Options Mania and Real-World Risk Mean Volatility Here to Stay; $718 million options unwind signals more caution on tech stocks

Sep 11, 2020

Observations & Insight

John Lothian News Announces The Path to Electronic Trading Video Series
John Lothian

New Series Will Capture the Stories of the Move from Trading on the Floors to Trading on the Screen

John J. Lothian & Company, Inc. and John Lothian News are pleased to announce the launch of a new MarketsWiki Education video series, The Path to Electronic Trading.

The Path to Electronic Trading was inspired by the success of the Open Outcry Traders HIstory Project. Gerry Corcoran, the CEO of RJO O’Brien, came to JLN to tell the story of how his one day of working on the trading floor helped create the path to electronic trading as RJO and other firms applied technology to improve the efficiency of a futures pit busting at the seams with paper orders.

His story inspired us to develop this new video series that will capture the individual stories of the people and firms that embraced technology and created the evolutionary path from the shouting of orders on the trading floor to trading all forms of derivatives, securities and other products via purely electronic means.

To read the rest of this announcement, go here.

Lead Stories

Options Mania and Real-World Risk Mean Volatility Here to Stay
Sarah Ponczek – Bloomberg
Overheated derivatives market is fueling big swings in stocks; Macroeconomic calendar is adding to outlook for volatility
Job losses persist. The global economic recovery from Covid-19 remains tenuous. The U.S. presidential election is less than two months away, Congress seems unable to agree on additional stimulus and Brexit is once again facing roadblocks.

$718 million options unwind signals more caution on tech stocks
April Joyner – Reuters
A large options player unwound bets on several technology-related companies on Thursday, offering another sign of the market’s recently diminished appetite for shares in the sector.
The unidentified investor took off around $718 million of notional value in bullish options spreads known as risk reversals in Facebook Inc, Netflix Inc and Adobe Inc, according to a Reuters analysis based on data from Susquehanna Financial Group. The investor partially closed a similar position in Saleforce.com Inc on Tuesday.

43% of retail investors are trading with leverage: survey
Ethan Wolff-Mann – Yahoo Finance
It’s no secret retail investors have been a force in the current bull market, shoveling money into stocks and reaping the benefits of a strong market. Six months into the pandemic, the bullishness has continued. Investors are trading more and even getting into options and margin — two forms of leverage that can magnify wins, but also losses.

Market Volatility Teaches New Investors That Stocks Go Down, Too; Technology shares plunged over three days by their widest margin in nearly six months, draining some individual portfolios
Michael Wursthorn and Mischa Frankl-Duval – WSJ
A new wave of investors suffered big losses in recent days, getting a harsh lesson on how the stock market works. Technology stocks plunged over a three-day trading span that ended Tuesday by their widest margin in nearly six months, erasing thousands of dollars from some individual investors’ portfolios.

Wall Street looks to wrap up another volatile week on high note
Medha Singh, Devik Jain – Reuters
U.S. stocks rose in choppy trading on Friday, at the end of another volatile week as Oracle delivered solid quarterly results while data suggested a gradual pace of economic revival from the coronavirus-led downturn.

Surge in options trading helps drive gains on Wall Street
Alex Veiga – Washington Post
Stock options trading is up sharply this year, fueled by investor optimism for more gains on Wall Street. Options are contracts that give investors the right, though not the obligation, to buy or sell a stock at a future date and at a set price. Often, though, investors look to make money trading the contracts, rather than by holding onto them. Through the first eight months of this year, options trading volume is up nearly 46% from a year ago, according to data from Options Clearing Corp., which tracks options activity across 16 exchanges. Just last month, trades jumped 30.4% to around 611.8 million contracts.

Inside Volatility Trading: September 10, 2020
Kevin Davitt – Cboe blog
It’s difficult to make sense of the world today, but uncertainty (i.e. volatility) is a constant. Accepting that reality can be very empowering. The relative degrees of ambiguity waxes and wanes. Without moving into some watered down new-age philosophy or devolving into political mudslinging, in many ways it’s a matter of your perspective. Without hyperbole, the global markets and citizens everywhere are dealing with a crisis for which there is no precedent. The human mind does a fairly good job processing events from the past, but it struggles mightily with future projections. Unconscious and conscious biases cloud our ability to discern probabilities. There is also a powerful tendency to expect a future that looks very similar to recent past.

Exchanges and Clearing

MIAX Exchange Group – Moment of Silence on Friday, September 11, 2020
MIAX Options
Please be advised the MIAX Exchanges will observe a one minute moment of silence at 9:20 A.M. Eastern on Friday, September 11, 2020 to honor 9/11 victims, survivors, and their families. While trading will not be affected, we encourage our members and participants to join us in this silent tribute.

