Bank of America Corp. survey that ended on June 11 — just as the S&P 500 had its worst drop since the March turmoil. The poll indicated that fund managers slashed their cash positions by the most since August 2009, to 4.7%, in order to use their dry powder to chase the rally. With global equity benchmarks up more than 30% from this year’s lows, hedge funds increased their exposure to stocks to 52%, the highest level since 2018, the survey showed.
Central Banks Have Put a Floor Under European Equity Markets
Michael Msika and Ksenia Galouchko – Bloomberg
Volatility has returned to European equities, but a week of selling doesn’t necessarily mean the market might revisit March lows.
Dire economic data and worries about potential second wave of Covid-19 infections fueled the Stoxx Europe 600 Index’s worst drop since the March turmoil last week. However, unprecedented fiscal and monetary stimulus, coupled with global asset managers’ low position in European shares over the past years, can serve as a cushion against stronger losses.
S.Korea says retail investor surge into stocks may heighten volatility
Cynthia Kim – Reuters
South Korea’s vice finance minister warned on Tuesday that the country’s stock market may see increased volatility after a recent surge in the number of retail investors in stocks.
Crypto Industry Entering New Era as Institutional Traders Get Invested
Kristin Boggiano – CoinTelegraph
Institutional interest in digital assets is growing as major financial players continue to enter the cryptocurrency space. A growing number of indicators suggest that institutional players are continuing to enter the digital asset markets, which have been dominated to date by high-net-worth individuals and actively trading crypto enthusiasts. Case in point: Crypto markets are seeing all-time highs in futures contracts’ open interest at entities such as the Chicago Mercantile Exchange. Widely known as one of the world’s largest financial derivatives exchanges, the CME enables sophisticated traders to trade in asset classes such as agricultural products, energy, metals and crypto futures and options.
Physical Oil Swaps Point to a Market That’s Only Getting Tighter
Alex Longley – Bloomberg
The physical supply of oil in northwest Europe is looking increasingly constrained as barrels from the North Sea get shipped out to Asia and Russia cuts the flow of cargoes dramatically.
Contracts that indicate the strength of Dated Brent, a physical benchmark for North Sea oil used to settle millions of barrels a day of crude transactions, are currently trading in a pattern known as backwardation. The structure, in which oil refineries are prepared to pay premiums to procure immediate barrels, is the most bullish it’s been since March 6. Derivatives linked to Russia’s main export grade are also stronger on the back of a dwindling export program.
Exchanges and Clearing
Cboe Global Markets Reopens Chicago Trading Floor
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, announced it reopened its Cboe Options Exchange trading floor in Chicago on Monday, June 15, 2020, and successfully resumed hybrid trading – which includes open-outcry and electronic trading mechanisms.
NYSE Will Reopen Trading Floor to Some Market Makers Wednesday
Lananh Nguyen – Bloomberg
The New York Stock Exchange said it will allow a limited number of market makers to return to its historic trading floor Wednesday.
A couple dozen designated market makers will be permitted to come back this week, adding to the 25% of participants who returned when the floor partially reopened on May 26. They’ll have to sign waivers and submit to medical screenings and random testing for the coronavirus. Inside the venue, they’ll be required to practice social distancing, wear face masks and deal with market activity via hand-held devices instead of open outcry.
CME Bitcoin Options Market Grew 10x in the Past Month
Zack Voell – CoinDesk
Over a recent 30-day period, the total open interest for CME bitcoin options increased more than tenfold, from $35 million on May 11 to $373 million on June 10. Moreover, open interest made a new all-time high on six consecutive days from June 5-10.
This Could Be the Next Sector to Rally. How to Play It.
Steven M. Sears – Barron’s
There is no rest for the weary, nor relief from the Covid-19 pandemic.
If investors have learned anything during the past few months, it is that Covid-19 is truly fearsome with an ultimate impact that is difficult to forecast. Just when many people hoped the worst was over, a resurgence of infection rates in a handful of states has fanned concerns that quarantines could be reinstituted, and state economies shuttered, to control another potential outbreak.
Inside Volatility Trading: June 16, 2020
Kevin Davitt – Cboe
On a recent Microsoft Teams call with my work teammates, I inquired about everyone’s weekend. The ask was not superficial, because I was curious to know if everyone ventured out as much as I had.
Until most recently when some states began easing their Stay-at-Home orders, it had become increasingly difficult to recall the days of the week by name. At times it felt as if days bled into weeks and months. That can happen when a global pandemic confines you to your house and general vicinity for months, but I digress.
$930M in Bitcoin Options Expire Next Friday — Time to Worry?
Marcel Pechman – CoinTelegraph
Much attention has been paid to the Bitcoin options and futures market and each week crypto media reports on new record open interest figures being achieved. As the date of another futures and options expiry approaches, traders are becoming anxious due to the fact that the Bitcoin (BTC) price has consistently failed to surpass the $10,000 mark.
Investors Are Sitting on the Biggest Pile of Cash Ever
Gunjan Banerji – WSJ
Investors have rarely been this flush with cash.
Grappling with the most economic uncertainty in decades and a head-spinning stretch of volatility in the U.S. stock market, many investors have rushed into money-market funds. Assets in the funds recently swelled to about $4.6 trillion, the highest level on record, according to data from Refinitiv Lipper going back to 1992.
SGX Bull Charge Charity Run goes virtual
SGX Bull Charge, the flagship charity initiative of Singapore Exchange (SGX), is going virtual. For the first time, its annual Charity Run has been transformed into a two-week virtual fundraiser to prioritise the well-being of participants as they go the extra mile for a good cause.
To be held from 30 October to 13 November, the 17th edition of the SGX Bull Charge Charity Run is open to both local and international runners. It will kick off with a virtual 3km Chief Challenge involving CEOs and chiefs of companies. Participants in the virtual Mass Run will each run at their own pace and space, with the aim of achieving a collective distance of 100,000 km to form a “charging bull” symbol. More information can be found at https://bullcharge.sgx.com/.