Observations & Insight
The Spread: Reddit On The Internet, So It Must Be True
This week on The Spread – analysts predict more volatility than usual around the U.S. election, institutional traders watch Reddit to predict price movements, and more.
Goldman Sachs says options show more risk building for December than around election day
Shalini Nagarajan – Markets Insider
Traders are betting that market volatility is likely to be greater in the aftermath of the November presidential election than in the run-up to the vote, and this will last well into 2021, according to Goldman Sachs
The market’s expected one-day move on November 4 has fallen to 2.8% from an expectation for a 3.2% swing in mid-August, as investors expect it to “take longer than usual” for conclusive results, the bank’s strategists said.
Why Cboe is seeking growth abroad; Its European debut comes amid rising competition at home.
Lynne Marek – Crain’s Chicago Business
With its flagship VIX franchise losing popularity and new rivals crowding into its U.S. strongholds, Cboe Global Markets is turning to Europe for a revenue boost. The Chicago options pioneer next year will start offering U.S.-style listed futures and options contracts tied to European stock indexes. It’s likely to be a multimillion-dollar bet in a region already filled with homegrown derivatives and no evident appetite for Cboe’s new products. With its stock price down 30 percent since earlier this year, Cboe is under pressure to deliver a winner and may be more vulnerable to further decline or even a takeover if the venture fails.
Tech Stocks Reversal Is Healthy Correction of Unbalanced Market
John Authers – Bloomberg
One of my least favorite market cliches is “healthy correction”. Why exactly is it ever good for your health to lose money? And how do we know when a market is “correct”? That said, if there is any such thing as a healthy correction, we might just have seen one in U.S. large-caps this month.
The rebound since the Covid scare reached its worst in March has been one of the most unbalanced and narrow rallies ever seen. The market cap-weighted version of the S&P 500 massively outperformed the equal-weighted version — or in other words, the average stock did far worse than the overall index. That was because gains were concentrated in a few big companies. That trend has been at least somewhat corrected in the last two weeks:
The easy money fuelling the market’s fever
The editorial board – Financial Times
Irrational exuberance or the new reality? The US stock market rally that has shrugged off the pain in the real economy in the wake of Covid-19 shows little sign of running out of steam. Despite markets falling back since the August peak amid fears of a resurgence of the virus, investor appetite for equities remains undimmed. Wall Street just witnessed its biggest week for initial public offerings since May last year, when Uber came to market. Shares in Snowflake, a cloud-computing business, doubled on their first day of trading on Wednesday, valuing the lossmaking company at more than $70bn.
Column: Funds’ bullish view in CBOT soybeans approaching 2012 record
Karen Braun – Reuters
Speculators have likely placed record bullish bets for the time of year on Chicago-traded soybeans amid the historic rally in futures, and those bets may be within striking distance of the all-time high set more than eight years ago.
Tesla’s rally this year has reportedly earned Goldman Sachs $100 million
Saloni Sardana – Markets Insider
Tesla stock has earned Goldman Sachs around $100 million from a number of trades this year. A report by International Financing Review said the purchase of Tesla options helped Goldman Sachs post better performance than expected in equity trading in Q2. Tesla’s stock has risen more than 800% in the last 12 months. Sources told IFR investors also bought Tesla convertible bonds and corporate equity derivatives.
Exchanges and Clearing
Wall Street-Backed Exchange Launches as Rival to NYSE, Nasdaq
A new exchange backed by Wall Street banks, electronic-trading firms and asset-management giant BlackRock Inc. launched Monday, introducing a new, low-cost competitor to the New York Stock Exchange and Nasdaq Inc.
MIAX Exchange Group – Options Markets – Delisting of Garrett Motion Inc. (GTX)
Garrett Motion Inc. (GTX) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Tuesday, September 22, 2020. All GTC orders resting on the MIAX order books in GTX will be canceled at the close of business on Monday, September 21, 2020.
Effective September 21, 2020 through September 25, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
Issue Symbol: All Symbols
Reason: In maintenance of a fair and orderly market.
Time: Opening and Intraday
Subject Summary: Please be advised, effective September 21, 2020 through September 25, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.
Change to the Market for Underlying Security Used for Openings on MIAX Options, MIAX PEARL and MIAX Emerald for Symbol KDP Effective Monday, September 21, 2020
Keurig Dr. Pepper, Inc. (“KDP”) will transfer primary listing from the New York Stock Exchange to the NASDAQ Stock Market (“NASDAQ”) effective Monday, September 21, 2020. MIAX Options, MIAX PEARL and MIAX Emerald will use NASDAQ as the “market for the underlying security” for the purpose of Openings on the Exchange. Please refer to the following for more information.
Regulation & Enforcement
EU markets watchdog has no plans to scrap Euribor benchmark
Euribor, a euro version of the tarnished Libor interest rate benchmark, will be available for the foreseeable future, the European Union’s markets watchdog said on Monday.
Regulators are ending the use of sterling and dollar Libor or London Interbank Offered Rate by the end of next year after banks were fined billions of dollars for trying to manipulate the benchmark.
U.S. Stock Outperformance Portends More Dark Days for Dollar
and Robert Fullem – Bloomberg
The dollar’s weakest quarter in a decade may get even worse as investors respond to the effects that massive American equity-market gains have had on the composition of their portfolios.
The Bloomberg Dollar Spot Index has plunged close to 5% this quarter and is on track for its biggest slide since 2010 as America’s economy shows signs of recovering from its pandemic-induced slump. That more upbeat narrative has helped to underpin a 7% rally in the S&P 500 Index that puts to shame gains in stocks from Japan to the euro area and Canada — not to mention losses for U.K. and Australian equities.
“Implied Volatility Skew!” // tastyBeats September 14-18
Mike Butler – tastytrade
Recently on Market Mindset, we’ve been talking a lot about implied volatility skew and how strategies can benefit from it. Typically with a debit spread setup, we assume that it’s a risk one to make one setup, and our probability of profit is 50%. That’s not necessarily the case these days, with such prevalent skew in so many stocks! Let’s walk through a few key points to hammer this concept home!
The impending EU CCP recovery and resolution regime and its impact on EU and non-EU firms
24 September 2020 • 10:00 AM – 11:00 AM ET • Webinar
On 24 September, representatives from Allen & Overy’s Global Financial Services Regulatory and Bankruptcy practice in London and New York will provide an overview of the EU legislative framework for the recovery and resolution of CCPs operating in the EU, which has now been finalized. The aim of the framework is to reduce the risk of a CCP failing and to establish procedures for the resolution of a CCP that has failed in order to limit impact on the financial system and on public funds. The regime and the changes it will require to EU CCP practices will be relevant to all direct and indirect participants in EU CCPs. The New York team will moderate and draw out the impact of the EU CCP Recovery and Resolution Regime on US clearing members and contrast the EU framework with the US position for CCP bankruptcy and resolution under the CFTC’s proposed Part 190 bankruptcy regulations and other recovery and resolution initiatives for CCPs.”
(Podcasts) Volatility Views 415: The Looming Specter of Election Volatility
Volatility Views – Options Insider