Make-or-Break Volatility Event Is Looming in Options Expiration; Options Activity Indicates Big Investors Have Become More Cautious

Oct 15, 2020

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Lead Stories

Make-or-Break Volatility Event Is Looming in Options Expiration
Katherine Greifeld – Bloomberg
For all the big ideas taking up space in investor minds right now, from the presidential election to a resurgent virus to government aid to the economy, a potentially bigger driver of turbulence in U.S. equities is an event of decidedly less momentous proportions.
With memories of August and September fresh, stock traders remain obsessed with derivatives markets, where the end of this week brings the expiration of monthly options on equities, indexes and exchange-traded funds and notes. Attention on the contracts is intense after several recent sessions where speculation by individual investors and the associated reaction of options dealers appeared to stoke turbulence.

Options Activity Indicates Big Investors Have Become More Cautious
Andrew Bary – Barron’s
Options activity suggests caution among institutional investors, while individual investors remain very bullish. The Cboe index put/call ratio hit 2.03 Tuesday, which means there were roughly two puts traded for every call, while the Cboe put/call ratio on individual stocks stood at just 0.39, showing that about 2.5 times the number of calls traded than did puts. Index options on market gauges like the S&P 500 index tend to be favored by institutions who use puts to hedge the value of entire portfolios while single-stock call options are favored by retail investors as a way to speculate on individual stocks.

Banks Brace for ‘Big Bang’ Switch on $80 Trillion Worth of Swaps
William Shaw, Liz McCormick and Tasos Vossos – Bloomberg
It’s being called the “big bang,” and it has derivatives traders on high alert.
In a critical development in the global shift away from old benchmarks that was triggered by Libor’s shortcomings, interest-rate swaps on more than $80 trillion in notional debt will transition this weekend to a new rate for determining their value.

Stocks will continue to rise regardless of who wins the election as corporate earnings stage a recovery, says the world’s largest wealth manager
Matthew Fox – Markets Insider
US stocks should continue to move higher regardless of who wins the upcoming November election, according to a Wednesday note from UBS Chief Investment Officer Mark Haefele.
As the economic recovery from the COVID-19 pandemic continues, corporate earnings should continue to roll in better than expected, according to UBS. And those better-than-expected earnings will help drive stocks higher, even as the market deals with volatility related to the uncertainty of another fiscal stimulus deal, setbacks in the race for a COVID-19 vaccine, and election-related headlines.

Biden vs. Trump: Why investors should get ready for a weaker dollar either way
William Watts – MarketWatch
It isn’t just stock-market investors who are bracing for volatility around and beyond Election Day next month.
The potential for an unclear result on election night and even a contested outcome is also putting currency analysts on edge, though the ultimate direction for the U.S. dollar following a victory by either Democratic challenger Joe Biden or President Donald Trump is likely to be lower, according to one currency watcher.

Exchanges and Clearing

MIAX Exchange Group – Options Markets – Delisting of Rosetta Stone Inc. (RST)
MIAX Options
Rosetta Stone Inc. (RST) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Friday, October 16, 2020. All GTC orders resting on the MIAX order books in RST will be canceled at the close of business on Thursday, October 15, 2020.

MIAX Exchange Group – Options & Equities Markets – Reminder of Reg SCI / SIFMA BCP Testing on Saturday, October 24, 2020
MIAX Options
As previously announced in the April 20, 2020 and September 16, 2020 Alerts, the MIAX Exchange Group will be participating in the 2020 SIFMA BCP Testing on Saturday, October 24, 2020. All members that are required to test with any one of the MIAX exchanges (MIAX Options, MIAX PEARL Options, MIAX PEARL Equities, and/or MIAX Emerald Options) in accordance with Regulation Systems Compliance and Integrity (Regulation SCI) have been notified. However, all members are encouraged to test. All Options designated Members are required to maintain connection to the MIAX Disaster Recovery (DR) environment for a twelve (12) month period after receiving notification for mandatory testing.

