Observations & Insight
The Spread: Until We OCC You Again
This week on The Spread, we catch up on the last two week’s news, including a number of exciting updates from our friends at the OCC.
*****MR: Correction – the OCC cleared over 693 million contracts in June, not 693 thousand.
LedgerX is taking another shot at a bitcoin fear gauge
Frank Chaparro – The Block
LedgerX is taking another stab at a VIX-like bitcoin volatility index. Announced Friday, the so-called BitVol Index is the result of a partnership between the New York-based options venue and T3 Index, a provider of options-based indices. Similar to Wall Street’s fear gauge—the VIX—BitVol measures the 30-day implied volatility of bitcoin, leveraging LedgerX’s market data.
Global stocks surge as investors ignore record new COVID-19 infections, and pin their hopes on the start of earnings season
Saloni Sardana – Markets Insider
Global stocks rose on Monday as investors ignore rising COVID-19 cases around the world, and build towards the start of the second quarter earnings season, which kicks off in earnest this week.
All major stock indices were in positive territory, with the sharpest gains seen in Asia.
Emerging Markets Are Going to Pay the Price Again
Mihir Sharma – Bloomberg
Judging by the performance of emerging markets, you’d hardly know the world was suffering from a deadly pandemic. After a horrible March, according to the Institute for International Finance, non-resident portfolio flows into emerging markets increased tenfold to $32.9 billion in June. MSCI’s EM currency index hit a one-month high last Thursday. Even currencies as weak as the South African rand are seeing a bit of a rally.
Of course, that doesn’t mean things are going well in developing nations themselves. If anything, many of them face longer and more troublesome recoveries than was anticipated at the depth of the market panic in March. Earnings aren’t expected to recover anytime soon. Here in India, the ratio of price to one-year forward earnings for stocks in the Nifty50 index is the highest it has been for a decade.
Funds post biggest CBOT short-covering round in 13 months
Karen Braun – Reuters
Hot and dry weather across the U.S. Corn Belt had speculators covering more short positions in Chicago-traded grains and oilseeds last week, but Friday’s trade ended on a more bearish note as weather forecasts suggested relief is on the way. In the week ended July 7, money managers reduced their net short position in CBOT corn futures and options to 141,741 contracts from 201,648 a week prior, according to data from the U.S. Commodity Futures Trading Commission.
Asia collar financing surges on back of Covid-19 volatility
Blake Evans-Pritchard – Risk.net (subscription required)
A sudden surge in options-based structures to finance share acquisition deals in Asia is driven by coronavirus concerns, say dealers, but it may be the start of a longer-term structural shift. Historically, most share acquisitions in the region have been financed through margin loans, in which the purchaser pledges securities to borrow money from a bank. If the value of the shares falls, borrowers face a margin call or early termination of the loan, but if it rises they keep all the upside.
Health Stocks Are Among Goldman’s Top Election Volatility Plays
Cristin Flanagan and Gregory Calderone – Bloomberg
U.S. equity investors are facing a turbulent four months as the presidential election heats up, and Goldman Sachs analysts scanned their coverage universe and found 38 stocks that investors can use to take advantage of that volatility with options. Large-cap health insurers and biotechs are at the top the list of stocks analysts led by Vishal Vivek see as swinging the most wildly, and they recommended buying at-the money-straddles. The strategy involves buying a put option and a call option with the same strike price and maturity date, which looks to profit from a jump in volatility.
Exchanges and Clearing
Cboe Futures Exchange to List Mini VIX Futures Beginning August 10
Cboe (press release)
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced plans to launch trading in Mini Cboe Volatility Index (VIX) futures on Cboe Futures Exchange (CFE) beginning Monday, August 10, subject to regulatory review. The new smaller-sized contract builds on the success of VIX futures – the most actively traded, exchange-listed volatility futures contract in the world – and aims to meet investor demand for a wider variety of tools to gain direct exposure to the VIX Index, recognized as the world’s premier gauge of U.S. equity market volatility.
Dash Plans Redesigned OEMS Release for Q4; Blaze 7 will feature an enhanced, integrated suite for options volatility traders.
Rebecca Natale – Waters Technology
Dash Financial Technologies will release its newly rebuilt front end, dubbed Blaze 7, in Q4 of this year, and it will feature a new volatility trading product suite. Blaze Classic—or just Blaze, as the Street knows it—is an order execution management system (OEMS) in the options space inherited by Dash during its merger with LiquidPoint in 2017. Dash chief operating officer, Stino Milito, says the company has spent the last couple of years rebuilding the platform to modernize it, make it easier
WallachBeth Enhances Electronic Trading Offering with Option Algo Suite
PR Newswire (press release)
WallachBeth Capital, a leading provider of institutional execution services, announced today the further expansion of its electronic trading offering with the addition of a robust algorithmic options trading suite. Institutional clients can now leverage the firm’s sophisticated tools for electronic options trading, customizing the offering to their individual needs and objectives.
Alan Burr Joins Sucden Financial for LME Metals and Options in Hong Kong
Alan Burr Joins Sucden Financial for LME Metals and Options in Hong Kong ACROFAN USA
(Webinar) Insights into the derivatives clearing landscape
Will Mitting, founder and managing director of Acuiti, a management intelligence platform focused on the derivatives industry, will join Will Acworth, senior vice president of FIA, in a 30-minute presentation on trends in the business of clearing listed and OTC derivatives. The discussion will cover proprietary data from global surveys of derivatives industry executives conducted by Acuiti as well as the latest data from the U.S. on customer funds flows.
Investors face ‘a scary, out-of-whack’ scenario — just look at this chart
Shawn Langlois – MarketWatch
If it weren’t for the “Giant 5,” your money would have been better off sitting in cash than the stock market over the past few years, according to Wolf Richter of the Wolf Street blog.
Yes, investment gains since early 2017 have been completely dominated by Apple, Microsoft, Amazon, Alphabet and Facebook to the point where the broader market, despite some wild fluctuations, has delivered virtually nothing without the upward push of those stocks.