Observations & Insight
The Spread: Derivatives On-Demand
This week on The Spread, FIA announces IDX 2020, the Small Exchange launches, OCC celebrates increased volumes for cleared derivatives trades, and more.
****SC: The CME Group said in a notice dated June 4 that it was reviewing plans to reconfigure its Eurodollar options pit, which has been closed since March 13, 2020 due to COVID-19 concerns. The CME also said it is discussing options for its other open outcry pits. Additional details are expected in the next several weeks. No word on reopening the pits. Reached by JLN late Friday, a spokeswoman said the CME had no further comment.
****MR: According to the OCC, Friday’s volume was the second-highest ever for the U.S. equity options markets at 47,534,507 contracts cleared. The highest was 48,963,585 on February 28 of this year, and the third-highest was 45,444,904 on February 27, 2020.
Both NYSE Options Floors Open for Business
James Chu – TABB Forum
Since NYSE American’s Floor reopened on May 26, open outcry has risen to 4.5% of industry multi-list volume, which is about half the pre-close rate. In large institutional-sized trades, Auction and QCC gained the most while floors were closed. As large trades returned to the Floors since reopening, both have declined, but not quite to pre-close levels. Share of retail-sized trades that tend not to trade in open outcry are at record highs. With NYSE Options Floors now open, we anticipate larger trades gradually returning to the Floor.
Institutional Bitcoin Options Volumes Hit Record Highs in May
As investors around the globe look for exposure to safe-haven assets, Bitcoin seems to be proving an attractive choice for institutional investors. May saw volumes on regulated platform CME soar, recovering substantially from a lull in April. Options are one area seeing particularly impressive growth. CME total options volumes reached an all-time monthly high of 5986 contracts traded in May. This figure represents 16 times that of April’s volumes, and dwarfs those of previous months, since Bitcoin options launched on the platform in January.
Hedge fund buying dries up after oil prices double
John Kemp – Reuters
Hedge funds have started to temper their bullishness towards oil after crude futures prices have doubled since late April. Crude prices are nearing levels expected to see some shale production restart and there are concerns the rally is outrunning the recovery in demand.
A positive response to negative oil prices
Stella Farrington – Risk.net
Responding to extreme events is never easy. No one wants to waste resources over-preparing for something that may never occur again. But equally, no one wants to be caught out a second time. This is the conundrum facing the oil market in the wake of futures prices turning negative – a once-unthinkable phenomenon that caused chaos in April. For options traders and quants an important consideration is whether to continue using the Black-Scholes options pricing model – which cannot accept negative prices – or switch to an alternative model, with all the upheaval and operational risk that would cause. CME and Ice made the decision in April to immediately switch to the Bachelier model for options pricing.
Exchanges and Clearing
May monthly figures at Eurex and EEX
All classes of financial derivatives at Eurex showed declines in the number of traded contracts in May 2020 compared to May 2019, with the largest fall coming in European equity derivatives – down 58% year-on-year. The OTC Clearing space continues to report very positive figures. Notional outstanding and average daily cleared volumes were up 24% and 42%, respectively, in May 2020 compared to the same month last year. Interest rates swaps were a standout performer, with average daily cleared volumes up 84% year-on-year in May 2020.
Amendments to the Options on the South African Rand/US Dollar (ZAR/USD) Futures and the Options on the Russian Ruble/US Dollar (RUB/USD) Futures Contracts and Temporary Suspension of Trading and Clearing
Effective Sunday, July 12, 2020 for trade date Monday, July 13, 2020, and pending all relevant Commodity Futures Trading Commission (“CFTC”) regulatory review periods, Chicago Mercantile Exchange Inc, (“CME” or “Exchange”) will amend the strike price and range of the Options on the South African Rand/US Dollar (“ZAR/USD”) Futures and the Options on the Russian Ruble/USD Dollar (“RUB/USD”) Futures contracts (the “Contracts”) as below.
Cboe to Launch New Protective Trading Tool Against Quote Depletion
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced it will introduce enhancements – including a new Quote Depletion Protection (“QDP”) feature – that would offer new protective capabilities and increase the efficacy of its Midpoint Discretionary Order (“MDO”). Pioneered by Cboe in 2012, the MDO is an innovative order type that is designed to enable participants to trade more often with maximum price improvement. MDOs allow participants to post displayed or non-displayed liquidity at the National Best Bid or Offer (“NBBO”) with discretion to execute up to and including the midpoint of the NBBO.
All Signs Point To a Classic Bear Market Rally, Not a New Bull Market
This article was contributed and originally appeared on Medium.com
A month ago, I published a piece explaining why the latest stock market bounce was not the start of a bull market but the inception of a bear market rally. Now this move has continued for longer than I expected, I am more convinced that we’re about to witness a retest of the March lows. But this is not just a feeling: I am basing my views on economic data, market sentiment, and market positioning, and my research tells me we have reached the top of the bear market bounce.
Investors Flock to Cash. Here’s What They Need to Know.
Bailey McCann – WSJ
Big-name investors from Warren Buffett to Leon Cooperman said they went to cash as the fastest bear market in history crushed financial markets in the first quarter. Data from the first quarter suggests many individual investors went to cash as well.