Nervy stock markets spark records in derivatives trading

Jan 25, 2022

Observations & Insight

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The Small Exchange announced plans to launch its first options contract on Small Precious Metals Product (SPRE) index futures on January 25, 2022. I interviewed Small Exchange CEO Donnie Roberts about the new product, Small Exchange’s plans for future options contracts, and the impending deal for the exchange to be acquired by Crypto.com.

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Lead Stories

Nervy stock markets spark records in derivatives trading
Eric Platt – Financial Times
Investors are racing to protect their portfolios from damage as volatility sweeps across Wall Street, sending stocks flying higher and lower as traders brace for tighter policy from the Federal Reserve.
Put options contracts, which can shield against losses from declines in share prices, were in heavy demand at the start of the week, when the S&P 500 benchmark index of US stocks registered a 10 per cent drop from recent highs.
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US stocks tumble in second day of turbulence on Wall Street
Kate Duguid, Eric Platt and Naomi Rovnick – Financial Times
Wall Street stocks dropped sharply on Tuesday as investors girded themselves for tighter policy from the Federal Reserve and the repercussions that higher interest rates will have for markets.
The brunt of selling was focused on technology shares, with the tech-concentrated Nasdaq Composite stock index sliding 2.9 per cent. The decline followed a wild ride in the previous session when the index, which includes behemoths such as Apple and Microsoft, sank almost 5 per cent before ending the day with a small gain.
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Stock Markets Tumble as Turbulence Continues
Will Horner and Gunjan Banerji – WSJ
Major indexes fall a day after late rally erased sharp losses and snapped a four-day losing streak
The U.S. dollar last year saw its largest increase in value since 2015. That is good for many American consumers, but it could also put a dent in stocks and the U.S. economy. WSJ’s Dion Rabouin explains.
U.S. stocks fell, putting markets on course for another day of bumpy trading, as investors awaited the Federal Reserve’s policy meeting and parsed a docket of earnings.
The S&P 500 fell 2% Tuesday afternoon, while the technology-heavy Nasdaq Composite slumped 2.9%. The blue-chip Dow Jones Industrial Average dropped 1.2%.
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January has been brutal for stocks. Here’s why.
Taylor Telford – The Washington Post
Wall Street has been thrown headfirst into a sea of turbulence in 2022.
U.S. stocks have recorded three consecutive weekly declines to kick off the year, as spooked investors worry the Federal Reserve may tighten monetary policy more aggressively than originally planned to combat surging inflation. That uncertainty has sent the market’s fear gauge, Cboe’s volatility index, up nearly 100 percent year-to-date, and played out in stunning fashion Monday as the Dow Jones industrial average cratered then clawed out of a more than 1,000-point deficit — a first — to end the session in the green.
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Volatility Runs From Stocks to Currencies, Ending FX Market Calm
Payne Lubbers – Bloomberg
Volatility has surged back in the world’s currency markets, ending nearly nearly two months of diminishing price swings.
JPMorgan Chase & Co.’s Global FX Volatility Index, which tracks three-month option volatilities, on Monday posted its largest gain since late November as stocks tumbled globally, sending investors rushing into havens, before U.S. shares rallied back to close up on the day. The same shift was seen in the G7 volatility index, which tracks the greenback’s developed-market peers.
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Stock Market Volatility Collides With Fed, Central Bank Hikes Expectations
Ruth Carson and Melissa Cheok – Bloomberg
Global traders already on tenterhooks over this week’s key Federal Reserve meeting were jolted further Tuesday by Australian inflation data that smashed expectations, a surprise monetary tightening in Singapore and further swings in U.S. equity futures.
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Wall Street’s ‘fear gauge’ is on track for its sharpest rise to start a year ever as stocks tumble on inflation, Fed worries
Mark DeCambre – MarketWatch
The Cboe Volatility Index, or VIX, also known as Wall Street’s fear gauge—is on track for its sharpest gain to start a year on record and its biggest monthly surge since the COVID pandemic took hold two years, as anxieties about Federal Reserve policy, surging inflation and the economic rebound from the viral epidemic converge to knock risk assets decidedly lower.
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Quant Trend Chasers Go Short Stocks in New ‘Sell Rips’ Regime
Denitsa Tsekova and Sam Potter – Bloomberg
Wall Street quants that chase market trends have flipped decisively short against both the S&P 500 and the Nasdaq 100 for the first time since the pandemic hit, setting themselves up as a force that could intensify the rout.
As the S&P 500 flirted with a correction Monday, fast-money traders known as Commodity Trading Advisors were busy unwinding positions and accelerating the selloff, according to data compiled by JPMorgan Chase & Co.
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ETF Trading Surges to Record as Bulls and Bears Play Tug-of-War
Emily Graffeo – Bloomberg
The stock market’s dramatic turns are fueling record trading in ETFs, the highly liquid investment vehicles that traders are using to keep pace with surging volatility.
As the Nasdaq Composite Index tumbled as much as 4.9% Monday then rallied back to a late day gain, four of the five largest exchange-traded ETFs — which go by the tickers IVV, VTI, VOO and QQQ — saw a record value of shares traded. The largest ETF by market value — the SPDR S&P 500 ETF Trust (SPY) — saw its second highest.
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The Dow Is Falling Again — and What Else Is Happening in the Stock Market Today
Jacob Sonenshine and Jack Denton – Barron’s
The stock market was tumbling—again—Tuesday, with the S&P 500 back in correction territory following a massive turnaround Monday. All eyes were on the Federal Reserve as its two-day monetary policy meeting begins.
In afternoon trading, the Dow Jones Industrial Average was down 395 points, or 1.2%, one day after the benchmark reversed a 1,100-point loss to finish up 99 points. The S&P 500 dropped 2%, while the Nasdaq Composite slumped 2.9%.
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Market Volatility Is Deflating Some Speculative Bubbles, Says UBS
Carla Mozée – Business Insider
A gauge of market volatility has nearly doubled in early 2022 as investors rattled by rate-hike prospects have dragged the S&P 500 into correction territory, but the volatility is serving to deflate some speculative areas, says UBS.
Wall Street’s so-called “fear gauge” has jumped 90% year to date through early Tuesday’s session, during which the Cboe volatility index climbed as much as 15% as stocks fell. The S&P 500 and other major equity indexes were lower before the start of the Fed’s policy meeting on Tuesday.
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Exchanges

