More Investors Play the Stock-Options Lottery; Payback Time Arrives for Stocks as Geopolitics Shatters Calm

Jan 6, 2020

Observations & Insight

Options Markets To Get Liquidity Boost
Matt Raebel – JLN
A new rule finalized last month by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency might make it easier for banks to keep less capital tied up, potentially clearing the way for them to do more business with market makers.
In late November, these regulators jointly finalized a rule that would implement the “standardized approach for measuring counterparty credit risk,” also known as SA-CCR (pronounced “SACK-er”). The rule was originally proposed in October 2018, but the final version was revised in response to feedback from various financial institutions, such as the Options Clearing Corporation (OCC). Don’t you just love it when regulators and the regulated get along?

Lead Stories

More Investors Play the Stock-Options Lottery
Randall Smith – WSJ
Buying stocks generally has been a pretty good strategy over the past several years. But more investors than before aren’t content to play it that safe. They’re using options to make riskier bets, speculating on near-term movements in individual stocks and funds.
Since the year 2000, while stock-market trading volume has more than doubled, stock-options volume has grown to more than six times what it was then, at around 4.4 billion options contracts in 2019, according to Options Clearing Corp.

Payback Time Arrives for Stocks as Geopolitics Shatters Calm
Luke Kawa – Bloomberg
Recent market strife driven by turmoil in the Middle East may be just the beginning of payback time for U.S. stocks after a prolonged period of smooth sailing to fresh records.
Vulnerability to a pullback has spread as traders staked out increasingly bullish positions, with estimated equity exposure in strategies like volatility control and momentum funds now at the highest levels since mid-2018, according to Wells Fargo equity derivatives strategist Pravit Chintawongvanich.

America cannot escape oil price volatility
Editorial Board – Financial Times
It has been a momentous decade for America’s energy industry. Over the past 10 years, the US has become the world’s largest producer of oil and a significant exporter of natural gas. The country’s shale revolution has upended global markets and helped to drive domestic crude production to more than 12m barrels a day. As output has soared, President Donald Trump has touted American energy independence, declaring the country is moving away from relying on foreign oil.

The Dow Was Waiting for a Reason to Drop. The U.S. Air Strike Supplied It.
Ben Levisohn – Barron’s
If it’s not one thing, it’s another. And this time it was the targeted killing of an Iranian general that caused the stock market to finish the week in the red. It didn’t start off that way. With a big rally on Jan. 2, the market looked like it would start off the New Year with a bang. But then news started circulating that the U.S. had killed Iranian general Qassem Soleimani, and all those gains quickly disappeared. The Dow Jones Industrial Average declined 10.38 points, or 0.04%, to 28,634.88 this past week, while the S&P 500 fell 0.2% to 3234.85. The tech-heavy Nasdaq Composite rose 0.2% to 9020.77.

Exchanges and Clearing

Cboe Global Markets Reports Trading Volume for December and Full Year 2019
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today reported December monthly and full-year 2019 trading volume, and provided selected revenue per contract (RPC) guidance for the fourth quarter of 2019.

December rounds off a strong year for Eurex
Clearing volumes at Eurex, the leading European derivatives exchange, continued their upward trend in December, recording triple digit growth in average daily cleared volumes. Significant increases in volumes were also seen at Eurex Repo and EEX. Despite year-on-year volumes of traded derivatives contracts at Eurex being slightly down in December 2019, the year as a whole saw some very positive developments across a number of individual product segments. For instance, options on the STOXX Europe 600 Banks and Total Return Futures on the EURO STOXX 50 both saw traded volumes more than double in 2019 compared to 2018.

Understanding the role of CCPs in systemic safety – a WFE workplan
The World Federation of Exchanges (WFE) has announced a 12-month workplan to gain a better understanding about the role and nature of CCPs. Therefore, the WFE will engage with all stakeholders while continuing to promote the principles that first made the CCP model the trusted approach to counterparty credit issues. The WFE program will take a comprehensive, first-principles look at all relevant questions, including the rationale for CCPs in the financial system and society. It will factor in research that has been produced in this area while avoiding a selective or one-sided approach.


Trillion Dollar Asset Manager Vanguard Now Offering Zero-Fee Online Stock and Options Trading
Omar Faridi – Crowdfund Insider
Pennsylvania-based Vanguard, a registered investment advisor with over $5.3 trillion in assets under management, announced on January 2 that it will be introducing zero-fee online stock and options trading to all Vanguard Brokerage clients.


Trade, US election and volatility: risks and opportunities in 2020
Chris Flood – Financial Times
What does 2020 hold? For the fund business, that is a multibillion-dollar question. FTfm asked investment bosses at 10 of the world’s biggest asset managers, overseeing a combined $19tn, to gaze into their crystal ball for their predictions.

Saudi Aramco has seen $200 billion of market value erased since its record-shattering IPO as Mideast tensions drag it lower
Ben Winck – Markets Insider
Saudi Aramco’s market value has tanked by $200 billion since its post-IPO peak, and the stock is falling faster in the wake of heightened tensions between the US and Iran.
The world’s most highly valued company fell 1.7% Sunday and as much as 1.2% Monday. Aramco became the first company to hit a $2 trillion valuation on December 12, but its market cap now sits at roughly $1.8 trillion.

Cboe Executive Vice President Bryan Harkins Named to Autism Science Foundation Board of Directors
GlobeNewswire via Yahoo Finance
The Autism Science Foundation (ASF), a not-for-profit organization dedicated to catalyzing innovative autism research, today announced the appointment of Bryan Harkins, Executive Vice President and Head of Markets, Cboe Global Markets, to its Board of Directors. The announcement was made by Gregg Ireland, Chairman of the ASF Board of Directors, and Alison Singer, President of the ASF.

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