Options buyers shift to U.S. value stocks on vaccine hopes

Nov 11, 2020

Observations & Insight

$14,991/$300,000 (5%)


Opening remarks of FIA President and CEO Walt Lukken at Expo-V 2020

Welcome to FIA Expo. I’m Walt Lukken and I want to thank you for being a part of the FIA community. While it’s unfortunate that we aren’t able to gather in-person right now, FIA is committed to bringing you an engaging three days of thought leadership on the topics that matter most to you.
I want to start by recognizing our veterans from this industry who have served their country and sacrificed for all of us. Tomorrow marks the day we recognize our veterans, and we are all truly grateful for your service that has brought us our freedom.


FIA Expo – CME Group’s Duffy is sailing smoothly in uncharted waters
Sarah Rudolph – John Lothian News

In “the most uncertain times in the world,” CME Group CEO Terry Duffy does not appear to be fazed by the potential threat of a short selling ban or a financial transaction tax, nor by the volume drop in the CME’s interest rate complex this year. In an interview with Walt Lukken at FIA Expo-V, he also seemed unsurprised by the results of the presidential election.

To read the rest of this story, go HERE.


FIA Expo – Resilience, Complacence, Reticence: Clearing During Volatility
Thom Thompson – John Lothian News

A Tuesday morning panel called “Clearing During Volatility” gathered Sarah Shore (Goldman Sachs), Lee Betsill (CME), Dale Michaels (OCC), Gert Ellerkmann (ABN AMRO Clearing Bank), and Jackie Mesa (FIA). The session focused on the February – March 2020 kind of volatility.

To read the rest of this story, go HERE.


FIA Expo – Nasdaq’s Friedman Sees Industry Resilience Through 2020’s Challenges
Suzanne Cosgrove – John Lothian News

Nasdaq CEO Adena Friedman said Tuesday that while the story of 2020 has been one of uncertainty, beginning in March with the pandemic and continuing with the U.S. presidential elections, she was proud of the way the exchange industry has risen to the challenge.

To read the rest, go HERE.

Lead Stories

Options buyers shift to U.S. value stocks on vaccine hopes
April Joyner – Reuters
Options investors, who helped push technology stocks to record highs with buying sprees earlier this year, are now taking aim at small-cap and other economically sensitive companies, reflecting a broader rotation into value shares on news of an effective COVID-19 vaccine.
Demand for call options, used to position for gains in equities, has surged in the past week among travel and leisure companies whose shares slid under months of coronavirus-fueled lockdowns and travel restrictions, including United Airlines Holdings Inc UAL.O, Marriott International Inc MAR.O and Wynn Resorts Ltd WYNN.O.

VIX’s Decline Triggers a How-Low-Can-It-Go Debate
Elena Popina – Bloomberg
In a matter of weeks, Wall Street worrywarts have gone from fretting over high volatility to fearing bets on stock swings are falling too fast.
Strategists at Evercore ISI on Tuesday joined calls last week from their counterparts at Tallbacken Capital and WallachBeth Capital who said it’s time to close bets that price moves for the largest U.S. companies will keep falling. The rationale: hospitalizations in the U.S. are reaching record high levels, while the Cboe VIX Index has already dropped to its lowest level since August. Betting on lower volatility at this point may not be worth the risk, they say.

Cboe-Powered Index Innovation for the Modern Investor
Bruce Traan, Head of Cboe Global Indices via MarketsMedia
Cboe Global Markets and the VIX Index are a well-known pairing, but the global market operator also runs a robust index services business as part of its Information Solutions arm. The Cboe Volatility Index, or VIX Index, became a household name during the 2008 financial crisis, as it gauged the market’s expectation of future volatility during one of the most volatile periods in recent history. This of course preceded the volatility seen within the marketplace in both 2018 and 2020. But it all started as a revolutionary concept 27 years earlier when Cboe dreamed up a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market derived from real-time prices of S&P 500 Index options.

Marex Spectron To Acquire Chicago-Based XFA Execution Broker; Continues expansion of North American franchise
Marex Spectron
Marex Spectron, the global commodities specialist, today announced that it has signed an agreement to acquire X-Change Financial Access (XFA), a fast-growing exchange-traded derivatives (ETD) execution broker. The transaction, expected to close on 13 November, broadens the Marex Spectron product range, further strengthens its North American presence and builds on its global clearing infrastructure, while providing XFA clients with ready access to complementary products and services.

