FX options wrap – Pricing shows uncertainty replacing panic

Dec 1, 2021

Observations & Insight

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Lead Stories

FX options wrap – Pricing shows uncertainty replacing panic
FX option premiums spiked amid the initial COVID variant panic before a mild risk recovery returned supply, but limited setbacks flag the simmering volatility risk.
Risks are heightened while investors await more data on the new variant and expectations of the U.S. Federal Reserve announcing a faster pace of asset tapering on Dec. 15, amid a back drop of long USD positioning and year end liquidity issues.

Amazon Cloud Will Power Nasdaq U.S. Options Market Next Year
Dina Bass and Spencer Soper – Bloomberg
Amazon.com Inc.’s cloud service will power Nasdaq’s first U.S. options market starting next year. The exchange will use Amazon’s technology for private corporate clouds, called Outposts, to set up a cloud system at its data center in Carteret, New Jersey. Nasdaq Inc. Chief Executive Officer Adena Friedman announced the deal Tuesday at Amazon’s annual cloud conference in Las Vegas.

Credit Investors Build Cash Buffers Against Volatility Storm
Tasos Vossos – Bloomberg
Heading into this volatile week caused by the omicron bombshell and Federal Reserve hawkishness, credit investors were already starting to rebuild their defensive buffers from below-average levels.
Now amid renewed pandemic and inflation jitters, institutional managers from Invesco Asset Management to Banque Lombard Odier & Cie SA have fresh reasons to ramp up their cash positions to buy assets cheaper down the line.

Traders Are Grappling With a Whole New World of Bond Volatility
Michael Mackenzie, Liz McCormick, and Garfield Clinton Reynolds – Bloomberg
Bond volatility is accelerating as Covid-19 and inflation fears play havoc with the policy outlook.
Treasury yields surged Wednesday after Federal Reserve Chair Jerome Powell suggested Tuesday that stubbornly high inflation warranted increasing the pace of policy tightening. That saw the market reverse course after benchmark 10-year yields fell to a two-month low this week on fears over omicron’s resistance to existing vaccines.

Stock Bulls Warily Eye Support Lines on Powell’s Hawkish Tone
Emily Graffeo – Bloomberg
Newly hawkish comments from Jerome Powell have sent the S&P 500 tumbling dangerously close to what some analysts consider key technical support levels.
The S&P 500 sank almost 2% to as low as 4,565 Tuesday, after the Federal Reserve Chair weighed an earlier end to tapering asset purchases that could clear the way for a rate hike. The threat from the omicron virus variant and inflation that has lasted longer than any central banker anticipated had already been whipsawing stocks this month, sending a measure of volatility to its highest since January.

Is a Bigger Drop Coming for the Stock Market? Here’s a Red Flag.
Jacob Sonenshine – Barron’s
To say that the Omicron variant is shaking the market would be an understatement. But add that stocks are more expensive than they’ve ever been—and a true correction now wouldn’t surprise anybody.
The S&P 500 has fallen almost 3% from its all-time high hit in late November, just before scientists in South Africa reported the new Covid-19 strain. On Friday, the market had its worst day of the year. Tuesday was more ugliness—producers of vaccines and treatments predicted their remedies probably wouldn’t be as effective against…

Crypto.com acquires two US exchanges in $216m deal with IG group
Sean Dickens – Coin Rivet via Yahoo
Cryptocurrency platform Crypto.com is expanding its suite of product offerings after announcing the sale and purchase agreements with North American Derivatives Exchange (Nadex) and the Small Exchange.
The acquisition of the two exchanges will enable Crypto.com to provide US-based customers with trading of “certain derivatives and futures products” and expand upon its current product offerings.

****SR: Also see Bloomberg’s coverage of the story here.


Nasdaq partners with AWS to migrate North American markets to the cloud; The phased process will begin with Nasdaq MRX, a US options market, and the pair will develop infrastructure for other participants and operators to make the same migration.
Annabel Smith – The Trade
Nasdaq has partnered with Amazon Web Services (AWS) to migrate its North American markets onto the cloud using a co-designed solution. Nasdaq’s US options market, Nasdaq MRX, will be the first market to be transferred onto AWS using AWS Outposts, a co-designed edge computing solution which was created specifically to develop infrastructure.

