Observations & Insight
Futures Industry Association Cancels Prestigious Boca International Conference Due to an Abundance of Caution Because of Global Coronavirus Outbreak
John Lothian – John Lothian News
The Futures Industry Association has cancelled its International Conference in Boca Raton, Florida scheduled to start next week out of “an abundance of caution.” The FIA board reportedly voted unanimously to cancel the event due to the risk of spreading the coronavirus, which has spread to 65 different countries around the world and seen over 88,000 people infected with the virus.
FIA Statement on Boca 2020 Cancellation
It is with great disappointment that FIA has decided to cancel its 45th Annual Boca International Futures Industry Conference on March 10-12 due to concerns for the health and wellbeing of our conference attendees surrounding the spread of the COVID-19 Coronavirus. After discussions with FIA’s board of directors this morning, as well as with key stakeholders in the industry, it has become clear that cancellation is the right thing to do to protect the health of our members and participants.
The Spread: Pandemic Pandemonium
This week on The Spread – the CME, the OCC, and MIAX break their own records, while coronavirus fears cause global equity markets to crash and options trading and clearing volumes to spike.
OCC February Total Volume
OCC February Total Volume Up 60.7 Percent from a Year Ago – Highest Volume Month Ever for U.S. Equity Options Industry
OCC (press release)
OCC, the world’s largest equity derivatives clearing organization, announced today that February 2020 total cleared contract volume was 568,899,108 contracts, the U.S. equity options industry’s highest month ever – up 60.7 percent from February 2019 volume and beating the previous record of 567,833,544 cleared contracts set in October 2018 by 0.19 percent. The last six trading days comprised 43 percent of total volume for February 2020, with Friday, February 28 clearing 48,963,585 contracts – the highest cleared contract volume day on record.
Traders Were Already Rushing to Short Volatility Before Fed Cut
Yakob Peterseil – Bloomberg
Just before the Federal Reserve’s move to shore up confidence with an emergency rate cut, one of the bull market’s hottest stock trades was already staging a spirited comeback. By one metric, investors are shorting volatility with a fervor not seen for years, in the wake of an equity sell-off that sent an implied measure of fear soaring to the highest since August 2015.
Coronavirus Delivers Jolt to Sleepy Currency Markets
Joe Wallace – WSJ
The coronavirus epidemic has delivered a jolt to previously sleepy foreign-exchange markets. Currency trading had mostly been calm in recent years, as a degree of certainty about the outlook for U.S. interest rates and other factors, such as the low cost of insurance against major foreign-exchange moves, suppressed volatility.
Citi Gets Back Into Hong Kong Warrants Amid Volatility Spike
Kiuyan Wong – Bloomberg
Citigroup Inc. is returning to Hong Kong’s equity warrants market after a five-year hiatus amid a jump in volatility and rising demand for derivatives. After issuing 39 warrants initially, the U.S. bank has plans to add more products this year, including callable bull or bear contracts, according to an emailed statement. The warrants cover major underlying stocks listed in Hong Kong, including HSBC Holdings Plc, Tencent Holdings Ltd., and Alibaba Group Holding Ltd., the New York-based lender said. A Citi spokesperson declined to comment further.
OCC securities lending average daily loan jumps by 15 percent
Natalie Turner – Securities Lending Times
The Options Clearing Corporation (OCC) cleared its highest volume ever last month for US equity options but securities lending remains in decline. OCC says its securities lending average daily loan value in February 2020 was $80.71 billion, a 15.5 percent increase compared to last February. However, despite the average daily loan value rising we see securities lending CCP activity has decreased by 7.83 percent in new loans from February 2019 with 97,696 transactions last month.
U.S. Stock Short-Sellers Notch $105 Billion Week in Coronavirus Sell-Off
Reuters (via The New York Times)
Investors targeting declines in U.S. stocks saw sizeable gains during last week’s sell-off, as markets plunged on concerns that the spread of the coronavirus was accelerating beyond China. Short sellers – who hope to profit by selling borrowed shares and buying them back later at a lower price – logged a one-week paper profit of $104.77 billion in the last week of February, according to data from financial technology and analytics firm S3 Partners measuring bets against U.S.-listed stocks and American Depositary Receipts. That compares with $3.25 billion in paper profits in the prior week.
Bitcoin’s Option Market Sees Low Chance of Post-Halving Rally
Omkar Godbole – Coindesk
The top cryptocurrency is currently trading around $8,800, representing an 20 percent gain on a year-to-date basis. Meanwhile, the options market is reporting the probability of prices holding above the $8,000 mark by the end of September at coin toss levels, according to crypto derivatives research firm Skew.