Webull to Offer Cboe Global Markets’ Index Options to Retail Traders
Cboe
Webull to offer Cboe’s new Nanos S&P 500 Index Options at launch, in first-quarter 2022- Cboe’s popular SPX and VIX options now available on Webull’s trading platform- Initiative underscores the two companies’ commitment to educate the growing retail trading community about index options
Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, today announced that Webull Financial LLC, a leading retail brokerage platform with a growing global presence, will offer Cboe’s new Nanos S&P 500 Index options at launch on its trading platform in first-quarter 2022. The product will be available to customers who are approved to trade options on Webull’s platform. This initiative underscores each of Cboe’s and Webull’s ongoing commitment to serve the retail trading community by providing them with access to new options products, data and educational resources to help them learn about options trading.
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****** How much more are we going to grow the retail trade? Actually, we need to regrow retail trade after yesterday’s volatility.~JJL

Technology

DASH launches new options order management system; The FinTech said the newly redesigned OMS will help traders with their US-listed options workflows amid surging volumes said ION’s DASH.
Annabel Smith – The Trade
US options technology and execution provider, DASH Financial Technologies, has launched a newly re-designed order management system (OMS). The DASH OMS supports all US listed-options instruments and includes routing and algorithmic trading tools and straight-through-processing using DASH’s BrokerPoint network, as well as, pre- and post-trade tools, regulatory reporting and a market data consumption model.
/jlne.ws/3nRVR31

Strategy

The storm at the centre of the calm
Robert Armstrong and Ethan Wu – Financial Times
Good morning. Yesterday morning’s letter opined that “This is a scary moment, but it does not look like the edge of an abyss”. Well, Ethan and I felt like morons by lunchtime, and geniuses when teatime rolled around. We had emphasised the fact that the extremes of the sell-off were contained to the riskiest parts of the market; that the economic backdrop remained solid and could improve if the virus loosed its grip; and that the Fed might yet move at a deliberate pace, rather than slamming the brakes. But as the S&P 500 hit a 4 per cent decline, and the sell-off ripped into stocks of all flavours, we started to wonder if we had been paying attention to the right stuff.
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Miscellaneous

Need a stiff drink to deal with the stock market’s volatility? Here are five
Charles Passy – MarketWatch
Given the stock market’s volatility in recent days, there’s a good chance many of us are seeking a stiff drink.
As it turns out, the booze industry has plenty to offer on that front.
In recent years, spirits producers have increasingly been touting bottles that go well beyond the traditional standard of 80-proof (or 40% alcohol by volume). These offerings, often referred to as “cask strength” at least when it comes to whiskey, are proving particularly popular with connoisseurs.
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