Misfiring Havens May Saddle Investors With Costly Equity Hedges; Speculators’ Bullish U.S. Stock Bets Are Near Two-Year High

Nov 2, 2020

Observations & Insight

$13,541/$300,000 (4.5%)
Sean O’Toole, Ellen Resnick, David Silverman and Michael E. Unetich


The Spread: The Final Countdown

This week on The Spread – the VIX hits a 5-month high one week before the U.S. election, FIA Expo goes virtual, and more.

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The Mega-Macro Event That Upsets Everything Everywhere
By John J. Lothian

When Julie Ros of Profit & Loss announced the closing of the publication, she listed all of the macroeconomic events that P&L had overcome over the years, including 9/11 and the financial crisis. This one they were not able to overcome, and so Ros decided to close up. After a discussion with Ros late on Friday, I decided it was not a macroeconomic event that caused P&L’s closing, but a mega-macroeconomic event.

A macroeconomic event caused me to lose my first job after graduating from college; the Farm Crisis of 1984. There was another macro event in the futures industry that coincided with the Farm Crisis; the reorganization of the regulatory structure of the industry as the National Futures Association came online and implemented the new FCM/IB framework.

My first job was as a news reporter in 1984-85 for Commodity News Service (“CNS”), which was owned by Knight Ridder. CNS was one of two major wire services covering the markets at the Chicago Board of Trade, the other was Reuters.

The CNS wire service had a competitive advantage over Reuters because of the width of the thermal paper on its printers. Commodity News Service’s printers had thermal paper the width of a roll of paper towels and Reuters was the width of toilet paper. CNS could print weather maps and Reuters could not, which was important for futures markets dominated by agricultural trading.

To read the rest of this commentary, go here.

Lead Stories

Misfiring Havens May Saddle Investors With Costly Equity Hedges
Joanna Ossinger – Bloomberg
Hedging exposure to the S&P 500 index via options is going to remain costly yet vital next year due to the pandemic and relative lack of protection from traditional havens, Tallbacken Capital Advisors LLC said.
“Vaccine volatility” is likely because of the winding paths ahead to the eventual introduction of an inoculation or other therapies, according to Tallbacken CEO Michael Purves. That means strategies such as buying put options on the U.S. equity gauge “can continue to be a very expensive proposition,” he said.

Speculators’ Bullish U.S. Stock Bets Are Near Two-Year High
Gregor Stuart Hunter – Bloomberg
Speculative investors boosted bullish wagers on the U.S. stock market to the highest level in almost two years, a sign that some saw the potential for the S&P 500 index to bounce back from a two-month slump.
Net long positions in S&P 500 e-mini futures in the week to Oct. 27 were the most since January 2019, Commodity Futures Trading Commission data show.

Deribit Sees Record Bitcoin Options Volume as Activity in $36K Calls Surge
Omkar Godbole – Coindesk
Daily volumes for bitcoin options have hit lifetime highs on crypto derivatives exchange Deribit due to increased activity in deep “out-of-the-money” (OTM) call options, or bullish bets.

Jerome Kemp on the skewed economics of clearing; Only Fed intervention prevented “a really big market disaster” during Covid, says derivatives veteran
Costas Mourselas – Risk.net
Jerome Kemp leaves his job at the helm of Citi’s clearing business with many battles won, but plenty of unfinished business. After a year in which he managed – from his kitchen table – Citi’s response to coronavirus-induced market turmoil, he leaves the front lines of one of the biggest jobs in derivatives with deep pride at Citi’s blistering growth in derivatives clearing from a standing start in the near-decade he spent with the firm. According to disclosures to the Commodity Futures Trading.

Dollar gains on investor uncertainty before U.S. election
Karen Brettell – Reuters
The U.S. dollar hit one-month highs against a basket of peers on Monday and expected volatility in major currencies rose to the highest levels since April on investor jitters over the outcome of Tuesday’s U.S. presidential election.

Speculator Comeuppance Is Fast and Harsh in Tech’s Waterloo Week
Katherine Greifeld and Lu Wang – Bloomberg
The biggest week of the earnings season ended in carnage for America’s giant technology companies, dealing especially painful blows to traders who flocked to speculative corners of the market to wager on gains. The S&P 500 slumped 5.6% in its worst week since March, led by shares of megacap tech companies that reported solid quarterly results just days earlier. Losses in the tech-heavy Nasdaq 100 exceeded 3% at one point on Friday. And in the options market — where open interest had exploded in single-stock calls ahead of earnings — bullish contracts expired next to worthless as the tech bloodbath dragged them out of the money.

Exchanges and Clearing

GT Podcast Episode 7: The Cboe Theoretical Value
Global Trading (AUDIO)
GlobalTrading Editor Terry Flanagan speaks with Jerry Hanweck, VP Software Engineering, Information Solutions at Cboe, about the Cboe Theoretical Value, or “Cboe Theo,” a new options pricing model.

HKEX Enhances Product Offering with Ant Debut
Ant Futures and Options to be introduced on 5 November; HKEX informed issuers they can list derivative warrants on Ant shares when the shares debut on HKEX’s securities market; Ant shares to be included in Designated Securities Eligible for Short Selling on 5 November
Hong Kong Exchanges and Clearing Limited (HKEX) is pleased to announce today (Monday) that it will offer investors more options on Ant Group Co Ltd (Ant, stock code: 6688) shares on the debut date (5 November 2020).

