Investors Fear Long Stretch of Calm in Markets Can’t Last

Jun 17, 2024

Observations & Insight

Volatility Insight of the Week: EUR/USD skew ratio, as seen on CME Group’s Volatility Index (CVOL), has dropped to the lowest level in two years as options traders adjust their positions based on the latest macroeconomic and geopolitical events. To learn more about CVOL, please visit HERE.


Regulatory Uncertainty Clouds Options Market Innovation

David Dooman, head of options at Dash Financial, a subsidiary of ION Group, expressed concerns about the impact of regulatory uncertainty on the options markets during an interview at the Options Conference in Asheville, NC. Dooman highlighted several key issues stifling innovation and offered recommendations to address the industry’s challenges.

Watch the video »

Lead Stories

Investors Fear Long Stretch of Calm in Markets Can’t Last; With stock indexes at record highs, market volatility has been exceptionally low
Jack Pitcher – The Wall Street Journal
Markets are unusually calm – and that’s making Wall Street nervous.
Stocks have been on a steady climb, with the S&P 500 up 14% nearly halfway through 2024 and closing at 29 records along the way. One-day index changes of 1% in either direction have been rare, and there has been just one 2% move, the fewest since 2017 through this point in the year.
The Cboe Volatility Index, or VIX, dropped below 12 last week, a nearly five-year low. Known as Wall Street’s fear gauge, the index tracks the price of options that can be used to hedge against stock-market downturns and measures how much traders expect prices to fluctuate.

Europe Traders Look for Cover on Surprise Call for French Vote; Euro Stoxx 50 implied volatility surges relative to S&P 500; Currency options traders build up bearish euro positions
Jan-Patrick Barnert and Vassilis Karamanis – Bloomberg
Forget about a summer swoon in European options.
After French President Emmanuel Macron shocked markets by calling for a snap vote following a surprisingly strong performance by right-wing political parties in European elections, the region’s equity options are implying a level of stress relative to the US usually seen around geopolitical conflict or broad financial upheavals.

Roaring Kitty’s $262 Million Stirs Skeptics in Meme Stock Era; Retail trader Keith Gill has a paper fortune in GameStop mania; Short sellers have wised up, but manipulation questions swirl
Annie Massa and Bailey Lipschultz – Bloomberg
As a renewed bout of GameStop Corp. fever gripped the meme-stock faithful, fans of trading influencer Keith Gill waited for one moment: The day their hero, aka “Roaring Kitty,” aka “Deep F–ing Value,” would become a billionaire. The notion was hardly far-fetched. Over the course of two weeks, Gill had been posting images of a massive stake in GameStop and its call options in a portfolio that peaked at more than $550 million on June 6. Though he’s added even more stock since then, the dollar value of his holdings has dropped along with the company’s shares.

Currency Traders Readying for a ‘Vol Killer’ Summer After Fed; Global volatility index falls from one-month high post Fed; Dollar implied volatility had been rising back toward average
David Finnerty – Bloomberg
Investors hoping the coming months would bring an explosion of currency volatility on the back of multiple central bank interest rate moves are in for disappointment, according to option traders. There were signs currency markets were getting more turbulent when the Australian dollar, euro and yen rallied around 1% after the US reported weak inflation data on June 12. However, those moves fizzled out after Federal Reserve Chair Jerome Powell’s projection for one rate cut this year proved to be a dampener and JPMorgan’s Global FX Volatility Index fell for a second day Thursday – though election angst in France pushed the gauge higher Friday.

Market maker IMC latest to join Cboe Europe Derivatives as trading participant; News follows Cboe Europe Derivatives’ expansion into single stock options in November last year.
Annabel Smith – The Trade
Cross asset market maker IMC has become the latest trading participant to join Cboe Europe Derivatives (CEDX). “We are very excited to become a direct trading participant on CEDX and provide liquidity across the exchange’s range of pan-European equity derivatives contracts,” said Koen Langemeijer, IMC Europe market making lead. “We are strongly aligned with CEDX’s ambitions to enhance and grow Europe’s derivatives markets and look forward to providing its participants with access to our exceptional levels of liquidity.”