Options Trader Alert #2020 – 28 Nasdaq MRX Updated Pricing Schedule Effective November 1, 2020
MRX proposes to replace the Appointed Member Program with an aggregation program for an Affiliated Entity. To qualify for the Affiliated Entity program in November, Members must provide appropriate documentation by October 28, 2020. An “Affiliated Entity” would be a relationship between an Appointed Market Maker and an Appointed OFP for purposes of qualifying for certain pricing specified in the Pricing Schedule. In order to become an Affiliated Entity, Market Makers and OFPs will be required to send an email to the Exchange to appoint their counterpart, at least 3 business days prior to the last day of the month to qualify for the next month.

CME Globex Notices: October 12, 2020
CME Group

Q3 2020 Options Review
While this summer came to a close, activity in the options markets continued to heat up. September 2020 set a new record for options industry average daily volume at 30.1 million contracts, which was driven by volatility, a downturn in equities markets after recent new highs and, perhaps, a boost from two high-profile stock splits. In addition, three days in September are now ranked among the top 10 multi-list volume days in options trading history. Nine of the top 10 multi-list options volume days occurred in the first three quarters of this year; just one trading day from 2011 remains on the top 10 list and could fall out before year end, given the Presidential election is just a few weeks away.


2020 Educational Series: Income Generation and the Greeks
The final quarter of 2020 is upon us, and The Options Industry Council is closing out the year with a new round of free, live investor webinars. Once again, OIC will focus on fulfilling its mission as a leading provider of unbiased education for investors highlighting the benefits and risks of listed equity options.


Save the Date for the Annual Chicago Conference on Futures and Derivatives
Thompson Coburn LLP
Between the pandemic and the resulting financial devastation, the futures and derivatives markets have displayed unprecedented volatility. Add working from home to the mix and compliance has never been more challenging.
In response, we are offering a two-hour webinar on the current state of regulation and enforcement in our industry. At no cost, you can hear from regulators and enforcement attorneys about the latest developments and earn two hours of CLE.
Tuesday, October 20, 2020
1:00 PM – 3:00 PM CST

FIA Disaster Recovery Test
The 17th Annual Industry-Wide Disaster Recovery Test
24 October 2020 • 9:00 AM – 5:00 PM EST
On October 24, 2020, the futures industry will conduct its 17th annual FIA Disaster Recovery Test.
The annual exercise, an initiative of the FIA Market Technology division, is a coordinated industry effort to test business continuance, process recovery, connectivity and functionality between exchanges, clearinghouses and their member firms. Participants are provided with an opportunity to test the resiliency of their trading systems by conducting order entry from alternate recovery sites and verifying connectivity with exchanges and clearinghouses.
The test remains a valuable apparatus for the industry to assess its response to potential disaster scenarios and is an extraordinary example of a collaborative effort across the futures industry.


Four Years of Trading the Pound Suggests a Brexit Deal Gets Done
John Ainger – Bloomberg
The one thing pound traders have learned over the past four years of Brexit talks is that politicians normally find agreement, even if it’s a thin one. The problem is all the volatility before a deal is struck.

On diversity issues, “we can’t just talk about change then do nothing”
Meher Sutaria – FIA
Meher Sutaria at JP Morgan says people who have not embraced inclusion will lose credibility
What drew you to the derivatives industry?
I have always been drawn to the finance industry. I worked at Dow Jones Telerate, a financial data vendor, in India and then I moved to London 20 years ago to continue my career in the financial sector. My first role was at GL Trade, which provided trading platforms for equities and derivatives. From there, I moved to Lehman Brothers/Nomura working within clearing technology for derivatives and I made the move to JP Morgan nine years ago to work in operations. I now head Global Clearing Operations in Europe and Regulatory Reporting & Client Money globally. The derivatives industry is very interesting. It is continuously evolving, especially now in the current regulatory landscape, and keeps us all challenged.

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