Economist El-Erian says derivatives show retail traders may be drowned by a large correction in stocks

Sep 1, 2020

Lead Stories

Economist El-Erian says derivatives show retail traders may be drowned by a large correction in stocks
Saloni Sardana – Markets Insider
Mohamed El-Erian said in an op-ed with the Financial Times retail investors should consider the outlook of the options market to prepare for a stock market correction following explosive gains over the last five months.
The chief economic advisor of Allianz said Monday: “The seemingly endless rally in US stocks gives the impression that prices are endorsed and supported by the entire professional investment community.”
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****JB: Also see, The pros are getting ready for a market crash — retail investors, not so much, top economist warns from MarketWatch.

A top strategist thinks volatility will flood the market in September and ‘the rubber will really hit the road’ as the VIX creeps up
Saloni Sardana – Markets Insider
The Cboe Volatility Index , Wall Street’s “Fear Index”, has been creeping up, and the implications are not temporary.
Volatility will flood stock markets in as soon as four weeks from now, warns one strategist.
Lindsey Bell, who is chief investment strategist at Ally Invest, told CNBC’s “Trading Nation” Monday: “In September, you usually see the chance of a positive return on the month very low – below 50%.
Bell added: “We are going to see the rubber really hit the road.”
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September will mark a volatility comeback, Lindsey Bell warns
Stephanie Landsman – CNBC
The Dow is coming off its best August since “Ghostbusters” dominated the Billboard’s top 100 list 36 years ago.
But it’s the next four weeks that could give investors a scare.
Ally Invest’s Lindsey Bell predicts volatility will make a big comeback due to seasonal trends combined with rising uncertainty.
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Stocks in ‘Euphoric Land’ With Nasdaq 100 Surging Past 12,000
Lu Wang – Bloomberg
The record-setting advance in U.S. stocks is fueling readings of investor bliss not seen since the dot-com era. Gains in Tesla Inc. and Apple Inc. following stock splits helped push the Nasdaq 100 past 12,000.
A sentiment gauge, Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. At around 1.1, the current reading is almost three times the level that denotes euphoria. Tesla jumped 8.5% and Apple climbed 3.6% as the two began their first day of trading at a more accessible price point.
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Stocks Keep Rising Even as Investors Pull Cash From Equity Funds. Here’s Why.
Evie Liu – Barron’s
Investors are finally putting their cash to use, and it’s probably one of the reasons for the recent rally in stocks. But how that money is driving the market might seem a little less conventional.
Investors were sitting on a record amount of cash earlier this year, with assets in money-market funds—a popular parking place for unused cash—reaching new highs. The flight to safety has since pulled back. Since the end of May, institutional investors have sold 6% of their assets in money funds, according to data from the Federal Reserve. Retail investors followed suit, also reducing their assets in money funds by 4%.
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Exchanges and Clearing

Robinhood, Schwab and Other Brokers Resolve Online Glitches
Annie Massa – Yahoo Finance
Robinhood Markets and three other online brokers said they resolved disruptions on their platforms Monday after a morning of glitches affected thousands of customers.
Robinhood, which had problems related to equities, options and cryptocurrency trading, said shortly after noon in New York that the issues were fixed. TD Ameritrade Holding Corp., Vanguard Group and Charles Schwab Corp. also reported difficulties, including slowness with websites and mobile apps, that resulted in user complaints.
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Cboe Reports Decline in FX Volumes Again for August
Arnab Shome – Finance Magnates
Cboe FX Markets has published the trading volumetric figures for August, showing another month in slow down. The exchange handled total trades worth $602 billion last month, a month-on-month decline of 12.7 percent.
Daily average trading volume for the month also dropped to $28.7 billion from $30 billion in July. It is to be noted that August had two trading sessions less than July.
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FIA publishes policy paper on climate-related risks for financial markets and the global economy
FIA
FIA today published a new policy paper in consultation with its members across the cleared derivatives industry on climate-related risks for financial markets and the global economy. The paper, “How derivatives markets are helping the world fight climate change,” focuses on how the industry is already addressing this issue, and highlights potential partnerships with the public sector to help build a more sustainable economy in the long term.
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Strategy

21 High-Quality Stocks and the Case for Playing Them With Options
Steven M. Sears – Barron’s
At a time when Covid-19 has deprived so many operating executives of any meaningful transparency into their businesses, traditional profitability metrics are likely to become even more important to investors.
To help investors think through an opaque investment landscape and economic cycle, Goldman Sachs recently provided clients with a list of companies that are generating loads of cash, generally considered a sign of a well-run company.
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Events

The Security Traders Association (STA) is holding its 2020 Market Structure Conference virtually from Oct. 7 – Oct. 8, with a focus on listed options. It will kick off with a fireside
chat between Cboe Global Markets’ Chairman, President & CEO Ed Tilly, and Cboe EVP, Head of Markets Bryan Harkins. The registration Fee is $295 per person, but employees of government agencies and sponsoring firms attend at no cost. You can go here to register. Firms interested in sponsoring must be confirmed by Tuesday, Sept. 8.

Miscellaneous

‘Want a bonus or promotion? Come in’: Bankers face pressure to go back to the office
Paul Clarke – Financial News
Investment bank employees in the City are facing pressure to return to the office, as senior executives take the lead in shifting from remote working arrangements.
Junior and mid-ranking employees at some of the largest banks in the City have told Financial News that recent moves by senior staff to come back to the office have increased the urgency to unwind working from home arrangements, even if any return remains entirely voluntary.
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