CME doubles down on volatility; US regulators issue stern warning on volatility ETPs

Nov 18, 2020

$15,861/$300,000 (5.3%)
Brian Rice

Observations & Insight

MR: Well, it happened – bitcoin is now worth almost as much as it was at its peak in 2017. Back then, the bitcoin derivatives market wasn’t like what we have today, and this time, Bitcoin derivatives volumes and open interest are reaching new all-time highs. The CME Group’s bitcoin futures hit $975.5 billion in open interest Monday, and OI for bitcoin options across all exchanges, regulated or not, is currently sitting at $3.8 billion. The lion’s share of that comes from Deribit, with $3 billion in open interest on bitcoin options.

SC: The Chicago Mercantile Exchange has begun publishing eight volatility indexes based on its 10-year Treasury note futures — measures that would have been particularly interesting to see during the COVID-infused Treasury volatility spikes of March and April — and G5 FX currency pair futures. The benchmark indexes use what the CME calls its CVOL methodology to measure the 30-day implied volatility of the underlying futures contracts, based on the prices of their options (using all strike prices, not just the at-the-money options prices). In a release, CME said it plans to publish additional volatility indexes spanning its asset classes in first-half 2021. More details are here.

Lead Stories

CME doubles down on volatility
Lynne Marek – Crain’s Chicago Business
CME Group is doubling down on volatility with a plan to develop new volatility index benchmarks across all its major asset classes. Chicago-based CME, which operates one of the largest futures exchanges in the world, said in a statement today that it started by applying its new proprietary volatility index methodology to its U.S. Treasury note futures contract and a handful of futures contracts on foreign currency exchange rates. It plans to extend the volatility benchmarks across all its major asset classes by the first half of next year.
/bit.ly/3pDjOu1

US regulators issue stern warning on volatility ETPs
Emma Boyde – FT
US regulators have issued a stern warning to broker dealers and financial advisers to stop selling “unsuitable” volatility-linked exchange traded products to retail investors. The harshly worded statement has been released by a division of the Securities and Exchange Commission following Friday’s announcement that five companies had been ordered to repay a combined total of more than $3m to retail investors harmed by the products.
/on.ft.com/2IKV9mz

JD.com Boss Gets Big Options Awards Ahead of Unit Listing
Yifan Wang – WSJ
Chinese e-commerce group JD.com Inc. gave billionaire boss Richard Liu options to buy 2% stakes in its health and logistics units, an award that could enable him to accumulate holdings worth more than $1 billion. In an earnings report Monday, JD said Mr. Liu was granted options for shares in the two subsidiaries, which vest over six years. Mr. Liu, who is also known as Liu Qiangdong, is JD’s founder, chairman and chief executive. “The grants were awarded to Mr. Liu to recognize his significant contributions to the development of JD Logistics and JD Health and to motivate him to continue leading the future success” of those businesses, the company said.
/on.wsj.com/35EvCnY

Exchanges and Clearing

REMINDER – Amendments to the Exercise Price Rule of the Options on Three-Month Eurodollar and Three-Month SOFR Futures Contracts – Addition of 6.25 Basis Point Strike Price Intervals
CME Group
Please be reminded that effective Sunday, November 22, 2020 for trade date Monday, November 23, 2020, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the Exercise Price rules of the Options on Three-Month Eurodollar Futures (Rulebook Chapter 452A) and Options on Three-Month SOFR Futures contracts (Rulebook Chapter 460A) (the “Contracts”) for trading on the CME trading floor, the CME
Globex trading platform (“CME Globex”) and for submission of clearing via CME ClearPort (collectively, the “Rule Amendments”).
/bit.ly/32Vr6Qm

Nodal And IncubEx Launch First-Ever Physically-Delivered RIN Futures And Options, Plus New Slate Of REC Contracts
Mondovisione
Nodal Exchange and IncubEx today announced the successful launch of eight new Renewable Identification Number (RIN) futures and options contracts, plus seven new Renewable Energy Certificate (REC) contracts.
/bit.ly/3fc3dZu

