How Options Trading Is Driving Up Stocks—and Driving Them Down

Jul 23, 2021

Lead Stories

How Options Trading Is Driving Up Stocks—and Driving Them Down
Andrew Bary – Barron’s
Options trading by retail investors may account for the strength in the S&P 500 during the morning this year and weakness in the afternoon. The S&P 500 is up 9% in morning trading so far in 2021, while the index is down 5% in the afternoon, according to a note Thursday from Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

Market Volatility Beckons After Warp-Speed Covid Recovery
John Authers – Bloomberg
The most startling announcement this week concerned news that was more than a year old. In the U.S., the recession driven by the Covid-19 shutdown ended in April 2020. It only lasted two months. So said the National Bureau of Economic Research, and it’s a reasonable judgment. It also means that this recession was by far the shortest on record, as well as the deepest if judged by the increase in unemployment:

‘Freak-Out’ Factor to Determine Delta Impact on U.S. Economy
Katia Dmitrieva and Peyton Forte – Bloomberg
The rapid spread of the delta variant has sown volatility in financial markets this week, but thus far economists are maintaining their forecasts for an historically strong U.S. recovery.
Key to their relative confidence: officials are unlikely to order renewed lockdowns, and most consumers won’t drastically alter their plans. Any change in that assessment, and bets are off.

US and European stocks set to end volatile week on a high
Naomi Rovnick – Financial Times
US and European equities were set to end the week higher after a volatile few days, as fears about the Delta variant of coronavirus were soothed by strong corporate earnings and continued central bank support for financial markets.
The S&P 500 gained 0.4 per cent in early New York dealings. Wall Street’s blue-chip share index dropped as much as 2 per cent on Monday but was on course to finish the week up about 1.5 per cent, close to its mid-July all-time high.
The technology-focused Nasdaq Composite rose 0.3 per cent.

Bitcoin Options Market Sees Low Chance of Record High This Year
Omkar Godbole – CoinDesk via Nasdaq
Bitcoin options are assigning a low probability to prices reaching record highs by year-end as volatility expectations continue to fall amid a dour mood in the market.
According to data source Skew, options traders are pricing an 8% chance of the cryptocurrency rising to a new peak above $64,800 by Dec. 31. The probability of bitcoin trading in six figures is just 2%.
Some observers may feel the market is underpricing the probability, but the numbers need to be read in context with the recent price action.


Cboe Global Markets (CBOE) Set to Announce Earnings on Friday
Cboe Global Markets logoCboe Global Markets (NASDAQ:CBOE) is set to release its earnings data before the market opens on Friday, July 30th. Analysts expect Cboe Global Markets to post earnings of $1.30 per share for the quarter.
Cboe Global Markets (NASDAQ:CBOE) last released its earnings results on Thursday, April 29th. The company reported $1.53 EPS for the quarter, beating the Zacks’ consensus estimate of $1.40 by $0.13. The company had revenue of $365.50 million during the quarter, compared to analysts’ expectations of $344.30 million. Cboe Global Markets had a return on equity of 16.72% and a net margin of 12.72%.

Regulation & Enforcement

Judge Refuses to Identify Those Accused of VIX Manipulation
Breanna Bradham and Nick Baker – Bloomberg
A federal judge refused to identify five market participants accused in lawsuits of manipulating the VIX index, one of Wall Street’s most closely watched benchmarks.
The index saw a record spike on Feb. 5, 2018, causing widespread losses among investors who hadn’t anticipated such a sudden increase in market volatility. More than two dozen investors and fund managers sued over the next year to recover losses, claiming unidentified market participants that rigged the index “repeatedly posted and immediately canceled” tens of thousands of quotes for S&P 500 options, whose prices are used to calculate the VIX.


The NFA is looking to add to their Compliance, OTC Derivatives, IT and Human Resources teams in their Chicago and New York offices. If you are interested in exploring careers with the NFA, you can find more information HERE. Joining NFA as an intern and then as a full-time employee was a great experience for Robin Wood, who was interviewed for our MarketsWiki Education World of Opportunity series.


It’s Looking Like a Fine Time to Consider Covered Call ETFs
Tom Lydon – ETF Trends
With market volatility showing signs of upside potential, options premiums will follow suit, potentially increasing the allure of strategies like the Global X Nasdaq 100 Covered Call ETF (QYLD) for income-starved investors.
QLYD follows the CBOE Nasdaq-100 BuyWrite V2 Index. The ETF is an exchange traded fund that offers covered call exposure to the popular Nasdaq-100 Index (NDX). With a yield of 12.06%, QYLD is an ideal income elixir in today’s low-yield climate. The fund also brings income to an asset investors don’t often associated with income as NDX currently yields 0.53%.


Reminder: FIA webinar Q2 2021 trends in futures and options trading 28 July 2021 • 10:00 AM – 11:00 AM ET
This webinar will cover broad trends in volume and open interest and take a deep dive into four areas – equity index and interest rate trading in Europe, the growth of ESG futures, emerging opportunities in Brazil and the Asia-Pacific region, and a comparison of agricultural futures trading in China and the US. The webinar also will discuss inflation and the prospect for interest rates to become active again.
Moderator: Will Acworth, Senior Vice President, FIA
Speaker: Julian O’Leary, Chief Operating Officer, GH Financials
Date/Time: Wednesday, 28 July 2021 | 10:00 a.m. – 11:00 a.m. ET


The Big Apple And the Second City: Two Trading Towns United, Part II
Tony Huck, Chief Executive Officer, Score Priority – The Trade
As I mentioned in my last post, these past few months I’ve been thinking about the market’s evolution during the course of my career, an exercise brought upon by the rapid changes we’re seeing all around us as we figure out both the reopening and our new normals.
Most of my career has mirrored the flight path of a jet flying the O’Hare to LaGuardia route. So, my thought process surrounding these decades of increasingly intertwining equity and derivatives markets centered around the relationship between Chicago and New York. I left off establishing the two cities’ market foundations: two different trading cultures centered around different asset classes.

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