European traders press for looser rules to ease options trading; Volatility Ain’t What It Used to Be

Mar 24, 2020

Lead Stories

European traders press for looser rules to ease options trading; Industry body warns of ‘severe dislocation’ in derivatives if requirements do not change
Philip Stafford – FT
Market makers in Europe are urging regulators to bring forward new rules that could relax regulations on the capital banks must allocate to derivatives trades, amid concerns that current standards are intensifying the volatility caused by the coronavirus crisis.

Volatility Ain’t What It Used to Be
Heath Tarbert – WSJ
Derivatives markets have never been this volatile. Over the past week, a leading high-yield credit default swap index that is a barometer of insolvency risk repeatedly reached new highs. On March 16, Cboe Volatility Index futures, which react to stock market volatility, soared to historic levels. Commodity prices are behaving similarly, with oil futures plummeting 34% on March 9 only to jump by a record 24% some 10 days later. Gold—usually a bulwark against equity market volatility—has been falling in tandem with stocks. Other financial measures have shown similar volatility as markets seesaw.

Markets Get Weirder With Stocks and Volatility Tumbling Together
Luke Kawa – Bloomberg
The stock market and volatility are in the midst of an unprecedented synchronized swoon.
The S&P 500 Index has fallen more than 7% over the past two sessions while the Cboe Volatility Index, a measure of how much that benchmark gauge is expected to move over the next 30 days, tumbled by more than 10 points. Before this, there had never been a combination of a two-day equity drop of at least 5% and a VIX retreat of at least 5 points.

Coronavirus: OTC Derivatives Exposure Is Like One Big Margin Call
Shuli Ren – Bloomberg
The Federal Reserve ushered out a second wave of quantitative easing Monday. But the worst scramble for cash is happening in an opaque corner of the market, where Chairman Jerome Powell has little control. What we’re witnessing is a system-wide margin call.
With the coronavirus outbreak intensifying, asset managers are getting squeezed by a record outflow from bond funds and billions more from stock funds. Even bigger withdrawals are probably happening in the over-the-counter world, where trades are conducted out of public eye, through broker-dealers. When traders get margin calls, they resort to selling their most liquid assets, usually stocks and U.S. Treasuries. This only deepens the slide.

Quants Are Liquidating Stock Exposures at Fastest Pace on Record
Justina Lee – Bloomberg
The record volatility unleashed by the coronavirus outbreak has spurred quant traders to throw in the towel at an unprecedented pace. The silver lining: they now have much less to sell.
Systematic clients on Credit Suisse Group AG’s prime-brokerage platform have slashed their equity positions by 45% this month compared with the end of last. After taking into account falling prices, the market-neutral funds, which take no directional bets on the benchmark, offloaded 15% of their bets in the five days through Thursday. That’s a record deleveraging spree in a decade of data.

The Stock Market Tumbled Again Today. But This Indicator Might Be a Good Sign for the Future.
Ben Levisohn – Barron’s
The stock market got hammered on Monday, and yet I feel a touch more optimistic than I have in a long time.
That might sound strange considering that the Dow Jones Industrial Average fell 582.05 points, or 3%, to 18,591.93. The blue-chip benchmark is now off 37% from its Feb. 12 all-time high, and closed at its lowest level since November 2016. Think of that. Three-and-a-half years of market gains gone, just like that.


Robinhood offers credits to some customers, says it fixed engineering issues after outages
Kate Rooney – CNBC
Robinhood is looking to rebuild trust with users by offering credits to some customers affected by recent trading outages. The start-up also said it has fixed engineering flaws that led to those glitches. The start-up saw multiple outages in March that caused traders to miss out on a historic market rally. “An apology alone won’t rebuild your trust in us. Instead, we hope our actions will,” Robinhood told some clients in an email Monday.


The Dow Is Surging on Hope for a Stimulus Bill
Carleton English and Nicholas Jasinski – Barron’s
10:30 a.m.: Stocks took off in morning trading on hopes that Congress will soon sign a $2 trillion economic stimulus bill, as well as in response to positive signs about Italy’s fight against the coronavirus.
Efforts to stop the spread of the disease are expected to have severe economic consequences, but Congress has so far failed to reach agreement on a spending package that might limit the damage, repeatedly disappointing investors. In the latest twist, CNBC reported early in the day that negotiators had reached an agreement that would allow the talks to move past a key stumbling block.

Why ‘no one will regret buying stocks’ at the lowest prices in years
Shawn Langlois – MarketWatch
Now that’s a bounce. A well-timed bounce, for one longtime trader.
After another gutting start to the week for the stock market, Jani Ziedins, the investor behind the Cracked Market blog, delivered an optimistic take of what ultimately lies ahead.
“While prices could fall even further over the next few days and weeks, 12 months from now,” he wrote on Monday, “no one will regret buying stocks at the lowest levels since 2016.”

Too Many People Panicked at the Bottom of the Last Crisis. Here’s How to Play the Market This Time Around.
Steven M. Sears – Barron’s
For the third time in less than 20 years, we once again find ourselves confronting the unimaginable. Our current crisis—unlike the terrorist attacks of Sept. 11, 2001, or the global financial crisis of 2008—is arguably more difficult to fathom because so few people understand virology. All that most people understand is that a coronavirus in Wuhan, China, has globalized and sickened huge swaths of the world.


The state of global equity markets through the lens of FTSE GEIS
About this webinar
A discussion exploring the current state of global equity markets through the lens of our flagship FTSE Global Equity Index Series (FTSE GEIS). Topics covered will include:
• Topical global market commentary and macroeconomic outlook
• A review of regional market size shifts and performance observed through the semi-annual global index review process, effective March 23rd, 2020
• A closer look at China A Shares inclusion progress and impact
Date: Wednesday, March 25, 2020
Time: 10:30 a.m. ET / 2:30 p.m. GMT


Jeff Bezos, Larry Fink, and other top US execs dodged $1.9 billion in losses by selling their own stock as the coronavirus outbreak worsened
Ben Winck – Markets Insider
US executives spanning several sectors cashed out a total of $9.2 billion in company stock before markets bottomed on coronavirus fears, The Wall Street Journal reported Tuesday.
Corporate leaders avoided losses totaling $1.9 billion through sales between February 1 and March 19, according to The Journal’s analysis. Much of the selling took place through pre-established trading schedules, which help executives skirt allegations of insider trading.

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Pin It on Pinterest

Share This Story