Observations & Insight
The Spread: Make Way for the SA-CCR
This week on The Spread, the OCC shatters its own records (again), Senator Loeffler sells put options, the SA-CCR is adopted early, and more.
Produced by Mike Forrester.
Fear gauges signal calmer trade as coronavirus deaths slow
Thyagaraju Adinarayan, Saikat Chatterjee and Olga Cotaga – Reuters
Major stock and currency fear gauges steadily declined over the last week from 2008 levels as a slowdown in the number of coronavirus-related deaths calmed investor nerves and increased appetite for risky assets. The Cboe Volatility Index, known as Wall Street’s fear gauge, was at 44.60 points on Monday, well below its March 16 record closing high of 82.69. It was by far the biggest drop yet seen over a fifteen-day period.
JPMorgan Says Slowing U.S. Virus Cases to Put Floor Under Stocks
Joanna Ossinger – Bloomberg
A slowdown in the growth rate of new U.S. coronavirus cases may help put a floor under stocks and dampen volatility, according to JPMorgan Chase & Co.
The Cboe Volatility Index has been tracking data associated with the global spread of cases and has shown a relationship with growth at the U.S. state level, technical strategists Jason Hunter and Alix Tepper Floman wrote in a note Friday. The number of states with growth rates above 20% dropped to under 10 from over 40 in the past two weeks, a trend which could keep pressure on the VIX and moderate any equity declines — if it continues, they said.
ETFs Rule in Canada as Record Volatility, Rout Hit Active Funds
Divya Balji – Bloomberg
In the birthplace of exchange traded funds, investors continued to pile into the products last month despite volatility that sent stock indexes into bear market territory.
Equity ETFs in Canada saw about C$4.1 billion ($2.9 billion) of net inflows in March while fixed income experienced a “rare moment” of C$1.3 billion in outflows as liquidity vanished from the bond market, according to National Bank of Canada. In total, the nation’s ETFs saw C$2.9 billion in inflows last month.
Individual investors have $1.5 trillion of cash on the sidelines, J.P. Morgan says. What next?
Andrea Riquier – MarketWatch
Individual investors have stopped panicking, and they may even start putting their money to work, according to an analysis by JPMorgan Chase & Co. strategists.
Over the past four weeks of market mayhem, taking stocks from all-time highs to a bear market in record time, retail investors weren’t responsible for the first leg down, but “they did amplify the down move in risky markets during the last two weeks of the corrections,” the J.P. Morgan team wrote.
SPY ETF Sees Spike in Volatility
Tanzeel Akhtar – WSJ
Panic selling in many funds caused large inflows for some of the largest broad-market index funds.
State Street’s SPDR S&P 500 ETF (SPY) gained the highest inflows for the ETF industry at $11 billion for the month of March, according to CFRA First Bridge ETF data.
Oil prices decline as a meeting of major producers gets delayed
Myra P. Saefong and Mark DeCambre – MarketWatch
Oil futures headed lower on Monday after a key meeting between oil giants Saudi Arabia and Russia was tentatively shifted to Thursday, amid rising tensions between the world’s biggest oil producers over the weekend.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, will convene later in the coming week in an attempt to forge a truce and stabilize badly beaten-down energy prices after animus between Riyadh and Moscow reared up, causing a delay in a virtual gathering to Thursday from an originally scheduled Monday.
Crude oil’s wild ride doesn’t answer the serious questions
Clyde Russell – Reuters
Crude oil’s rollercoaster ride resumed on Monday, with both Brent and West Texas Intermediate (WTI) futures falling sharply amid news of a delay to a meeting of oil producers. While news headlines are driving the short-term volatility in crude prices, it’s perhaps a worthwhile exercise to take a stand back look at what is actually happening, what is likely to happen and what’s unlikely.
