Options Trading is Smashing Records, But the Market Looks Nothing Like it Did Last Year

Sep 29, 2022

Observations & Insight

MWE SHORT: JJ Kinahan – Seeking Opportunity Everywhere in the Market

In this video from MarketsWiki Education’s World of Opportunity event in New York, JJ Kinahan, then the managing director and chief market strategist at TD Ameritrade, talks about seizing opportunity in every corner of the markets. Kinahan grew up in a large Irish-American family, and figured he would become a carpenter or an electrician. Instead, he landed a job at the CBOE one summer and never looked back.

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Lead Stories

Options Trading is Smashing Records, But the Market Looks Nothing Like it Did Last Year
Gunjan Banerji – WSJ
Options trading is booming. The market couldn’t look more different than it did last year.
Overall activity in the U.S. options market is on track to smash another record this year, with around 40 million contracts changing hands on an average day in 2022. Under the surface, the types of trades that have flourished show how investors’ behavior has changed, and how much of the euphoria that previously swept markets has all but evaporated.

Wall Street’s Fear Gauge Is Finally Waking Up to Market Mayhem
Lu Wang – Bloomberg
Wall Street’s widely followed gauge of fear is finally flashing signs of stress as the S&P 500 careens to a fresh bear-market low.
The Cboe Volatility Index, or VIX, rose 2.06 to 32.24 as of 12:29 p.m. in New York, as the equity index dropped as much as 2.7% on concern over Federal Reserve tightening and policy chaos in UK. Until Monday, the VIX hadn’t pierced 30 since June. It’s been there above that level every day this week.

Unrelenting Volatility Sees Stocks, Bonds Fall Thursday
Eric Wallerstein – WSJ
After a brief reprieve Wednesday, a broad-based selloff across stocks and bonds returned Thursday.
As of midday in New York, the benchmark S&P 500 fell 1.8% while the blue-chip Dow industrials dropped 1.2%. The tech-heavy Nasdaq Composite led the declines, shedding 2.7%. All of the S&P 500’s 11 sectors were in the red.

Stocks Plunge to 20-Month Low as Fed Hawks Circle: Markets Wrap
Isabelle Lee and Vildana Hajric – Bloomberg
US stocks sank to the lowest since November 2020 as another group of Federal Reserve officials struck a hawkish tone, and turmoil in Europe continued to fray investor nerves.
The S&P 500 fell as much as 2.9%, wiping out an ill-timed attempt Wednesday to rebound from a six-day slide. The tech-heavy Nasdaq 100 dropped nearly 4% after St. Louis Fed President James Bullard said investors have now understood that they can’t escape additional rate hikes in coming months.

Fed Must Press On Despite Global Market Volatility, Charles Evans Says
Matthew Boesler – Bloomberg
The Federal Reserve must keep pushing interest rates higher to contain inflation despite rising volatility in global financial markets, Chicago Fed President Charles Evans said.
“We’re at a target range of 3 to 3.25%,” Evans told reporters Wednesday after a talk at the London School of Economics, referring to the US central bank’s benchmark lending rate.

Liquidity Dash Spurs Biggest Spike in ETF Trading Since 2018; ETF volumes surged relative to overall stock activity Tuesday; Such increases can precede a rebound, RBC’s Silverman says
Katherine Greifeld – Bloomberg
Trading of Wall Street’s most-liquid tools is surging as investors look to navigate the latest wave of volatility across assets. Exchange-traded fund volumes in the US soared to 29% of total equity transactions on Tuesday, the highest proportion since December 2018, according to data from Susquehanna International Group. The spike came as the S&P 500 fell to a fresh bear-market low and the Cboe Volatility Index rose to its highest level in three months.

Market Risks Mimic 2007 As UK Volatility May Spread: Larry Summers
Matthew Fox – Markets Insider
Former US Treasury Secretary Lawrence Summers thinks today’s market risks are looking eerily similar to those that surfaced just before the Great Financial Crisis.
“We’re living through a period of elevated risk,” Summers told Bloomberg Television on Thursday, later adding, “In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety.”

Fed’s Evans: Market volatility can create restrictiveness
Dhara Ranasinghe and Jorgelina Do Rosario – Reuters
Federal Reserve Bank of Chicago President Charles Evans said on Wednesday that volatility in markets can create additional restrictiveness in financial conditions.
Global markets have been whipsawed this week by turmoil in UK markets, already on edge over aggressive rate hikes from the U.S. Federal Reserve and other major central banks.


MIAX Exchange Group – Options & Equities Markets – 2nd Reminder: Reg SCI / SIFMA BCP Testing on Saturday, October 15, 2022
As previously announced in the April 19, 2022, and September 19, 2022 Alerts, the MIAX Exchange Group will be participating in the 2022 SIFMA BCP Testing on Saturday, October 15, 2022. All Members that are required to test with MIAX Options, MIAX Pearl Options, MIAX Emerald Options and/or MIAX Pearl Equities Exchanges in accordance with Regulation Systems Compliance and Integrity (Regulation SCI) were notified on April 5, 2022. However, all Members are encouraged to test.