Accrued Funding Data for CME AIR Futures to be added to CME’s Reference Data API effective November 23, 2020
CME Group
CME’s new Adjusted Interest Rate (AIR) Future on the S&P 500 Total Return Index provides total return exposure with an overnight floating rate built in. The enhanced contract design provides similar economics to an equity index total return swap with the margin efficiency of listed futures. The value of each AIR Total Return futures contract has three key components – the equity index value, the accrued funding value, and the financing spread adjustment.

MIAX Exchange Group – Options Markets – Corporate Action Alert: Apartment Investment and Management Company (AIV)
MIAX Options
Apartment Investment and Management Company (AIV) has announced a Special Dividend effective for Tuesday, November 3, 2020. On that date, the current AIV option class will change to AIV1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list AIV1 options. Therefore, no options on AIV will be available for trading on Tuesday, November 3, 2020.

Effective November 2, 2020 through November 6, 2020, MIAX Options and MIAX Emerald 2X Opening and Intraday Valid and Priority Quote Spread Relief in All Symbols
MIAX Options
Issue Symbol: All Symbols
Multiplier: 2X
Reason: In maintenance of a fair and orderly market.
Time: Opening and Intraday
Subject Summary: Please be advised, effective November 2, 2020 through November 6, 2020, the MIAX Regulation Department has granted 2 times opening and intraday quote parameter relief for all symbols on MIAX Options and MIAX Emerald.
Please note, standard quote width is $5 wide, two (2) times width is $10. The quote width listed in the following will be two (2) times the listed width.

Change to the Market for Underlying Security Used for Openings on MIAX Options, MIAX PEARL and MIAX Emerald for Symbol HST Effective November 2, 2020
MIAX Options
Host Hotels & Resorts, Inc.(“HST”) will transfer primary listing from the New York Stock Exchange to the NASDAQ Global Select Market (“NASDAQ”) effective Monday, November 2, 2020.
MIAX Options, MIAX PEARL and MIAX Emerald will use NASDAQ as the “market for the underlying security” for the purpose of Openings on the Exchange.

MIAX Exchange Group – Options Markets – Delisting of Livongo Health, Inc. (LVGO)
MIAX Options
Livongo Health, Inc. (LVGO) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Monday, November 2, 2020. All GTC orders resting on the MIAX order books in LVGO will be canceled at the close of business on Friday, October 30, 2020.

(Video) Volatility and the U.S. Presidential Election
Traders Magazine
Henry Schwartz, Head of Product Intelligence at Cboe Global Markets, speaks with Traders Magazine about the market volatility seen so far in 2020, and what the Nov. 3 U.S. Presidential Election may mean for the remainder of the year. Schwartz also explains what intelligence market participants can glean from the TradeAlert and LiveVol platforms, two of Cboe Information Solutions’s data and analytic offerings.

Cboe FX Volumes Slipped 3% in October
Arnab Shome – Finance Magnates
Cboe FX Markets, a foreign exchange (forex) provider to the institutions, has published its monthly trading volume numbers for October. The demand for the platform’s services declined on both month-on-month and year-on-year basis. The forex platform saw a total volume of $680.7 billion in October compared to $702 billion in the previous month. That was a monthly decline of 3 percent.

Regulation & Enforcement

Options Regulatory Alert #2020 – 37 UPDATED – PHLX, NOM, BX, ISE, GEMX and MRX – Weekly Quote Spread Parameter Relief November 2, 2020 through November 6, 2020
Effective November 2, 2020, the updated market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective November 2, 2020 through November 6, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.


*****JJL: The FIA has announced the fintech startups chosen for its sixth annual Innovators Pavilion at FIA EXPO-V. The companies chosen are: Blue Water Financial Technologies, Capitalise.ai, Disent, OilX, Options AI, Riskfuel Analytics, Sylvera, TradeX and WeMatch.


From corn to copper: Lucky ’13 supporting commodity bull market
Bloomberg Intelligence
The notion that low commodity prices are their own cure may be playing out in 2020, with help from the pandemic and mean-reversion risks in the elevated dollar and U.S. stock market, in our view. Improving demand vs. supply conditions and global central banks seeking inflation are tilting favor toward commodities, as evidenced by volatility.

(Podcast) Volatility Views 421: Is Anyone Buying Election Volatility?
Volatility Views – Options Insider Network


FIA Expo
Register now and join us virtually this November.
10 November 2020 – 12 November 2020 • 7:30 AM – 2:00 PM CST
Since March the futures community has shown its resiliency and ability to adapt to the challenges of today. Expo-V focuses on shaping what’s next in the cleared derivatives industry as we continue to move forward and change. Whether leading voices analyzing the most pressing issues or ground-breaking fintech startups, the virtual 36th Annual Futures & Options Expo is your destination to build partnerships, spot trends and define what’s next for our industry.
From keynote addresses to 1:1 interviews with exchange leaders and panels as well as the Innovators Pavilion and virtual trade show, Expo-V will bring you:
Ways to harness recent lessons learned to build a stronger tomorrow
Cutting-edge startups and new applications that are changing the face of the industry
Opportunities to diversify the industry from people to principles
Register now and join us virtually from November 10-12 for Expo-V!


He’s outperformed all other hedge funds so far this year, but now he’s got most of his portfolio in cash
Shawn Langlois – Bloomberg
Just a few years ago, Qian Yongqiang was running his own money. Now, after riding a wave of big wins in the stock market, his explosive hedge-fund finds itself on the top of the world and sitting on a wad of cash ahead of next week’s U.S. election. No doubt, it’s been a stellar year for Qian’s QQQ Capital Management hedge fund , which has navigated all the coronavirus volatility to post a 275% return for investors through September.

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