Reddit Is Chief Suspect as Volatility ETF Swells to $2.6 Billion; Treasury Volatility Is Just Starting With Big Swings on the Way

Feb 17, 2021

$29,251/$300,000 (9.8%)
Harlan Ten Pas

Observations & Insight

NFL Calls Time-Out on ErisX’s NFL Binary Options
Thom Thompson – John Lothian News

The National Football League asked the CFTC to delay any approval of ErisX’s proposed binary options contracts “pending a more comprehensive study” of whether the contracts would be used for hedging and whether users of the contract might be breaking federal laws by risking money on football spread betting across state lines. The NFL was reacting on the record to ErisX’s certification of three contracts that would settle to the results of NFL games.

ErisX operates cryptocurrency spot and futures markets as well as a futures clearing organization. It lists deliverable futures contracts on bitcoin and Ether. In December last year, the exchange said it wanted to offer contracts on the winner of professional football games, the final point spread and the total number of points scored in weekly NFL games.

To read the rest of this story, go here.


In a bid to attract retail investors who tend to trade smaller-sized orders, Cboe Global Markets Tuesday said it plans to activate its electronic crossing auction functionality, known as AIM, for orders of up to 10 S&P 500 index options (SPX) and S&P 500 Index Weeklys options (SPXW) contracts traded on Cboe Options Exchange, which is Cboe’s largest options pit. Worth noting: Options order size has been trending smaller over the past year and currently more than 30 percent of the volume in SPX options trades in orders of between one to 20 contracts. Arianne Criqui, Cboe’s head of derivatives and global client services, said in a statement that the AIM function will complement open outcry during regular trading hours. It’s slated to begin Monday, February 22. More details here. ~SC

Lead Stories

Reddit Is Chief Suspect as Volatility ETF Swells to $2.6 Billion
Yakob Peterseil – Bloomberg
The world’s largest volatility ETF topped $2.5 billion in assets for the first time, prompting speculation that Reddit traders have turned their attention to betting on market turmoil.
The ProShares Ultra VIX Short-Term Futures ETF (ticker UVXY) has nearly doubled its assets this year amid a streak of inflows that included a record $280 million in a single day.

Treasury Volatility Is Just Starting With Big Swings on the Way
Stephen Spratt – Bloomberg
U.S. Treasuries are in for more wild gyrations, with volatility markets signaling that the benchmark bond yield could surge or drop by almost 30 basis points in the next three months.
The three-month implied volatility on 10-year swap rates — a measure of how much bonds are expected to move — jumped by the most since March on Tuesday, surpassing the levels heading into the 2020 U.S. election.

JPMorgan Says Bitcoin Rally Unsustainable Unless Volatility Ebbs
Joanna Ossinger – Bloomberg
Largest cryptocurrency hit an all-time high on Wednesday; Token’s rising volatility is stirring caution about outlook
Bitcoin’s volatility needs to ease to prevent the token’s rally from fizzling, according to JPMorgan Chase & Co. Unless swings recede rapidly, the current price of the largest cryptocurrency “looks unsustainable,” strategists led by Nikolaos Panigirtzoglou wrote in a note Tuesday.

Exchanges and Clearing

Citi Clears CDS Index Option Trades Through ICE Clear Credit; Options activity builds on record year at ICE Clear Credit in 2020
Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, today announced that Citi has traded and cleared the first client-executed Credit Default Swap (CDS) Index Option trades in the U.S. through ICE Clear Credit.

Cboe to Enable Electronic Auction Mechanism for S&P 500 Index Options Products, Beginning February 22
Cboe Global Markets
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, today announced plans to enable its electronic auction mechanism to further serve market participants trading S&P 500 Index options (SPX) and S&P 500 Index WeeklysSM options (SPXW) on Cboe Options Exchange, beginning Monday, February 22.

Retail Investors Pile Into Derivatives on Plus500 Trade Platform
Joe Easton and Lucca De Paoli – Bloomberg
Plus500 Ltd. has finally thrown the towel in on its policy of leaving itself unhedged against market movements after retail traders’ winning positions cost it $125 million last year.
The U.K.-listed trading platform said Wednesday it began implementing “targeted hedging, executed so far on a limited basis,” bringing it closer to the practices of peers IG Group Holdings Plc and CMC Markets Plc.

The Italian yield curve and BTP derivatives during highly volatile (COVID-19) markets
How does one establish market continuity in times of a pandemic – that was the overall theme of a recently held webinar. The market experts Ashley Ball, Senior Fixed Income Trader at Mako Global, Dr. Luca Cazzulani, Co-Head of Strategy Research at UniCredit Bank Milan, Michelangelo Gigante, Head of Execution Desk at Eurizon Capital SGR, Andrea Stramentinoli, Head of Interest Rates Derivatives at Banca Akros S.p.A., Catherine Alexander, Fixed Income Sales at Eurex, and Jutta Frey-Hartenberger, Fixed Income ETD Product Design at Eurex tackled this topic with insightful presentations and opinions.

