Nomura Says ‘50 Cent’ Has Banks Scrambling for VIX Hedges; Interest Rate Options Growth

Aug 15, 2019

Lead Stories

Nomura Says ’50 Cent’ Has Banks Scrambling for VIX Hedges
Joanna Ossinger, Bloomberg via Yahoo
The re-emergence of a huge U.S. equity volatility buyer has banks scrambling to hedge the other side of the trades and is even affecting levels on the Cboe Volatility Index, according to Nomura Securities International.

’50 Cent’ Copycat Likely Made $170 Million Hedging During Rout
Luke Kawa – Bloomberg (SUBSCRIPTION)
Trader bought call options on Cboe Volatility Index or VIX; Many of the options purchased are poised to expire next week
A million-dollar day may have turned into a hundred million-dollar month for the major buyer of U.S. equity volatility as stocks endure one of their worst sell-offs of 2019.

Change in Fed’s Stance Drives Traders to Options on Interest Rate Futures
Russell Rhoads – TABB Forum
2019 started off a bit quiet with respect to trading activity in both futures and options on futures trading in the US. But all this changed in early May. After the May 1 meeting of the Federal Open Market Committee (FOMC), the market started to discount the possibility of a rate cut on the July 31, 2019, announcement date. Exhibit 1, below, shows the market’s opinion of Fed action on July 31 from May 1 through July 31.

****SD: Projections for the remainder of 2019 point to a record year for the options on futures space, largely on the back of big volume increases in interest rate options. This piece has a colorful depiction of Fed interest rate policy expectations heading into the July 31st decision. Through the month of May, the odds of no change in Fed policy were above 70%. By the middle of June, odds of no change were near zero.

Data Errors Plague Stock Traders in Volatile Week
String of glitches follows incident with NYSE data feed
Alexander Osipovich – WSJ (SUBSCRIPTION)
Volatile stock markets, recession fears and the U.S.-China trade fight have traders on edge. Now, they are grappling with another problem: garbled data.
The troubles started Monday with a glitch on a key market-data feed operated by the New York Stock Exchange. That was followed by what looked like calamitous drops in Vanguard Group mutual funds, incorrect prices for stocks like Apple Inc. being flashed over Bloomberg LP terminals and the Dow Jones Industrial Average suffering a mysterious outage.

****SD: When it rains, it pours.

Options traders bet on even more volatility flooding the market
Tyler Bailey – CNBC
The Dow just posted its worst day of 2019, plunging 800 points as the U.S. yield curve inverted, sending recession signals surging through the broader markets.

Someone’s Betting Big on an S&P 500 Rebound as Sell-Off Worsens
Gregory Calderone, Bloomberg via Yahoo
Goldman Sachs Group Inc. and JPMorgan Chase & Co. have been advising investors to use call options to position for a U.S. equity rebound from this month’s sell-off. It looks like someone got the message.


E*TRADE Announces the Appointment of COO Mike Pizzi to CEO
Business Wire
E*TRADE Financial Corporation (NASDAQ: ETFC) today announced that Chief Operating Officer Michael A. Pizzi will assume the Chief Executive Officer role after Karl Roessner advised the Company of his decision to leave, following 10 years of service. The appointment of Mr. Pizzi is effective immediately, while Mr. Roessner has agreed to serve in an advisory capacity through year end to assist with the transition. Mr. Pizzi has also been appointed to the Company’s and Bank’s Board of Directors.

Regulation & Enforcement

Kraft, Mondelez to pay $16 million in wheat price manipulation case
The U.S. Commodity Futures Trading Commission (CFTC) said on Thursday Kraft Heinz Co (KHC.O) and Mondelez International Inc (MDLZ.O) will pay $16 million in penalty regarding a wheat manipulation case that dates back to 2015.


Real Estate in Trouble? A Put Buyer Thinks So
Today, our unusual options volume report rang the bell for VNQ, Vanguard’s Real Estate ETF. VNQ traded 10 times more options than it usually does and was the number 1 leader in unusual volume. The big options trade was a put almost 10% out of the money and expiring 5 days before Christmas.


Earnings Outlook for S&P 500 Companies Looks Bleak
Michael Wursthorn – WSJ (SUBSCRIPTION)
Investors counting on a corporate earnings rebound in the second half of the year are risking disappointment.

Europe’s Sinking Bond Yields Pass Ominous Milestone for Traders
Tasos Vossos – Bloomberg (SUBSCRIPTION)
Average bid-ask spread exceeds yield in investment-grade bonds; Alternative credit-trading instruments gain traction in Europe
Plummeting European bond yields have sunk so low they’ve created a distortion with potentially far-reaching effects across the banking and investment industries.

****SD: From the piece: “Transaction costs that exceed yields mean investors will have to devote ‘more thought around what to spend, where and why,’ said Fraser Lundie, head of credit at Hermes Investment Management. They’ll ‘have to get more comfortable with macro products, like index options, total return swaps, exchange-traded funds and so on,’ he said.”

Grains: Midsummer Rallies Turn to Fall Nightmares
Erik Norland – CME Group
Almost like clockwork for the past five years, corn rallied in the spring and early summer before topping out between May 30 and July 15. Similarly, wheat experienced midsummer rallies that were especially notable in 2015, 2017, 2018 and this year. In the case of wheat, the peaks came between late June and early August. In each case, these rallies related to concerns about the state of the North American planting and growing season. This was especially true this year when weather in the US Midwest was especially inclement, with extensive flooding delaying planting.

Options Signal Rand Swings Will Get Worse Before They Get Better
Colleen Goko – Bloomberg (SUBSCRIPTION)
The rand is back as the world’s most volatile major currency, and options pricing suggests it’s not going to lose that status any time soon.

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