Options Market Signals a Dire Outlook for Stocks; Bitcoin’s halving breathes life into CME’s options product with new accounts rapidly growing

May 18, 2020

Observations & Insight

The Spread: An Eligible Bachelier
JohnLothianNews.com

This week on The Spread, the OCC wins best equities clearing house for the third year in a row, a couple of Cboe directors bow out, we discuss the Bachelier model, and more.

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Lead Stories

Options Market Signals a Dire Outlook for Stocks
Ash Alankar and Myron Scholes – Bloomberg
The unprecedented pace of the collapse in equities and ensuing rebound has left investors questioning where the intrinsic value of riskier assets really lies. While progress has been made in combatting the coronavirus pandemic and authorities have provided massive support for the economy and financial markets, one can’t look at the rally in the S&P 500 Index from its March nadir and deduce that only sunny days are ahead.
/bloom.bg/2zKiSi6

Bitcoin’s halving breathes life into CME’s options product with new accounts rapidly growing
Frank Chaparro – The Block
Bitcoin’s halving appeared to have fueled a surge in a trading product at one of Wall Street’s most important financial institutions. Trading volumes and open interest in CME Group’s bitcoin options product has surged since the event last Monday, which saw the number of bitcoins produced with each transaction block falling from 12.5 BTC to 6.25 BTC (effectively cutting new coin issuance in half). CME, which is among the largest exchange groups in the world, launched its bitcoin options product at the beginning of 2020.
/bit.ly/3bNZ6Qg

The Oil Market Is Betting People Want Crude for Christmas; Traders avoid near-term contracts as the coronavirus pummels fuel demand
Ryan Dezember and Mike DeStefano – WSJ
The most wagered-upon oil prices these days are for crude bobbing at sea on big tankers—or even still in the ground. In futures markets for both overseas-benchmark Brent and West Texas Intermediate, the main U.S. price, barrels for December delivery have the highest open interest, or total number of options and outstanding contracts.
/on.wsj.com/3cD3ouO

VIX Above 31 Is ‘Uninvestable,’ Says Solstein Capital’s Terman
Bloomberg (VIDEO)
Nadine Terman, chief executive officer and founder at Solstein Capital, discusses market volatility amid coronavirus pandemic fears. She spoke March 9 on “Bloomberg Markets.”
/bloom.bg/2WEyYmq

Short-sellers in Europe get the green light as coronavirus bans on betting against stocks are lifted
Carmen Reinicke – Markets Insider
Short-sellers rejoice — betting against the stock market is back on in Europe.
On Monday, the European Securities and Markets Authority said that Austria, Belgium, France, Spain, Greece, and Italy all lifted previous restrictions on betting against stocks put in place at the start of the coronavirus pandemic, The Wall Street Journal reported.
/bit.ly/3e34y3f

Exchanges and Clearing

Valuation Model Change for Four Average-Price Options – Effective May 18, 2020
CME Clearing
CME Clearing is switching the pricing model used for valuation of four average-price cash settled options to the Curran model, effective with the end-of-day clearing cycle on Monday, May 18, 2020.
/bit.ly/2WIpgiV

*****Yet another option model from the CME Group. Here is a paper about the Curran Model.~JJL

Exchange of the year: Nodal Exchange
Pauline McCallion – Risk.net
It’s been a busy 12 months for Nodal Exchange, with the acquisition of Nasdaq’s commodity futures and options exchange business at the end of last year and the launch of new futures products in low carbon fuel credits and trucking. Nodal, part of the Deutsche Börse group, pushed ahead with its plans to integrate the natural gas portfolio purchased from Nasdaq Futures (NFX) despite the lockdown imposed on individuals and businesses as a result of the coronavirus pandemic. Migrating the contracts during April’s disruption made for “challenging times”, admits Nodal Exchange chief executive officer Paul Cusenza, but the company was keen to expand its gas market share to provide cross-margining benefits for power and gas traders.
/bit.ly/2z7ZuM0

TAIFEX and Bursa Malaysia Sign Memorandum of Understanding
Julia Bahr – Finance Magnates
The Taiwan Futures Exchange (TAIFEX) and the Bursa Malaysia Derivatives Berhad (BMD) announced that they have signed a Memorandum of Understanding (MOU) with the intent to pursue a mutually beneficial business partnership today. The two exchanges will share information and best practices pertaining to product development, market operations, and in the areas of common interest for both markets.
/bit.ly/2yhE1Qq

Options Trader Alert #2020 – 12
Nasdaq Announces Changes to the Penny Pilot Program, Effective July 1, 2020
NasdaqTrader.com
Effective Wednesday, July 1, 2020, all Nasdaq options exchanges will implement the Penny Interval Program (the “Program”) on a permanent basis, in accordance with the recently approved OLPP amendment. The Program will replace the Penny Pilot Program (the “Pilot”) on the effective date.
/bit.ly/2Zf3sNv

Regulation & Enforcement

Oil volatility sparks debate on big commodities bets
Gregory Meyer – Financial Times
The US commodities-market regulator is poised to relax curbs on speculators, just weeks after sales by the largest oil-linked exchange-traded fund helped drive crude prices off a cliff.
A new rule proposed by the Commodity Futures Trading Commission would double position limits for investors in commodities including oil, natural gas, gold, corn and soyabeans. In addition, the Washington, DC-based agency would set limits on energy and metals contracts only during the final three days before they expire — abandoning an earlier effort to cap holdings in any contract, whether for delivery next month or next year.
/on.ft.com/3bIRXAD

Moves

Miami International Holdings Welcomes Seasoned Industry Finance Executive Lance Emmons
PR Newswire
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options, MIAX PEARL and MIAX Emerald options exchanges (the MIAX Exchange Group), today announced that Lance Emmons has joined MIH as Executive Vice President, Chief Financial Officer. As CFO, Emmons will lead MIH’s financial strategy, planning and operations, including financial analysis and risks, operations optimization, strengthened revenue growth, and organizational leadership and development, among other duties.
/prn.to/3e0iT0m

Strategy

This Fed Put is Out of the Money
Alphacution
I am not a funny guy. (Ask my wife…) And yet, occasionally – when I say the quiet part out loud – I manage to get a laugh. My latest bit is an idea about how to “fight the Fed.” So, while you may enjoy a chuckle at the thought, here’s why I think things might be different this time: The “Fed Put” is a common reference in capital market circles – particularly since the GFC – given their increasingly likely position to backstop some asset classes. Of late, the Fed’s actions were the driving force behind the stabilization of the bond market since the March gyrations; by extension, the equity markets.
/bit.ly/2X5aCkI

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