Nasdaq GEMX proposes to adopt an Affiliated Entity program.
To qualify for the Affiliated Entity program in October, Members must provide appropriate documentation by September 28, 2022.
An “Affiliated Entity” would be a relationship between an Appointed Market Maker and an Appointed OFP for purposes of qualifying for certain pricing specified in the Pricing Schedule. In order to become an Affiliated Entity, Market Makers and OFPs will be required to send an email to the Exchange to appoint their counterpart, at least 3 business days prior to the last day of the month to qualify for the next month.

SGX Group wins two Exchange of the Year awards; Asia Risk, FOW accolades underscore strength of multi-asset service offering; SGX Chairman receives FOW’s Lifetime Achievement Award
Singapore Exchange (SGX Group) has clinched two Exchange of the Year awards for delivering a robust service offering across multiple asset classes amid growing institutional demand for trusted investment and risk-management solutions. SGX Group retained “Derivatives Exchange of the Year” at the Asia Risk Awards, one of the longest-running awards for the derivatives and risk-management industry. Leading publication Asia Risk cited the way SGX Group used the strengths of its multi-asset offering to forge new partnerships that carry the business forward, as well as the continued refinement of its digital workflow solutions.

Regulation & Enforcement

FIA urges CFTC to clarify regulation of event contracts
FIA filed comments with the CFTC urging the agency to clarify the rules governing event contracts. FIA submitted its comment letter in response to the CFTC’s review of KalshiEx’s proposal to list contracts on which political party will be in control of each chamber of the US Congress.
FIA’s letter does not take a position on the proposed listing of such contracts, but does stress the importance of the CFTC issuing clear, practical guidance to market participants about which event contracts are permissible under the Commodity Exchange Act and applicable CFTC regulations. “Only through clear rules,” the letter argues, “can innovative ideas flourish.”


This ‘Stairway to Hell’ Options Strategy Makes Profits Out of Panic
Steven M. Sears – Barron’s
The nightmare is here.
More than two decades of seductively lower interest rates have created an inflationary maelstrom that the world’s central banks are struggling to contain. The lower-for-longer mind-set helped the global economy avoid one major crisis after another, but it created an inflationary monster that will be painful to kill.

Here’s how to trade this still-dangerous stock market
Lawrence G. McMillan – MarketWatch
The S&P 500 index traded at new intraday and closing lows for 2022 this past week. That move exacerbated oversold conditions that have been building for some time. Such oversold conditions can produce sharp but short-lived oversold rallies, which is what happened on Sept. 28.
However, the big picture is that the S&P SPX, -2.16% chart is still in a downtrend, and therefore this is still a bear market.
We recommend holding a “core” bearish position because of that, and we will trade confirmed buy signals around it, if they occur.

‘Extreme’ Negativity Sends Buy Signal on Stocks, Bernstein Says
Abhishek Vishnoi – Bloomberg
Sentiment has turned so bad for global equities that an indicator developed by Sanford C. Bernstein & Co. has sent a buy signal.
“Another bear market rally is very possible,” strategists including Mark Diver and Sarah McCarthy wrote in a note. “Investor sentiment has now reached such negative levels” that the odds of global equities making positive returns over the next four weeks is greater than generating losses, they added.

Bearish Options Strategies for a Bleak Market
Patrick Martin – Schaeffer’s Investment Research
When the market is looking bleak, bearish options strategies can help weather the storm of the stock market. So, whether you are an active options trader or an investor, you can benefit from bearish options strategies.
Investors can hedge their stock portfolios by selling or purchasing options to benefit from the downward market. In comparison, options traders can simply place bearish options trades to generate income. So regardless of your stock portfolio, bearish options strategies can help you generate a profit when the market is bleak.

How To Use VIX Options For Portfolio Protection
Gavin McMaster – Investor’s Business Daily
With the stock market in a correction, it can be an excellent time to think about portfolio protection.Despite Wednesday’s robust rebound, we want to see more stocks getting back above key technical levels before going back into full bullish mode.That being said, traders with a large bullish expose may want to consider adding some protection.One way to do that is via an options trade known as a ladder.


Implied volatility
Rebecca Cattlin – Forex.com
Implied volatility is a key factor when it comes to pricing options – it helps traders understand the market’s expectation of changes to underlying prices over a given period. Let’s take a look at what implied volatility is and how you can use it in your trading strategies.


Coming Oct. 12, 2022, at 11:00 a.m., a Derivatives Deep Dive with Michael Izhaky, VP, Derivatives Strategy at Cboe Global Markets. Izhaky is a senior leader in Cboe’s Derivatives Strategy group. It’s part of an ongoing series on derivatives at The Options Institute at the Cboe. You can learn more and register here.~SAED


Treasury ETFs Have Already Nearly Doubled the Record for Annual Inflows
Eric Wallerstein – WSJ
$100 billion
That’s how much cash investors have poured into Treasury exchange-traded funds this year, nearly double the annual record of a net $51 billion set in 2018. And there’s still the entire fourth quarter to go.

Businesses Should Worry About Side Hustles Not Quiet Quitting: Vaynerchuk
Jason Lalljee – Business Insider
The entrepreneur and internet personality Gary Vaynerchuk thinks companies need to step up their game.
He said as much in a recent TikTok video when asked about the “quiet-quitting” trend. Sometimes called “acting your wage,” the concept involves doing your job as written for the pay you receive, and no more. It’s a practice that’s seemingly as old as employment itself but illuminates how workers are seeking better work-life balance and reshaping their vision of a 9-to-5.

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