ICE sees record futures and options open interest as traders continue to mitigate risk

May 27, 2021

Observations & Insight

**** Thom Thompson: Yesterday, one of my favorite tweeters, @BennettTomlin, asked the twitterverse if any of the crypto trading platforms do not operate their own trading desks. Trading against customers is pretty anathema among stock and futures exchanges, probably because it is mostly illegal. But crypto derivatives exchanges that only let their customers buy options (short options margining is admittedly hard and risky) would seem likely to be in the practice of trading against their customers. @BennettTomlin did not get many responses and no one said they are sure that this or that platform does not have a trading desk. Coincidentally, a few hours after the tweet,
I was speaking with someone from ErisX who pointed out that the ErisX platform, which is both a spot market and a futures exchange, does not “trade” cryptocurrencies. It “lists” them for its customers to trade.

Lead Stories

ICE sees record futures and options open interest as traders continue to mitigate risk; The exchange reported a new record open interest of 84.5 million contracts across its futures and options trading earlier this month.
Annabel Smith – The Trade
Intercontinental Exchange (ICE) has surpassed its previously set record for open interest on futures and options trading as the markets continue to look for means to mitigating risk. The exchange saw a new record of open interest with 84.5 million contracts across its futures and options trading earlier this month, surpassing the previously set record from March last year.

‘Extreme’ moves in bitcoin feed stock-market volatility, study finds
William Watts – MarketWatch
Like it or not, stock-market traders need to keep an eye on bitcoin prices or risk getting whipsawed when the popular but volatile digital asset makes big moves, according to a study by Singapore bank DBS.
“The upshot is that bitcoin is no longer the fringe asset that it once was, given the higher correlations and increased U.S. equity volatility that trail extreme moves in bitcoin markets,” wrote Chief Economist Taimur Baig and macro strategist Chang Wei Liang, in a research report published Tuesday.

Index providers’ revenues jump to a record $4.1bn in 2020
Jackie Noblett – Financial Times
The huge adoption of passive investing has driven collective revenues for index providers, including MSCI, S&P Dow Jones Indices and FTSE Russell, to a record high.
Globally, index providers earned $4.1bn in revenue last year, up 9.7 per cent from 2019, according to a new report from Burton-Taylor International Consulting. Over the past five years, the compound annual growth has averaged 11 per cent, the report indicates.

Bitcoin Options Market Faces Smallest Expiry of Year – But It Could Still Drive Volatility
“Max pain” for the May expiry is $50,000.
Omkar Godbole – Coindesk
The bitcoin options market is on track to record a modest monthly options expiry in the wake of the recent price crash – mainly because the cryptocurrency’s price is so much lower. But there’s still speculation some traders might try to use the moment to push prices as high as $50,000 to increase their payoff or minimize any payouts.
The May expiry, expected early Friday, would have been much bigger had it not been for bitcoin’s recent drop from $58,000 to $30,000, which pricked the speculative bubble in the market.

More Leveraged Volatility ETFs Are Coming!
ConvexityShares files for a pair of volatility-linked ETFs, including one that essentially mimics UVXY.
David Dierking – The Street
Who’s old enough to remember the great Volmaggedon when multiple products tied to the VIX suddenly imploded?
XIV Volmageddon Implosion
Most of you should remember it. It only happened three years ago. In a time when investors were enjoying a time of record calmness in the equity markets, traders began loading up on inverse volatility futures bets, figuring that they were easy money since the market was barely moving.

Regulation & Enforcement

US justice department opens probe into Archegos
Ortenca Aliaj and Eric Platt – Financial Times
The Department of Justice has opened a probe into Archegos Capital Management, whose collapse in March sent shockwaves through the market and left major banks with more than $10bn in losses.
The department has requested information from a number of banks who acted as the family office’s main trading counterparties, according to two people briefed on the matter. It was not clear what information prosecutors were seeking or whether the department would pursue criminal charges.


Bermuda Stock Exchange Announces Appointment of Jacintha Hughes to Position of Chief Administration Officer
The Bermuda Stock Exchange (BSX) announced today that Jacintha Hughes has been promoted to the newly created position of Chief Administration Officer of the BSX.
In her new role, Hughes will be responsible for the corporate functions relating to finance, human resources and office administration of the BSX. In addition, she will support corporate integration between the BSX and MIAX.


Pinduoduo Is a Bet on China’s Continued Growth
Steven M. Sears – Barron’s
In its long march from the quotations of Chairman Mao to the quotations of the world’s stock markets, China has emerged as one of the greatest economic successes in the history of the world.
The nation has risen from economic nothingness to the world’s second-largest economy in about 50 years—and it is still growing. During the first quarter, as the Covid-19 pandemic began to end, China’s economy grew 18.3%, compared with America’s 6.4% growth. Euro-zone economies shrank.

Opinion: As the S&P 500 approaches its all-time high, brace for a violent move
Lawrence G. McMillan – MarketWatch
The S&P 500 index has been trading in a range between twice-tested support at 4060 and the all-time highs at 4238. As it nears the top of this range, a volatile move is likely to follow: Either it will break out to new all-time highs, which would certainly engender some strong follow-through buying, or it will fail at the top of the trading range and move lower to test the bottom of the range once again.
Either move is likely to be swift.
Let’s review the indicators, and then we can judge what strategy to apply to this theory.


Cboe Global Markets to Present at Deutsche Bank Global Financial Services Conference Tuesday, June 1
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, announced today that Chris Isaacson, Executive Vice President and Chief Operating Officer, and Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, will present at Deutsche Bank’s 11th Annual Global Financial Services Conference, taking place virtually on Tuesday, June 1 at 1:25 p.m. (Eastern Time).

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Past Options Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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