CME Group Announces 17th Annual Student Trading Challenge Winner – the First from Latin America
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the winners of its 17th annual CME Group University Trading Challenge, including the first-place winners from the University of Antioquia in Medellín, Colombia. They are the first team from Latin America to win the global challenge.
/bit.ly/3pzrBJk

Miami International Holdings Announces That It Is Evaluating Registration as a Competing Consolidator
Miami International Holdings, Inc. (MIH), the parent holding company of MIAX, MIAX PEARL and MIAX Emerald (collectively, the MIAX Exchange Group), today announced that it is evaluating whether to register as a Competing Consolidator should the Securities and Exchange Commission’s (SEC) proposed Market Data Infrastructure reforms (Proposal) be approved and become effective. As noted in its August 18, 2020 comment letter on the Proposal, MIH is interested in becoming a Competing Consolidator, provided that new entrants can fairly compete against incumbent securities information processors (SIPs) that elect to also become Competing Consolidators. To this end, MIH is actively evaluating this business initiative and potential partnerships with third parties. MIH’s potential registration as a Competing Consolidator is contingent on the SEC’s approval of the Proposal and its ultimate implementation.
/bit.ly/2UFYRk4

MIAX Exchange Group – Options Markets – Delisting of MyKardia Inc. (MYOK)
MIAX Options
MyKardia Inc. (MYOK) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Wednesday, November 18, 2020. All GTC orders resting on the MIAX order books in MYOK will be canceled at the close of business on Tuesday, November 17, 2020.
/bit.ly/3fbf5uQ

MIAX Exchange Group – Options Markets – Viatris Inc. (VTRS)
MIAX Options
The entire option class of Viatris Inc. (VTRS) will resume trading on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchanges effective for Wednesday, November 18, 2020.
/bit.ly/2KlL0xm

MIAX Exchange Group – Options Markets – Delisting of HD Supply Holdings, Inc. (HDS)
MIAX Options
HD Supply Holdings, Inc. (HDS) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Wednesday, November 18, 2020. All GTC orders resting on the MIAX order books in HDS will be canceled at the close of business on Tuesday, November 17, 2020.
/bit.ly/38QSvqh

MIAX Exchange Group – Options Markets – Corporate Action Alert: Fortress Value Acquisition Corporation (FVAC) Name and Symbol Change to MP Materials Corporation (MP)
MIAX Options
Fortress Value Acquisition Corporation (FVAC) will change its name and symbol to MP Materials Corporation (MP) effective on Wednesday, November 18, 2020. All GTC orders resting on the MIAX order books in FVAC will be canceled at the close of business on Tuesday, November 17, 2020. NOTE: MP options will trade on Cloud 12 on the MIAX Options Exchange and on Cloud 6 on the MIAX PEARL Options Exchange and the MIAX Emerald Options Exchange. Additional details about the Fortress Value Acquisition Corporation (FVAC) name and symbol change are provided in the attached OCC Memo.
/bit.ly/35MFYCt

MIAX Options Exchange and MIAX Emerald Options Exchange – Options Markets – Viatris Inc. (VTRS) Non-Tradeable effective for 11/18/2020 and will resume trading on 11/19/2020
MIAX Options
The entire option class of Viatris Inc. (VTRS) has been made non-tradeable on the MIAX Options Exchange and on the MIAX Emerald Options Exchange effective for today, Wednesday, November 18, 2020. VTRS will resume trading tomorrow, Thursday, November 19, 2020. Trading will resume in VTRS on the MIAX PEARL Options Exchange today.
/bit.ly/2KmbYVB

MIAX Exchange Group – Options Markets – Corporate Action Alert: Capitol Federal Financial, Inc. (CFFN)
MIAX Options
Capitol Federal Financial, Inc. (CFFN) has announced a Special Cash Dividend. Associated strike price adjustments will become effective on Thursday, November 19, 2020. CFFN options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in CFFN will be canceled at the close of business on Wednesday, November 18, 2020. Additional details about the Capitol Federal Financial, Inc. (CFFN) dividend are provided in the attached OCC Memo.
/bit.ly/3f8YGXU