Trading Overview in November 2021; Japan Exchange Group released Trading Overview in November 2021.
Cash Equity Market; In November 2021, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 3. 3883 trillion; In November 2021, the daily average trading value of ETF market was JPY 275. 2 billion.
Derivatives Market; In November 2021, total derivatives trading volume was 24,388,265 contracts.; In November 2021, total derivatives trading value was JPY 209 trillion.; In November 2021, trading volume for the night session was 8,527,322 contracts and the ratio of the night session was 35.0%.

Trading Strategies for Extended Global Trading Hours for VIX and SPX Options
Matt Moran – Cboe
On November 21, 2021 Cboe Options Exchange plans to extend its existing Global Trading Hours (GTH) session and introduce a 24×5 trading model for S&P 500 Index (SPX) and Cboe Volatility Index (VIX Index) options. Market participants will now be able to trade or hedge broad U.S. market and global equity volatility conveniently across all time zones, nearly 24 hours a day, five days a week.

MCX to launch options trading on Nickel soon
The Hindu Business Line (Mumbai)
For hedgers, the options contract will provide a more cost-effective tool.
MCX, the country’s largest commodity exchange, will launch options trading on Nickel (1500 kg) futures by the middle of this month with the growing investors and hedgers interest in metals.
The options contract will provide a more cost-effective tool for hedgers even as the underlying futures contract has gained good traction.


Hedge fund titan Ray Dalio warns investors against trying to time the market as Omicron rocks stocks
Harry Robertson – Markets Insider
Legendary investor Ray Dalio has warned people against trying to time the market as uncertainty about the Omicron coronavirus variant shakes stocks.
Dalio told CNBC on Tuesday that the most important thing for investors is to be in a safe, well-balanced portfolio and to not try to be too smart.

An Active Hedged Equity ETF Strategy That Tries to Optimize Options Exposure
ETF Trends via Nasdaq
While considering ways to adapt to the shifting market environment, investors can look to the risks and rewards of a hedged equity exchange traded fund strategy.
In the recent webcast, Know What You Own: Understanding the Risks and Rewards of Hedged Equity, Swan Global’s client portfolio manager Marc Odo and COO and portfolio manager Rob Swan warned that interest rates are more likely to go up than down, which means that the easy returns from the three-decade long bull run in fixed income assets will come to an end.


Osaka Exchange to compress index options with TriOptima
TriOptima via Finextra
OSTTRA’s TriOptima, a leading infrastructure service that helps to lower costs and mitigate risk in OTC derivatives markets, has announced that it successfully powered the inaugural compression of listed Nikkei 225 options at Osaka Exchange (OSE), part of Japan Exchange Group.
The OSE compression service powered by TriOptima, will enable OSE members to reduce their open positions and lower the capital costs of index options. Typically, positions are netted against each other multilaterally, allowing each market participant to reduce their position. The move, further extends TriOptima’s optimisation expertise in the asset class, supporting an ongoing industry wide push to reduce costs when trading derivatives.


TradeZero Appoints Andrew Koslow as General Counsel
TradeZero Holding Corp. (“TradeZero”) and its broker-dealer subsidiaries, which provide next-generation online trading platforms for active retail traders, today announced the appointment of Andrew Koslow as General Counsel.
The appointment is part of TradeZero’s plans to expand its C-suite, as it transitions to a public company.


Cboe Global Markets to Present at the Goldman Sachs 2021 U.S. Financial Services Conference Tuesday, December 7
Cboe Press Release
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, announced today that Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, and Catherine Clay, Executive Vice President and Global Head of Data and Access Solutions, will present at the Goldman Sachs 2021 U.S. Financial Services Conference in New York City on Tuesday, December 7 at 10:40 a.m. ET.
The live webcast and replay of the presentation will be accessible at www.cboe.com in the Investor Relations section, under Events and Presentations. The archived webcast is expected to be available within an hour of the presentation.

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Bitcoin’s Correlation With The Tech-Heavy Nasdaq and S&P 500 Hits A Multi-Month Low
This week, the crypto market is enjoying the gains after the last few weeks’ weakness.
Both Bitcoin and the S&P 500 plummeted last week caused by thin market liquidity due to the Thanksgiving holiday in the US and the new COVID variant renewing the lockdown fear. Meanwhile, bonds rallied with yields on the 10-year US Treasury note, which moved inversely to prices, tanking to 1.48%, seeing their sharpest drop since March 2020.

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