Regulation & Enforcement

Short selling bans and market restrictions – Considerations for investors
White & Case LLP via JD Supra
This alert reviews the steps taken by the various market regulators across the EU in response to market volatility
A number of regulators across the globe responded to recent market volatility by introducing temporary short selling bans and/or market restrictions. Such bans have since expired as of 18 May 2020. Other regulators (including the UK) said that there was no evidence to suggest that short selling had been the driver of recent market falls and emphasised the important role short selling plays in liquidity provision and price discovery, but in some cases nonetheless imposed lower thresholds for reporting short positions to ensure that regulators were able to monitor positions closely.

The Reddit traders that united to pump up stocks like GameStop might have broken market-manipulation laws, EU regulator says
Ben Winck – Markets Insider
The casual traders that banded together on Reddit to lift GameStop, AMC, and other unloved stocks last month potentially violated market-manipulation rules, the European Securities and Markets Authority said Wednesday.
The statement is among the more decisive statements suggesting retail traders’ online communications violated trading laws. Day traders uniting in online forums like the Wall Street Bets subreddit sent highly shorted stocks skyrocketing in January. The meme-stock rally evolved into a global market disruption that’s since prompted scrutiny from regulators, lawmakers, and Wall Street’s old guard.

Robinhood heads to the Hill: What to watch at the Congressional hearing
Philip Stafford – Financial Times
The inner workings of the stocks trading industry will receive a public airing on Thursday when Washington lawmakers grill the key protagonists in January’s amateur trading frenzy.
Hedge fund managers, professional investors and specialists in the more arcane corners of trade processing are clearing their diaries and checking popcorn supplies for a session that could determine how regulators deal with an explosion in trading by amateurs for years to come.


Vela adds Cboe One market data to SuperFeed
Traders Magazine (press release)
Vela, a leading independent provider of data and execution technology for global multi-asset electronic trading, has added the Cboe One Feed to its award-winning normalized market data service, SuperFeed. Vela’s SuperFeed is a fully managed, low-latency market data feed that delivers high-quality, normalized real-time data via a single source with industry-leading levels of performance, availability, and reliability. Offering an exceptional blend of fast delivery and scalability, SuperFeed is designed to simplify and speed up clients’ access to data and is available from Vela’s data centers and via all major managed infrastructure providers. In support of the growing demand for real-time market data in the cloud, Vela recently deployed SuperFeed within the Amazon Web Services (AWS) public cloud environment as well as IPC’s Connexus Cloud and Connexus Labs. Vela’s vendor bridge technology eliminates the costs and overheads associated with changing feed providers, enabling a more seamless and rapid migration.


Registration is open! – FIA Boca 2021

The SEC’s new derivatives rule: practical implications for funds
25 February 2021 • 10:00 AM – 11:00 AM EST
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.

A New Virtual Experience
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.


Traders chase sky-high returns in leveraged exchange traded products
Saqib Iqbal Ahmed – Reuters
Frenzied speculation in the shares of GameStop may have subsided, but it is business as usual in a small corner of the market where traders looking to turbocharge their gains dabble in what may be some of the market’s most volatile funds.
Leveraged and inverse exchange traded products (ETPs) – which aim to magnify the moves of an underlying index or stock several times over – account for only around 1% of the $5.9 trillion universe of U.S.-listed exchange traded products, according to CFRA.

‘Big Short’ investor Michael Burry sold his GameStop stock last quarter, meaning he probably missed the Reddit rally
Theron Mohamed – Markets Insider
Michael Burry cashed out his GameStop shares last quarter, meaning he probably missed out on the Reddit-fueled buying frenzy that boosted the video-game retailer’s stock up as much as 2,500% last month.
Burry is best known for his billion-dollar bet against the US housing-market bubble, which was chronicled in the book and movie “The Big Short.”

(Podcast) Options Rundown Special Edition
Options Insider Radio Network
This special recording is due to the lack of programming on Monday due to the President’s Day holiday.
Join Mark Longo as he discusses: volatility in the markets; the most active equity options for the day; a crypto rundown of bitcoin, ether, dogecoin and top cryptocurrencies; a nat gas and crude oil update; a highlight of the earnings announcements for the rest of this week; DNN (a stock that was profiled last week as the craziest trade in The Option Block’s history); where to find the best tools for stocks with the most open interest or volume for the day, and much more.

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