MIAX Exchange Group – Options Markets – Corporate Action Alert: Liberty Latin America Ltd. (LILA)
MIAX Options
Liberty Latin America Ltd. (LILA) has announced a distribution effective for Friday, September 11, 2020. On that date, the current LILA option class will change to LILA1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list LILA1 options. Therefore, no options on LILA will be available for trading on Friday, September 11, 2020.

MIAX Exchange Group – Options Markets – Corporate Action Alert: Liberty Latin America Ltd. (LILAK)
MIAX Options
Liberty Latin America Ltd. (LILAK) has announced a distribution effective for Friday, September 11, 2020. On that date, the current LILAK option class will change to LILK1. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list LILK1 options. Therefore, no options on LILAK will be available for trading on Friday, September 11, 2020.

Regulation & Enforcement

POSTPONED: Amendments to the Exercise Price Rule of the Options on Three-Month Eurodollar and Three-Month SOFR Futures Contracts – Addition of 6.25 Basis Point Strike Price Intervals
CME Group
Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will amend the Exercise Price rules of the Options on Three-Month Eurodollar Futures (Rulebook Chapter 452A) and Options on Three-Month SOFR Futures contracts (Rulebook Chapter 460A) (the “Contracts”) for trading on the CME trading floor, the CME Globex trading platform (“CME Globex”) and for submission of clearing via CME ClearPort (collectively, the “Rule Amendments”). The effective date of this initiative is forthcoming

Insider trader sentenced to three years imprisonment for trading in Big Un Ltd shares
Former investment analyst, Mr Michael Ming Jinn Ho, 33, has been sentenced in the Sydney Downing Centre District Court to three years imprisonment. Mr Ho pleaded guilty to five counts of insider trading and one count of communicating inside information in respect of Big Un Limited (Big Un) shares and options between 18 July 2016 and 10 February 2018 (20-045MR).

Proposal to amend The NASDAQ Options Market LLC Pricing Schedule at Options 7, Section 2, Nasdaq Options Market Fees and Rebates and certain rule citations within Options 7, update other rule text within Options 7, Sections 1 and 5.


Hedge the U.S. Election in Currency Markets
Joanna Ossinger – Bloomberg
Currencies might be the best place to hedge U.S. election uncertainty because volatility looks cheaper in foreign-exchange markets relative to other asset classes. That’s the view of strategists at Morgan Stanley and Tallbacken who have been gauging the increase in volatility in stocks, rates, currencies and commodities ahead of one of the most divisive elections in recent U.S. history.

Volatility in oil and gold may offer more opportunity than risk
Myra P. Saefong – MarketWatch
Many of the biggest movers in commodities this year, including oil and precious metals, will continue to take the spotlight as the year draws on. Traders are trying to assess the effects of the pandemic on demand and are looking for signs of a global economic recovery.
Year to date, the Bloomberg Commodities Index, which is heavily weighted in energy, is down around 12%, with the Bloomberg Energy Subindex off almost 43% as of Sept. 8.


What Everyone Should Know About the Stock Market
Phil Mackintosh – Traders Magazine
During the pandemic we have seen a significant increase in retail activity in the stock market.
The entrant of new, Main Street investors into the stock market is mostly good. Data shows that around 45% of U.S. households still have no exposure to the stock market. Despite that, Federal Reserve data shows direct ownership of stocks is even higher than mutual fund ownership. That makes individual (direct) investment a significant source of capital for U.S. firms.


Are You an Investor or a Gambler? The Stock Market Knows.
Jason Zweig – WSJ
You should learn whether you’re an investor or a gambler before the market teaches you the difference.
Stock gamblers are on the rise. But, sooner or later, they will lose most—if not all—of their recent gains.

(Podcast) TWIFO 216: Terrifying Truckloads of Corn
This Week In Futures Options – Options Insider

*****MR: It’s been a long time since I last saw a headline this good.

(Podcast) Market Up/Vol Up, Market Down/Vol Down…WTF Episode
RCM Alternatives
So – what’s happening in the wide world of volatility? The market moved to new all time highs and the VIX actually went UP. The market then mini-crashed lower and VIX barely budged? WTF indeed? Is it Robinhood traders? It is market makers? Is it sustainable? To break it down we’re doing another of our WTF episodes, and are joined by two VOL pros, Matt Thompson – Managing Partner at Thompson Capital Management, and Pat Hennessy – Head Trader at IPS Strategic Capital to talk about volatility, VIX, and options trading inside the market dislocation.

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