Observations & Insight
MR: Not a ton of options news this week – I guess now that the election is over and the VIX is back in the 20s, the markets are back to wait-and-see mode.
Options Are Signaling a More Placid Stock Market Through Yearend
Gregory Calderone – Bloomberg
U.S. equity investors who have endured some of the widest price swings on record amid the worst pandemic in modern times could be in for a respite as 2020 comes to a close. Current 30-day implied volatility on the S&P 500 is around 19, compared with 81 in the February-March period when stocks plunged as much as 35% as Covid-19 rocked financial markets. While that metric is high compared with recent history, having averaged 7 for all of 2019, the push and pull of options investors suggests stocks may trade within a tighter range through yearend.
Equity Market Structure Wrestles with “Inaccessible Liquidity”
Ivy Schmerken – TABB Forum
The flood of retail order flow since the onslaught of the pandemic has institutional traders scratching their heads, wondering why they can’t access that 20-25% of the market? Veteran financial writer Ivy Schmerken of FlexTrade, unpacks some of the issues discussed at the Security Traders Association’s recent market structure conference, from the D-Limit order, to the new exchanges, to the Robinhood phenomenon and its inaccessible liquidity to the greater marketplace.
Post-Election Market Trends 2020
Phil Mackintosh – Traders Magazine
It’s been a big two weeks for markets. Not only is the election (mostly) over, but we now have a more certain timeline for vaccines to be widely distributed. As expected, the market has instantly priced in both bits of news. Expected volatility has fallen almost in half as two key items of uncertainty seem to be resolving themselves (blue line in Chart 1). Volumes in November have been mostly in line with the new 2020 normal of around 10 billion shares per day. That’s almost 50% above prior years, but actually represents a relatively quiet trading period this year. However, we did see volumes spike on November 9 (height of bars in Chart 1). That was the day we saw a combination of Biden claiming the election and news that Pfizer’s mRNA vaccine was found over 90% effective in Phase 3 testing.
Tesla surge adds to dominance of S&P 500’s biggest players
Noel Randewich – Reuters
Tesla Inc TSLA.O extended its rally on Thursday ahead of its December debut in the S&P 500 .SPX, with its market value nearing $500 billion (GBP378 billion), highlighting the growing domination of mega-cap growth stocks within Wall Street’s main benchmark.
Exchanges and Clearing
Notice of Summary Action
MEMBER FIRM: Marex Spectron International Limited
NYMEX RULE VIOLATION: 526.F. BLOCK TRADES
Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within the time period and in the manner specified by the Exchange. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.
PENALTY: On November 3, 2020, pursuant to Rule 512, a fine in the amount of $2,000 was assessed against Marex Spectron International Limited for its violation of NYMEX Rule 526, and NYMEX Rule 526.F
IMPORTANT: Correction Regarding Strike Price Formats and Large Trader Submissions – Effective: November 23, 2020
Please be reminded that effective this coming Monday, November 23, 2020, CME will list strikes at 6.25 basis point (0.0625 index point) intervals in Three-Month Eurodollar (ED) and Three-Month SOFR (SR3) options.
Notice of Summary Action
MEMBER FIRM: MACQUARIE FUTURES USA LLC
CBT RULES: CBT Rule 807. Open Long Positions During Delivery Month
At such times and in such manner as shall be prescribed by the Manual, clearing members shall submit a complete and accurate record of dates of all open purchases for use in making deliveries. Clearing members shall be fully responsible for inventories submitted to the Clearing House. This rule shall not apply to trading in options contracts.
PENALTY: On October 16, 2020, pursuant to Rule 512, a fine in the amount of $1,500 was assessed against Macquarie Futures USA LLC for its violations of Rule 807.
CME Direct Software Enhancement Postponed
To CME Direct Customers # 20201120
Notice Date 20 November 2020
The CME Direct software upgrade previously scheduled for Sunday, November 22 has been postponed. A new software upgrade release date will be announced in future CME Direct notices.
SGX seeks public comment on default management process
Singapore Exchange (SGX) is consulting the market on the process to manage outstanding securities transactions should a clearing member be in default. The proposal will align the Central Depository (CDP) default management practices with global default management practices, and improve the efficiency and speed with which defaults may be resolved. This in turn will better protect the financial system from contagion risks due to the default of a clearing member.