*****Marex continues to make its move.~JJL

Exchanges and Clearing

LSE’s Offer Fails to Fix Refinitiv Deal, Rivals Set to Warn EU
Viren Vaghela and Aoife White – Bloomberg
Concessions don’t solve EU concerns, competitors will complain; Rivals will urge European Commission to seek tougher remedies
London Stock Exchange Group Plc’s rivals are set to warn European Union regulators that the company’s promises to offer them access to data fails to resolve antitrust concerns over LSE’s $27 billion takeover of Refinitiv. At least two competitors will tell the EU that LSE’s current concessions won’t curb its increased power over interest rate derivatives and information services, according to people familiar with the matter who asked not to be named because the so-called market test of the LSE offer is private.

Cboe Introduces New Target Outcome Indices on Russell 2000 Index
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, today announced that Cboe Global Indices, LLC has expanded its family of Target Outcome Indices with the addition of two new series of indices tied to the Russell 2000 Index: the Cboe Russell 2000 Enhanced Growth Index Series (RPEN) and Cboe Russell 2000 Buffer Protect Index Series (RPRO).

REMINDER: Amendments to the Termination of Trading and the Exercise and Assignment Rules of the Monthly and Weekly Options on the Mexican Peso/U.S. Dollar (MXN/USD) Futures Contract and Currency Fixing Time of the Related Futures Contract
CME Group
Effective Sunday, November 15, 2020 for trade date Monday, November 16, 2020, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the termination of trading time of the Monthly and Weekly Options on Mexican Peso/U.S. Dollar (MXN/USD) Futures contract (the “Contracts”) from 9:00 a.m. Central Time (CT) to 11:30 a.m. CT as in the table below as well as amend the CME Currency Fixing Price time for MXN/USD Futures from 9:00 a.m. CT to 11:30 a.m. CT and commencing with the December 2020 contract month and the December Week 2 contracts and beyond. This amendment aligns the termination of the Contracts’ termination of trading time to the over-the-counter (OTC) MXN/USD option time which is 11:30 a.m. CT.


Quants With $1 Trillion Poised to Buy Stocks as Volatility Falls
Yakob Peterseil – Bloomberg
With the biggest event risk in recent memory over, Wall Street is quietly confident that systematic funds that take their cues from market swings are set to spend billions of dollars, fueling this stock rally.
For this $1 trillion cohort, it all hinges on stable prices, a relative rarity during this rocky year. But lately, equities are sending the right signals. Realized volatility is starting to come down in the wake of the U.S. presidential election, while the futures market is more sanguine than it’s been in months.

Investors should buy any pullbacks in stocks as S&P 500 marches toward 13% gain by early next year, technical analyst says
Matthew Fox – Markets Insider
After months of sideways trading, stocks look poised for a breakout thanks to Monday’s positive vaccine news and resulting stock surge.
Since August, the S&P 500 have been stuck in a 12% range bounded by an early September high of 3,558. But news of a successful COVID-19 vaccine revealed by Pfizer and BioNtech helped the index break through that upper barrier, priming it for a 13% surge into early 2021, according to technical analyst Robert Sluymer of Fundstrat.

The Easy VIX: Media Gibberish Obscures Risk-On/Risk-Off Cycles
Michael Gettings – Seeking Alpha
Major market moves are like a big spring; markets contract, building potential energy, and then expand with accelerated force. The trick is to avoid the big contractions and ride the expansions with confidence. To exploit that, it’s important to recognize a subtle distinction between risk identification and market timing. I long ago gave up on identifying every up and down move in the stock market, but I have found a reliable method for identifying high-risk intervals and avoiding them. Sidestepping those periods can exploit that spring effect and earn outsized rewards.


Active managers struggle to prove their worth in a turbulent year
Robin Wigglesworth – Financial Times
The history of financial markets has more wild plot twists, temper tantrums and triumphant comebacks than a daytime soap opera — or a US presidential election for that matter. Even by Wall Street’s standards, 2020 has been exceptional, yet for some active asset managers it offered the promise of salvation of sorts.
Over the past two decades there has been an epochal shift of power from the pedigreed stockpickers and bond kings who have straddled markets, to the cheap, passively-managed index funds now in the ascendancy.

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