Cboe Global Markets to Launch New U.S. Treasury Market Volatility Index (VIXTLT)
Cboe Global Markets, Inc. (Cboe: CBOE), the world’s leading derivatives and securities exchange network, today announced plans to launch the Cboe 20+ Year Treasury Bond ETF Volatility Basis Point Index (“VIXTLT Index”). Using an adaptation of Cboe’s proprietary VIX Index methodology, the VIXTLT Index will be calculated using listed options on the iShares 20+ Year Treasury Bond ETF (TLT) and provide market participants with the ability to track future (30-day) expected volatility in the U.S. Treasury market, the deepest and most liquid government securities market in the world. The VIXTLT Index is expected to launch in the third quarter of 2024.

Cboe Europe Derivatives Welcomes IMC as New Trading Participant
IMC joins Cboe Europe Derivatives as direct trading participant, gaining access to the exchange’s suite of pan-European equity derivatives. CEDX recently expanded its range of equity options and now offers contracts on over 300 European companies. Cboe Europe Derivatives (CEDX), Cboe’s pan-European equity derivatives marketplace, today announces that IMC has become a new direct trading participant, gaining access to the exchange’s range of pan-European index derivatives and equity options.

Deployable Margin Software Production Release – Equities in SPAN 2 Margin Framework – Effective June 14, 2024
CME Group
CME Clearing (“CME”) has announced the multi-year rollout schedule of its SPAN 2 framework for calculating performance bond requirements for CME-cleared futures and options on futures. According to the planned Equities in SPAN 2 framework release schedule, CME has delivered a production-candidate build of the deployable margin software, version 3.1.9, which supports Equities in the SPAN 2 framework. Users are encouraged to deploy this version in their production environment on or before the mandatory production cutover date for Equities contracts. Starting on the mandatory cutover date, prior versions of the deployable margin software will no longer be supported.

Trader Alert 24-32: MEMX Options Version 1.7A of its MEMO SBE and Risk Specifications Will be Available in Production July 8, 2024
As previously announced here, MEMX Options released version 1.7A of its MEMO SBE and Risk specifications. This update will be available in Production starting Monday, July 8, 2024. All previous versions of MEMO SBE and Risk version 1.7 will be deprecated.

Regulation & Enforcement

Hedge Funds’ Secret Weapon to Fight the SEC Lives in Texas; The strategic address of the National Association of Private Fund Managers gives it a huge advantage as it pushes back against federal regulations.
Lydia Beyoud and Madlin Mekelburg – Bloomberg
The most powerful weapon that hedge funds have against regulators like Securities and Exchange Commission Chair Gary Gensler is no longer white-shoe lawyers or silver-tongued lobbyists. It’s an address in Texas. The National Association of Private Fund Managers, a little-known group whose main focus appears to be challenging SEC rules, has sat tucked in a Fort Worth law office since its founding in 2022. Its home is 1,500 miles from many hedge fund campuses in leafy Connecticut, and even further from London or Singapore, where its impact is being felt.


Days To Expiration Vs Implied Volatility
Tom Sosnoff and Tom Preston discussed key concepts from a recent study on implied volatility and days to expiration in options trading. They highlighted that volatility is mean reverting while price is not, and explored optimal trading strategies based on current market conditions. They found that managing options at 50% of max profit within 45 days was most effective, particularly in high volatility scenarios, emphasizing the importance of sound risk management and mechanical decision-making.


A popular Wall Street currency trade is getting hit by geopolitical uncertainty
Vivien Lou Chen – The Wall Street Journal
Only a month ago, Wall Street was promoting a popular trading strategy across global foreign-exchange markets – one in which investors attempt to take advantage of differences in interest rates among countries.
The so-called carry trade, a common strategy by investment funds, was seen as likely to benefit in the months ahead from relatively subdued volatility and a likely divergence in interest-rate paths by central banks around the world.


Is the stock market open on Juneteenth, June 19? Will the post office deliver mail?
Charles Passy – MarketWatch
As Americans prepare to mark Juneteenth, a day that commemorates the end of slavery in the U.S., they should also be aware of the closings associated with the federal holiday. Those include a day off for financial markets.

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