JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic

Mar 11, 2020

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JPMorgan, Citigroup Feast on Equity Derivatives in Virus Panic
Donal Griffin – Bloomberg
The historic panic in global stock markets has spawned a fortune for some of the world’s biggest investment banks. JPMorgan Chase & Co. and Citigroup Inc. have added about $500 million in revenue from equity derivatives trading year-to-date compared with the same period in 2019, people familiar with the matter said. Trading surged as investors rushed to bet on stock moves and protect their holdings. The spreading coronavirus has killed thousands, roiled the global economy and forced Italy to announce a nationwide lockdown. But for Wall Street’s trading desks, which rely on volatility to generate profit, the turmoil is an opportunity after investment banks long bemoaned the calmness of markets in recent years. Patrick Burton, a spokesman for JPMorgan in London, declined to comment, as did Edwina Frawley-Gangahar, a spokeswoman for Citigroup.

Chart of Wall Street’s ‘fear’ index in 2020 illustrates how unhinged stock markets have been over coronavirus compared to the 2008 crisis
Mark DeCambre – Market Watch
How volatile and anxious is Wall Street amid this evolving worry about a potential global pandemic that could shake the global economy to its core? Perhaps, the best gauge of that deep-rooted concern is one of the market’s most closely watched measures of volatility.
The Cboe Volatility Index, or VIX, hit its highest intraday level since 2008 on Monday, amid a stock market slump that also registered as the ugliest one-day plunge for the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite Index in 12 years.

The Dow Is Tumbling Again. ‘Bull Market Will Soon End,’ Goldman Sachs Says
Ben Levisohn – Barron’s
Another day, another 1,000-point drop for the Dow Jones Industrial Average after Sen. Chuck Grassley, the chairman of the Senate Finance Committee, said that the U.S. should consider reducing the payroll tax, but that there’s no need for action as of yet.
Sen. Chuck Grassley, chairman of the Senate Finance Committee, said that while a cut should be under consideration, it isn’t currently needed. according to a Bloomberg News report.

Bitcoin Options Saw Record Volume of $198M Amid Recent Price Drop
Omkar Godbole – Coindesk
Trading volume records in bitcoin’s options market were smashed on Monday as investors scrambled to hedge their positions amid the sell-off. Major exchanges – Deribit, LedgerX, Bakkt, OKEx, CME – registered total trading volume of $198 million, surpassing the previous record high of $171.3 million reached on Feb. 11, according to crypto derivatives research firm Skew Markets.
Deribit, the world’s biggest crypto options exchange by volume, contributed nearly 86 percent, or $170 million, of the total trading volume on Monday. Chicago Mercantile Exchange (CME) traded $2.1 million, while Intercontinental Exchange’s (ICE’s) Bakkt did not trade any contracts. Bakkt last registered activity on Feb. 27 and prior to that on Feb. 12.

More cleaning, few visitors at Chicago trading pits due to coronavirus
Tom Polansek – Reuters
Exchange operators in Chicago and London are making contingency plans and stepping up cleaning for open-outcry futures and options trading floors as the global spread of the new coronavirus spooks markets.
Exchanges are seeking to avoid disruptions linked to the outbreak, which has roiled equities and commodities prices worldwide. The virus can cause a sometimes fatal flu-like respiratory illness.

Trading in VIX options froze after open – CBOE
Aaron Saldanha – Financial Post
Trading in options on Wall Street’s fear gauge was impossible in the first minutes of Monday’s session due to an absence of prices from the market makers on whom trading depends, a representative of index operator CBOE Global Markets Inc said. CBOE Senior Trade Desk Specialist Ryan Stone told Reuters that VIX options were tradable at 9:51 a.m. ET (1351 GMT) but a lack of liquidity led to a lag of about seven minutes until the first trade, around 9:58 a.m. ET.

Treasury Holds Call With Fed and SEC on Virus-Fueled Volatility
Benjamin Bain – Bloomberg
Treasury Secretary Steven Mnuchin held a call Tuesday with the leaders of the Federal Reserve, Securities and Exchange Commission and other financial agencies to discuss how markets are faring amid intense volatility spurred by the spread of coronavirus.
The call among the U.S.’s top financial regulators, known as the President’s Working Group on financial markets, came a day after U.S. stocks fell by the most since the 2008 financial crisis. Even after rebounding Tuesday, the Standard & Poor’s 500 Index has declined 11% this year largely on concern over how the coronavirus will impact global growth.

