Pandemic’s latest spread triggers surge in VIX ‘fear gauge’ for U.S. stocks; Bitcoin’s Options Market Sees Just 6% Chance of $20K Before Year’s End

Oct 29, 2020

Observations & Insight

$11,441/$300,000 (3.8%)
Thomas F. Chlada, Earle Combs, Gerry Corcoran and Martin Mosbacher


FIA Data Underscores Explosive 2020 Growth in Equity, Commodity Volume
By Suzanne Cosgrove – John Lothian News

Global volume in futures and options is on track for a banner year in 2020, with growth fueled largely by equity derivatives amid unparalleled levels of volatility. Equity derivatives saw a total of more than 7 billion contracts traded in the third quarter, according to data compiled by the FIA.

Total volume for all exchanges tallied 11.8 billion contracts for the third quarter, compared with 8.6 billion in third-quarter 2019. For the year 2020 through September, the volume tally was 33.7 billion contracts.

Looking at the top five exchanges by total volume, the FIA ranked the National Stock Exchange of India as No.1 with about 6.1 billion contracts traded in the nine months from January through September 2020, followed by the B3 (Brasil, Bolsa, Balcão), which was ranked as No. 2 with 4.5 billion contracts. CME Group’s exchanges came in at No. 3 with a combined total of about 3.8 billion contracts, ICE was No. 4 with 2.1 billion and Cboe Holdings was No. 5 with 1.9 billion contracts traded.

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Lead Stories

Pandemic’s latest spread triggers surge in VIX ‘fear gauge’ for U.S. stocks
April Joyner – Reuters
Wall Street’s “fear gauge” is on track for its biggest weekly jump since March as investors worried about rising U.S. and European coronavirus cases, the lack of fiscal stimulus and uncertainty about the U.S. presidential election outcome.

Bitcoin’s Options Market Sees Just 6% Chance of $20K Before Year’s End
Omkar Godbole – Coindesk
While bitcoin’s rally over the past month has revived talks of its price reaching new record highs above $20,000 by the end of the year, the cryptocurrency’s options market continues to assign a very low probability of that scenario playing out.

The Lockdown Meltdown Is Coming for Everything; Even haven assets such as gold are being sold. Previous volatility spikes suggest the situation won’t turn around quickly.
John Authers – Bloomberg
Another October Surprise
We are in the presence of the Lockdown Meltdown. Stocks across the world have just suffered their biggest jolt since the March seizure that was prompted by the advent of Covid-19. What is striking about this selloff is that, for the most part, it is indiscriminate.

Exchanges, retail brokers, say they are ready for any post-U.S. election volatility
John McCrank – Reuters
Exchanges and retail brokers, under scrutiny after recent outages within their industries, have spent months planning for Election Day. Now their preparations, for what could be a highly volatile trading period, are about to be put to the test.

The S&P 500 will tumble up to 20% before the inauguration as investors have lost hope that COVID-19 would be controlled, an investment chief says
Emily Graffeo – Markets Insider
“The stock market is telling us that COVID-19 isn’t going away anytime soon.”
That’s according to James McDonald, Hercules Investments CEO and investment chief, who said on Wednesday that the S&P 500 index could tumble an additional 20% before the presidential inauguration in January as cases of the coronavirus surge in the US and swaths of Europe begin to lock down again.

Exchanges and Clearing

Explainer: How U.S. exchanges are prepared for possible post-election chaos
John McCrank – Reuters
Wall Street could see sharp swings in trading after the Nov. 3 U.S. presidential election. But there are safeguards in place to keep the stock market or equity futures from sliding out of control. Here is a guide to what exchanges do to halt trading if shares fall sharply.

MIAX Options: New ISO PRIME Order Type
MIAX Options will implement a new ISO PRIME order type that allows a Member to submit a PRIME Order without regard for better priced Protected Bids or Protected Offers when the Member simultaneously routes ISOs to execute against the full displayed size of any better-priced Protected Bid or Protected Offer and sweeps all interest in the Exchange’s Book priced better than the proposed Auction starting price.

CME Globex Notices: October 26, 2020
CME Group

Cboe Global Markets Declares Fourth-Quarter 2020 Dividend
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, today announced its Board of Directors has declared a quarterly cash dividend of $0.42 per share of common stock for the fourth quarter of 2020. The fourth-quarter 2020 dividend is payable on December 15, 2020, to stockholders of record as of November 30, 2020.

New ISO PRIME Order Type
MIAX Options
MIAX Options will implement a new ISO PRIME order type that allows a Member to submit a PRIME Order without regard for better priced Protected Bids or Protected Offers when the Member simultaneously routes ISOs to execute against the full displayed size of any better-priced Protected Bid or Protected Offer and sweeps all interest in the Exchange’s Book priced better than the proposed Auction starting price. MIAX Options will implement the ISO PRIME order type on January 11, 2021.