MIAX Exchange Group – Options Markets – Corporate Action Alert: Wingstop Inc. (WING)
MIAX Options
Wingstop Inc. (WING) has announced a Special Cash Dividend. Associated strike price adjustments will become effective on Thursday, November 19, 2020. WING options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in WING will be canceled at the close of business on Wednesday, November 18, 2020. Additional details about the Wingstop Inc. (WING) dividend are provided in the attached OCC Memo.
/bit.ly/3fdXYZa

How Target Outcome Indices May Help Investors Minimize Risk and Target Returns
Cboe blog
As any exchange, brokerage or asset manager will tell you, there is inherent risk in investing. But what if you could minimize that risk and target returns? It may sound too good to be true, but that’s the concept behind Cboe’s Target Outcome Indices. Target Outcome Indices are options-based strategy benchmarks designed to provide targeted returns relative to a referenced U.S. domestic stock market index, and in the case of buffer protect strategies, to limit downside risk. Cboe’s current lineup of Target Outcome Indices, includes more than 115 indices, each designed to minimize risk and lock in growth. Most recently, Cboe expanded its family of Target Outcome Indices with the addition of two series of indices tied to the Russell 2000 Index: the Cboe Russell 2000 Enhanced Growth Index Series (RPEN) and Cboe Russell 2000 Buffer Protect Index Series (RPRO).
/bit.ly/3f8DVLW

Regulation & Enforcement

SR-NASDAQ-2020-076
Nasdaq
A proposal to harmonize Exchange Rules 1015, 9261, 9524 and 9830 with recent changes by the Financial Industry Regulatory Authority, Inc.
/bit.ly/3ffOTz9

Strategy

Target Reports Earnings Today. There’s a Stock Options Trade for That.
Steven M. Sears – Barron’s
We are now facing another extraordinary moment in 2020, a year of great tragedy, triumph, and evidence of the resilience of the human spirit. As COVID-19 infection rates surge, causing some officials to fear the health care system will be overwhelmed, several companies, including Pfizer (PFE) and Moderna (MRNA), have announced potential vaccines. The vaccine news comes as some states are once more entering lockdown modes, and the whole nation is looking forward to traditional fall and winter holidays ranging from Thanksgiving to Christmas that are filled with joy, family, friends and parties.
/bit.ly/38TEc49

Russell Bucks The Trend And Jumps As Call Buyers Push Small Caps Higher
ORATS blog
The way out of the money calls in the component stocks of the Russell 2000 have jumped in value to dizzying heights. ORATS measures the ratio of the implied volatility of the 5-delta and 75-delta, 30-day options for all of the component stocks and takes a weighted average. With the 5-delta calls at 97% of the 75-delta calls, we see the highest reading on our records that measure back to 2007. Normally, the out of the money calls will trade at a fraction of the 75 deltas, at a ratio of about 80%. However, recently that number has climbed to almost par.
/bit.ly/36PhKGK

Education

The Impact Closing Auctions Have on Volumes
Cboe Global Markets’ Execution Consulting Team
When we notice a new trading trend, we look for ways that we can improve our exchanges to better fit the way our customers use them. As closing auctions become an increasingly important part of the trading day, we wanted to uncover ways to enhance end-of-the-day trading for market participants. In our latest analysis, we explore how closing auction events impact volumes, and share how upcoming changes to the close on Cboe’s BZX exchange may benefit participants.
/bit.ly/32XfU5t

Events

Asia Derivatives Conference
FIA.org
Join us virtually in December!
1 December 2020 – 3 December 2020 • 9:00 AM – 3:00 PM SGT Daily
Our annual Asia Derivatives Conference provides unique opportunities for the cleared derivatives community to build an understanding of how global forces and regional trends and issues are shaping Asia-Pacific markets. Register now and join us virtually, 1-3 December, to gain insights into what’s on the horizon for the Asia-Pacific region.
/bit.ly/36HKNMl

Miscellaneous

(Podcast) OIRN Interviews: Finding Unknown Market Wizards with Jack Schwager
Options Insider Podcast
/bit.ly/3fbMsgZ

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