Christine Lagarde reportedly warned coronavirus could cause the worst economic disaster since the financial crisis
Theron Mohamed – Markets Insider
European governments and central banks must mount a fast, coordinated response to the coronavirus epidemic or face devastating consequences, Christine Lagarde warned on a conference call Tuesday, a person familiar with the European Central Bank president’s comments told Bloomberg.

FIA, Greenwich Associates release new derivatives market research
FIA today released a study on trading and clearing trends in derivatives markets. The study assesses market sentiment towards several major market structure trends, including the impact of capital requirements, the adoption of central clearing, the transition away from Libor, and the implementation of margin requirements on uncleared derivatives. The study reveals important insights on the views of financial institutions and commercial end-users that use derivatives to hedge risks and enhance returns. The study also reveals what market participants view as the key factors influencing the future growth of the derivatives clearing business.


TP ICAP hits record trading volumes from market volatility
Philip Stafford – Financial Times
TP ICAP, the interdealer broker, has experienced a record volume of trading in the last week as rapidly shifting sentiment on global interest rates and the oil price crash roiled prices on its main markets.
The UK group’s 2,740 brokers act as negotiators, often by phone, between banks in global over-the-counter markets. They match buyers and sellers in swaps and derivatives in interest rates, oil and foreign exchange, and the company is the world’s largest energy broker.

Stock, bond and FX trading volumes boom as volatility jumps
Tommy Wilkes – Reuters
Amid frenzied selling in financial markets this week, there was a silver lining for banks and trading platforms which attracted a rush of business as investors scrambled to protect portfolios from the volatility.


Trading Technologies and Nodal Exchange Launch Collaboration to Provide Market Access Through the TT Platform
Trading Technologies (press release)
Trading Technologies International, Inc. (TT), a global provider of high-performance professional trading software, infrastructure and data solutions, and Nodal Exchange, a derivatives exchange providing price, credit and liquidity risk management solutions to participants in the North American commodities market, today announced they have entered into a commercial agreement whereby Nodal Exchange’s contracts will be available for trading through the TT platform.

Trading Technologies Partners with Borsa Istanbul
Celeste Skinner – Finance Magnates
Trading Technologies International, Inc. and Borsa Istanbul, Turkey’s only exchange, announced this week that all of the derivative products listed on Borsa Istanbul Derivatives Market (VIOP) are now available for trading through Trading Technologies’ trading platform (TT platform).


BofA Likes Long-Dated Volatility to Hedge Rising Systemic Risks
Joanna Ossinger – Bloomberg
Investors need cheap hedges as the power of central banks to prop up markets weakens, and there’s still relative value in longer-dated volatility, according to Bank of America Corp.
A “high-strike central bank put” has defined markets over the past decade and depressed swings, but the drop in U.S. stocks after the Federal Reserve’s 50 basis point rate cut and Monday’s 7.6% S&P 500 Index plunge show that confidence in the power of central banks is waning, according to BofA strategists led by Benjamin Bowler. Investors should hedge, they said.


Options Premium and Pricing
So just how are options priced? The Options Industry Council is ready to help make it less confusing. Join OIC for a webinar on March 11, Options Premium and Pricing, to learn about:
Moneyness – in-the-money, at-the-money and out-of-the-money
Intrinsic value vs. extrinsic value
Options pricing models
How demand and supply affect pricing
Register now for this free event. When you register, you also get access to a replay to watch any time!


The Boca that wasn’t
Walt Lukken –
I want to thank FIA members and Boca attendees for their understanding and support of our decision to cancel the 45th Annual Boca International Futures Industry Conference due to the global outbreak of the Coronavirus. Today would have been the first full day of the Boca Conference, which provides me a moment to reflect.

Natixis’s H20 Tests Investor Appetite for Naked Volatility
Mark Gilbert – Bloomberg
It’s only when the tide goes out that you find out who’s been swimming naked, the billionaire investor Warren Buffett famously opined. After the violent moves in stocks and bonds this week, H20 Asset Management’s traders need to keep hold of their Speedos.
The firm, run by Bruno Crastes and Vincent Chailley and backed by French bank Natixis SA, saw its funds hammered by losses as stocks, oil and Italian bonds slumped on Monday. Its Multiequities fund declined by about 30% in a single day and erased six years of gains, while its Multibonds strategy lost 20%, as my colleagues at Bloomberg News reported on Wednesday.

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