Regulation & Enforcement

FIA Issues White Paper on the Impact of Pandemic Volatility on CCP Margin Requirements; Paper finds central counterparty (CCP) margin requirements rose dramatically during pandemic; FIA calls for improvements to margin models to reduce liquidity risk
FIA today released a white paper that examines the dramatic increase in margin requirements at derivatives clearinghouses during the first quarter of 2020 due to increased market volatility related to the pandemic. Although the clearing system performed well during exceptional volatility and trading volume, the increase in margin requirements created a large and sudden demand for liquid assets that contributed to stress in the financial markets. FIA views this episode as an important test of the clearing system and in this paper puts forward several recommendations to improve margin models.

*****JJL: The FIA is keeping busy, even while preparing for EXPO-V.

CFTC to Offer Lower Fines to Offenders That Cooperate
Dylan Tokar – WSJ
The U.S. derivatives watchdog is planning to offer rewards to companies that turn themselves in, following in the footsteps of other regulators and law-enforcement agencies.
The Commodity Futures and Trading Commission is expected to release guidance Thursday spelling out how companies that self-report potential misconduct, cooperate with investigators and take steps to address underlying issues could receive a “substantially reduced” financial penalty.


Nordic Capital Said to Explore Sale of Itiviti Trading Platform
Jan-Henrik Foerster – Bloomberg
Nordic Capital is exploring a potential sale of electronic trading platform Itiviti Group AB, which could fetch about $1 billion, people with knowledge of the matter said. The private equity firm is in the early stages of considering strategic options for Itiviti, according to the people, who asked not to be identified because the information is private.

CME Optimizer Software Version 15 Release, Mandatory Upgrade Required December 7, 2020
CME Group
In conjunction with CME expanding the Portfolio Margin program to include Options on Eurodollar Futures, CME is releasing a new build of the Optimizer software, version 15. Optimizer users must upgrade to the newest build by the production deadline December 7, 2020. Firms who do not upgrade on the production deadline will experience subsequent Optimizer failures. Optimizer is now available and ready to install and test in the New Release environment as of October 28th, 2020.

triReduce Completes First Benchmark Conversion with SONIA Risk Replacement Trades
CME Group
TriOptima, a leading infrastructure service that helps to lower costs and mitigate risk in OTC derivatives markets, announced the completion of the first triReduce enhanced compression cycle to include SONIA risk replacement trades. The cycle took place on October 22, 2020 at LCH SwapClear.


How to Use the Election to Buy Stocks at a Bargain Price
Steven M. Sears – Barron’s
America is gripped with hope and fear ahead of Tuesday’s presidential reckoning. It might be the only thing that Democrats and Republicans can agree on ahead of a historically polarized election.
The Republicans naturally hope that Donald Trump will be elected to another four years as president. If he loses, they fear the country will go to hell.
The Democrats, of course, hope that Joe Biden is elected president. They fear that another four years of Trump will damage the country, perhaps irreparably.

How to Use Options to Play a Decline in Zoom Video’s Stock
Andrew Bary – Barron’s
Zoom Video Communications has been the ultimate stay-at-home stock this year, and it has burned bears during its ascent.
Shares of the provider of videoconferencing services (ticker: ZM) have soared to $516 from $68 during 2020. The stock is up about 80% in the past two months, although it fell 4.3% during Wednesday’s market selloff. The company has a market value of $147 billion—more than that of former stock market leader Exxon Mobil (XOM) at $135 billion.


FIA Expo
Register now and join us virtually this November.
10 November 2020 – 12 November 2020 • 7:30 AM – 2:00 PM CST
Since March the futures community has shown its resiliency and ability to adapt to the challenges of today. Expo-V focuses on shaping what’s next in the cleared derivatives industry as we continue to move forward and change. Whether leading voices analyzing the most pressing issues or ground-breaking fintech startups, the virtual 36th Annual Futures & Options Expo is your destination to build partnerships, spot trends and define what’s next for our industry.
From keynote addresses to 1:1 interviews with exchange leaders and panels as well as the Innovators Pavilion and virtual trade show, Expo-V will bring you:
Ways to harness recent lessons learned to build a stronger tomorrow
Cutting-edge startups and new applications that are changing the face of the industry
Opportunities to diversify the industry from people to principles
Register now and join us virtually from November 10-12 for Expo-V!


63% of investors have changed their portfolios ahead of the US election — and increasing cash was the most common move, UBS survey says
Emily Graffeo – Markets Insider
More than six in 10 investors in the US said they have made changes to their portfolios in anticipation of the election, according to a new UBS survey.

(Podcast) OPR 337: Straight from Transylvania…It’s Fun with FAANGs!!!
Options Playbook – Options Insider Network

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