Exchanges and Clearing
‘Intense’ trading sends exchange volumes to record
Philip Stafford and Richard Henderson – Financial Times
Trading volumes on stock and futures exchanges surged in February after fears over the impact of the spreading coronavirus sent important asset classes reeling. Data from bourses showed that trading flows jumped sharply last week, when the US benchmark S&P 500 stock index tumbled more than 10 per cent from a recent peak to record its fastest correction since the 1930s.
CME Group Reports All-Time High Monthly ADV of 30.1M Contracts in February 2020
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its February 2020 market statistics, showing it reached a record average daily volume (ADV) of 30.1 million contracts during the month, an increase of 58% from February 2019. The company’s Equity Index, Metals, Interest Rates and Energy product lines also reached record ADV. Open interest at the end of February was 132 million contracts.
MIAX Exchange Group Reports February 2020 Trading Results and New Records; Recognized for Most Innovative Technology for Second Year in a Row at Fund Technology and WSL Awards; Tom Jarck Joins Exchange Group as Volatility Products Specialist MIAX Exchange Group
Miami International Holdings, Inc. (MIH) today reported February 2020 trading results for its three fully electronic options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 55.4 million equity option contracts in February for a combined average daily volume (ADV) of 2,919,913 contracts, representing a total U.S. equity options market share of 10.92%, all of which were new monthly records.
Options Trader Alert #2020 – 6 Nasdaq’s Contingency and BCP Planning
Nasdaq has and continues to review its pandemic and contingency plans and is prepared to act to ensure uninterrupted operations if and when the situation changes. At this time, there are no plans for any changes that would affect any trading operations or support for any equities, options, or fixed income trading platforms.
OCC Monthly Volume by Exchange – Feb 2020
Regulation & Enforcement
Proposal to amend General 9, Section 1, titled “General Standards.”
Traders Complain About Options Market Width: Here Are The Worst Offenders
We are hearing complaints from our clients about how wide the markets got on options bid ask spreads during the past few days of market meltdown. On Friday, February 28th the market down about 3%, the market widths reached their apex. In the table below, we list the worst offenders that day ranked by change in market width in implied volatility points from February 20th, the day before the market started falling.
Coronavirus Has Beaten Up Goldman Sachs Stock. How to Bet on a Rebound With Options.
Steven M. Sears – Barron’s
For the first time in years, it’s possible to buy loads of stocks that are not dancing around record high prices. Unfortunately, the reason why prices are suddenly so low is because no one has any idea what may happen next with the coronavirus that is terrifying the world. If the coronavirus becomes a global pandemic that lowers economic growth and thus corporate earnings, stock prices will fall even lower. If these fears ultimately prove unfounded because the virus is contained, stock prices will naturally advance. Timing is everything.
Clients May Want to Change Their Hedging Habits, RBC Says
Joanna Ossinger – Bloomberg
Some investors might benefit from changing when they think about buying protection, RBC Capital Markets suggests. Skew, a measure of how expensive bearish options are compared with bullish ones, rose for many stock-market measures over the past week. That’s no surprise given that the S&P 500 Index fell 13% in the seven sessions after it hit a record high last month. After a big gain Monday, the gauge dropped again Tuesday morning, falling 0.7% as of 9:50 a.m. in New York.
Buy the dip? Here’s how some analysts say investors should play it
Andrea Riquier – MarketWatch
The worsening coronavirus outbreak, and concerns about its impact on global economic activity, walloped global stocks last week, pushing U.S. benchmarks into correction territory and marking the worst week since the global financial crisis of 2008. The question for most investors now is: is it safe to go back in the water? MarketWatch conducted interviews and collected commentary from analysts, strategists, and pundits, which are excerpted below. Most observers are erring on the side of caution, but their reasoning may provide some useful insights on how to navigate corrections like the current one.
SEC official says markets ‘functioning well’ despite high trading volume, volatility
Jesse Pound – CNBC
“Our markets have held up very well. They’ve been orderly, they’re functioning well. We’ve seen very few technical issues, very few system glitches,” Brett Redfearn said. Trading volumes were higher across the board last week, and the Cboe Volatility Index spiked above 40 to hit its highest level in two years. The activity has led to some issues for online brokers and trading platforms, including Robinhood. /jlne.ws/2PHp8w0
The Dow Gains Nearly 1,300 Points as Investors Bet on the Fed
Nicholas Jasinski – Barron’s
4 p.m.: U.S. stock indexes soared into the close on Monday, to end a volatile day after their worst week since the financial crisis. The Dow Jones Industrial Average ended up 1,294 points, or 5.1%—at its highest levels of the day and with its largest one-day point gain ever. The S&P 500 closed up 4.6% and the Nasdaq Composite finished 4.5% higher. Both briefly dipped into negative territory shortly after 10 a.m. before bouncing back into the green and adding to their gains.