Global Futures and Options Trading Reaches Record Level in 2019; Volatility-Targeting Funds Leverage Up at Fastest Since ‘18 Rout

Jan 17, 2020

Observations & Insight

Cboe tweeted yesterday that average daily volume for FLEX options in 2019 hit record highs, surpassing the record set in 2018 by 49,408 contracts.~MR

Lead Stories

Global Futures and Options Trading Reaches Record Level in 2019
Summary statistics released today by FIA show that trading activity in the global exchange-traded derivatives markets rose by 13.7% in 2019 to reach a record of 34.47 billion contracts. Futures volume rose 12% to 19.24 billion contracts, while options volume rose 16% to 15.23 billion contracts.

Volatility-Targeting Funds Leverage Up at Fastest Since ’18 Rout
Ksenia Galouchko – Bloomberg
A breed of systematic trader acutely sensitive to volatility is charging into U.S. stocks at the kind of pace last seen before “volmageddon” rocked Wall Street almost two years ago.
Volatility-targeting funds are doubling down on equities after geopolitical turmoil that threatened to derail the bull market in the end barely slowed it down. These players buy and sell based on price swings, and their leverage — a measure of exposure to stocks — now sits at its 81st percentile since 2011, according to Morgan Stanley.

Volatility in Currencies Worldwide Slumps to Lowest Level Ever
Sam Potter and Anchalee Worrachate – Bloomberg
Stocks may be grabbing most of the headlines, but equities aren’t the only asset class in uncharted territory.
Global currency volatility has dropped to the lowest level ever recorded. Less than 48 hours after the U.S. and China put pen to paper on a trade deal that reaffirmed an agreement not to devalue their currencies, the JPMorgan Global FX Volatility Index — which tracks the options market to measure expected price swings — is trading lower than at any point since it was created almost three decades ago.

CME Bitcoin Futures See Open Interest Surge as Global Volume Hits $25B
William Suberg – CoinTelegraph
Bitcoin (BTC) derivatives trading looks set to reach record levels this month as volume spikes and open interest hovers near all-time highs.
Data from CME Group shows that as of Jan. 16, open interest for its futures products alone totaled 5,328 contracts — or 26,640 BTC ($237 million).


This portfolio hedge against volatile U.S.-Iran tensions is better than gold
Mark Hulbert – MarketWatch
Gold’s performance in the wake of the sudden escalation of U.S.-Iran tensions in early January might lead you to believe that the yellow metal is a reliable hedge against geopolitical stress.
It can be — on the surface, at least. Gold jumped to $1,580 from $1,520 after a U.S. airstrike killed Iranian General Qassem Soleimani on January 3. After Iran bombed two U.S. military bases in Iraq in retaliation, gold spiked above $1,600.


2020 Educational Series: Core Concepts of Options
Ready to start out a brand new year with a brand new educational series from The Options Industry Council? Join us throughout the first quarter of 2020 so that OIC can be your guide to learning about options investing. With a focus on core concepts and fundamental aspects of options, you’ll learn key terms, how options can be deployed as risk management tools, pricing and much more.


Why Politics And Systematic Trading Don’t Mix
RCM Alternatives
In an outtake from our Managed Futures Outlook 2020 – we can’t ignore the effect that politics have had on systematic trading programs over the past year or so. Something that could take a toll in the year to come…. Trade wars, new presidents and new economic policies or the impending Brexit vote will have all too much power over the market peaks and valleys in 2020.

Volatility Strategists on 2020: Ignore Sanders at Your Own Risk
Joanna Ossinger – Bloomberg
Small-cap shares are a good hedge for potential downturns, volatility strategists say. Credit Suisse Group AG adds that investors who aren’t “feeling” Bernie Sanders’s prospects risk being blindsided by the U.S. election.
But overall, stock swings shouldn’t impress.

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