Amid wild swings, Australian stock market trade volume doubles in March – ASX
Tom Westbrook – Reuters
The volume and value of trades on the Australian Securities Exchange doubled during last month’s wild market swings, the exchange operator said on Monday. Australia’s stock market posted its worst month since 1987 in March, plunging 21.5% amid a worldwide equities rout as the coronavirus pandemic worsened.
Bitcoin Options Put/Call ratio doubles; selling pressure ahead?
Aakash Athawasya – AMB Crypto
Well, if you thought Bitcoin’s momentary move above $7,000 was a sign of things to come, you’re out of luck. The push back to $6,700 coupled with the sideways movement since, has pushed optimism, not necessarily to pessimism, but at least to reality. During the previous run-up to $7,000, both the spot markets are the derivatives markets were hopeful. Prior to the move up, the Put-Call ratio on Bitcoin Options contracts dropped from 1.02 on April 1 to 0.64 on April 2, a sign of increasing buying pressure as traders were preferring call options, or right-to-buy contracts to put options, or right-to-sell contracts.
Exchanges and Clearing
Factbox: Markets revise trading rules, hours, circuit breakers as volatility surges
Nikhil Kurian Nainan – Reuters
Global exchanges are changing trading rules to protect their markets from intense volatility and speculative trading as the coronavirus pandemic threatens the world economy.
Many markets have shortened trading hours, and others are mulling whether to follow suit.
Eurex extends MSCI offer with 14 futures and 2 options
With 122 listed MSCI index-based futures, 20 MSCI index-based options and an open interest of around 2.5 million contracts, Eurex is already the exchange with the broadest MSCI index-linked offering tradable on one platform, and the highest open interest globally. Striving to become the number one exchange for the key global benchmarks, Eurex will add another 14 futures and 2 options to its current suite on 6 April 2020.
Euronext announces volumes for March 2020
Amsterdam, Brussels, Dublin, Lisbon, London, Oslo and Paris – 3 April 2020 – Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for March 2020.
Clearing Member Firms; Back Office Managers
Reminder that CME Clearing will implement the two changes mentioned below effective at close of business Monday, April 6, 2020. Please be advised that CME Clearing now plans to implement the changes mentioned below in production effective at close of business April 6th. With this change, CME Clearing will be adding two columns to the CST610 CSV file that is posted to each clearing firm’s SFTP server. CME has already deployed these changes to our New Release test environment.
Trading Commodity Volatility Like A Woman
Trading commodity volatility is a unique topic all on its own, but add in hedge fund manager Kimberly Rios, and you’ve got what we calculated as a 1 in 10,000 manager; how’s that for unique? Kimberly heads up the Catalyst Hedged Futures Strategy Fund and trades in and out of different volatility regimes in the commodity markets “like a woman” – which we think is a big PLUS.
Update from OIC
We hope that you and your family are managing well during these incredibly challenging times. We understand the uncertainty that is occurring in everyday lives across the country and around the globe. We want to let you know that OIC (The Options Industry Council) is here to help you navigate the current economic climate through the responsible use of exchange traded options. Funded by OCC (The Options Clearing Corporation), OIC has been providing free educational resources to market participants for nearly three decades.
Millennials vs. boomers: The coronavirus’ generational divide
Hillary Hoffower – Business Insider
The coronavirus pandemic has furthered the generational divide between millennials and baby boomers.
Not only is each group facing different risk levels for becoming ill with the coronavirus, they’re both handling the pandemic in different ways. Many millennials are holing up in their apartments with Netflix and their iPhones, while many boomers are still trying to play backgammon or have trivia night with their friends.
A 3x ETF Shows the Perils of Leverage
Simon Constable – WSJ
The market tumult has highlighted a potential double hazard for individual investors: the pitfalls of leveraged funds, and the need to read the fine print in any investment.
One particular fund provides an instructive example for both issues. It is Direxion Daily S&P 500 High Beta Bull 3X Shares (HIBL), which is designed to deliver three times the return of the daily move in the S&P 500.