MIAX Exchange Group – Options Markets – Corporate Action Alert: Telecom Argentina S.A. (TEO)
Telecom Argentina S.A. (TEO) has announced a distribution effective for Friday, November 20, 2020. On that date, the current TEO option class will change to TEO1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list TEO1 options. Therefore, no options on TEO will be available for trading on Friday, November 20, 2020.
MIAX Exchange Group – Options Markets – Corporate Action Alert: Civeo Corporation (CVEO)
Civeo Corporation (CVEO) has announced a 1-for-12 reverse stock split effective for Friday, November 20, 2020. On that date, the current CVEO option class will change to CVEO1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list CVEO1 options. Therefore, no options on CVEO will be available for trading on Friday, November 20, 2020.
Cboe EDGX Exchange Introduces Early Trading
Adam Inzirillo – Cboe blog
Effective Monday, December 7, the EDGX Early Trading session will begin at 4 a.m. ET. The reason we made this change is simple: we heard you. We take customer feedback seriously, so when we heard calls for earlier trading, we looked for a way to make it happen. In addition to seeing the greatest demand for earlier trading from our EDGX customers, we are also aware that the retail trading community is a big proponent of early trading. We are excited about the growth in retail trading and want to ensure the Cboe platform retail traders use most — EDGX — meets their needs.
Options Trader Alert #2020 – 32 Nasdaq Announces Changes to Daily Closing Time for Options on Certain Exchange Traded Products
Effective Monday, November 23, 2020, all Nasdaq options exchanges will change the daily closing time for options on the two Exchange Traded Products (ETP) noted below from 4:00 p.m. ET to 4:15 p.m. ET. This change will apply to all existing options and related FLEX options for the ETP classes identified below:
Regulation & Enforcement
CFTC’s Tarbert: Global standards for crypto and CCPs are top industry priorities
FIA MarketVoice Staff
In July 2019, Heath Tarbert took over as chairman of the US Commodity Futures Trading Commission with an ambitious policy agenda in mind. In the first few months, he held more than two dozen meetings with almost all of the agency’s 700-plus employees and marshalled them behind a new mission statement. His vision for the agency, he said, was to promote the “integrity, resilience, and vibrancy of the derivative markets” and for the CFTC to set the “global standard for sound regulation.”
Crypto’s largest options traders are taking advantage of a new market anonymity tool
Frank Chaparro – The Block
Cryptocurrency options traders are moving into the proverbial shadows thanks to startup trade messaging platform Paradigm. Launched in 2019, Paradigm has offered a platform for traders to trade in large size bilaterally and then settle those trades onto crypto options venues like CME Group and Deribit. The firm’s most recent platform update, dubbed Multi-dealer RFQ and Anonymous Trading, allows those participants to now trade with several counter-parties at once — and anonymously, to boot. “The upgrade will reduce time spent to make a multi-dealer trade from minutes to seconds and make liquidity for large and multi-leg orders instant and ‘on-demand,'” said CEO Anand Gomes.
“How to Build a Portfolio using Complex Options Strategies” Takeaways
Tom Sosnoff – tastytrade
tradeTALK episode 10 wraps up with Tom Sosnoff, host of tastytrade Live. Tom discusses the importance of actively managing your capital using complex option strategies. We will discuss topics that enhance your calculated risk-taking abilities, quick decision making, and understanding of finance, all while reaping the benefits of capital efficiency, diversification, and above-average risk/return.
Asia Derivatives Conference
Join us virtually in December!
1 December 2020 – 3 December 2020 • 9:00 AM – 3:00 PM SGT Daily
Our annual Asia Derivatives Conference provides unique opportunities for the cleared derivatives community to build an understanding of how global forces and regional trends and issues are shaping Asia-Pacific markets. Register now and join us virtually, 1-3 December, to gain insights into what’s on the horizon for the Asia-Pacific region.
(Podcast) TWIFO 226: 2020 CME Options Breakdown Plus CVOL Sneak Peek
This Week in Futures Options – Options Insider Network