SOFR Options Debut; A War With Iran Would Make Markets Crazy

Jan 7, 2020

Lead Stories

SOFR Options Debut; First Trades Anticipate Higher Volatility
Elizabeth Stanton – Bloomberg
Options on SOFR futures became available for trading Monday, and 10 contracts changed hands — five lots of a straddle, in which a put and a call with the same strike are bought, anticipating an increase in volatility. The trade involved the 98.625 strike in December 2020 options on three-month SOFR futures, according to open-interest data released by CME Group Inc., which lists the contracts. The straddles were traded at a price of 37 ticks, according to several traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.

A War With Iran Would Make Markets Crazy. This Stock Would Benefit.
Steven M. Sears – Barron’s
If President Donald Trump unleashes the full might of the U.S. military against Iran, the Cboe Volatility Index would almost certainly surge, and the VIX’s owner, Cboe Global Markets, would profit.
An outright war, a major attack, or any sharp escalation of what has been mainly an exchange of threats following the drone attack that killed a top Iranian general, would likely prompt investors all over the world to panic and rush to buy VIX calls to hedge or trade the conflict. The increased trading volumes would benefit Cboe (ticker: CBOE), which exclusively lists and trades VIX options and futures.

Funds quickly ditch bearish soybean bets after huge selling spree
Karen Braun – Reuters
After digging well into bearish territory late in the year, speculators changed their minds about Chicago-traded soybeans in mid-December and opened the new year with a relatively neutral view on the oilseed.
In the week ended Dec. 31, hedge funds and other money managers slashed their net short in CBOT soybean futures and options to 3,159 contracts from 33,156 in the previous week, according to data published on Monday by the U.S. Commodity Futures Trading Commission.

Dollar recovers vs. yen, U.S.-Iran tensions still in focus
Gertrude Chavez-Dreyfuss – Reuters
The dollar rallied against the safe-haven Japanese yen on Monday, but stayed weaker versus the Swiss franc, as market sentiment remained cautious amid concerns about a broader escalation of Mideast conflicts after the United States killed Iran’s most prominent military commander.

Options traders bet that this gold rush isn’t just a flash in the pan
Tyler Bailey – CNBC
Rising tensions in the Middle East are whipping commodity markets into a frenzy. After an initial spike, crude oil prices are falling as investors rethink supply risks, while gold is breaking out to near seven-year highs as traders look for a safe haven to hedge equity risks amid uncertainty surrounding potential fallout from the situation in Iran. But is this gold rush just a flash in the pan? Not according to the options market.

Exchanges and Clearing

Phase II of OCC Financial Safeguards Framework Approved by SEC
Enhancing its resiliency as a Systemically Important Financial Market Utility (SIFMU), OCC, the world’s largest equity derivatives clearing organization, today announced that the U.S. Securities and Exchange Commission (SEC) approved Phase II of the company’s Financial Safeguards Framework (FSF) on December 11, 2019. The approved changes to OCC’s rules, clearing fund, and stress testing and margin methodology were implemented on December 16, 2019.

BNP Joins JPMorgan in Setting Up Singapore Currency Trading Hub
Ruth Carson – Bloomberg via Yahoo Finance
BNP Paribas SA is planning to join JPMorgan Chase & Co. and Citigroup Inc. by setting up an electronic currency trading and pricing platform in Singapore.
The facility will support electronic trading of 50 currencies in spot, forward, swaps, non-deliverable forwards and options, according to a company statement. It will also allow trading of precious and base metals.

December rounds off a strong year for Eurex
Eurex Exchange
Clearing volumes at Eurex, the leading European derivatives exchange, continued their upward trend in December, recording triple digit growth in average daily cleared volumes. Significant increases in volumes were also seen at Eurex Repo and EEX.
Despite year-on-year volumes of traded derivatives contracts at Eurex being slightly down in December 2019, the year as a whole saw some very positive developments across a number of individual product segments. For instance, options on the STOXX Europe 600 Banks and Total Return Futures on the EURO STOXX 50 both saw traded volumes more than double in 2019 compared to 2018. And many other products saw double-digit growth. 2019 also saw Eurex roll out its ESG derivatives offering and the milestone of half a million traded contracts was reached on 12 December.

ASX Sees 407% YoY Surge in OTC Markets Clearing in December
Celeste Skinner – Finance Magnates
The primary securities exchange in Australia, the Australian Securities Exchange (ASX), has published its monthly activity report for December of 2019 this Tuesday, revealing a solid uptick in clearing for the over-the-counter (OTC) markets. During the final month of 2019, the notional value of OTC interest rate derivative contracts centrally cleared by ASX was AU$1.45 trillion. This is a significant increase from the prior corresponding period. In fact, it is higher by 407 per cent from the AU$285.3 billion centrally cleared in December of 2018.

Regulation & Enforcement

Options Regulatory Alert #2020 – 2
Nasdaq Trader
Effective January 6, 2020, the market maker quarterly quote width requirements on Nasdaq PHLX (PHLX), The Nasdaq Options Market (NOM), Nasdaq BX (BX Options), Nasdaq ISE (ISE), Nasdaq GEMX (GEMX) and Nasdaq MRX (MRX) will be effective through March 20, 2020. The exchanges may, in their discretion, amend these requirements by providing notice to members.


OptionMetrics Announces Updates to U.S. Options Database to Address Evolving Markets & Increased Need for Accuracy
Business Wire via Yahoo Finance
OptionMetrics, an options database and analytics provider for international institutional investors and academic researchers, has made significant updates to its IvyDB US options database, offering even greater accuracy across a broader range of data points. The industry standard for comprehensive historical option pricing, IvyDB US provides clean and reliable historical data on over 10,000 underlying stocks and indices for every day since January 1996. It enables quants, hedge fund managers, and others to back-test trading strategies, evaluate risk models, and perform sophisticated research on derivatives trading.


How the Pros Recommend Playing U.S.-Iran Spat With Options
Joanna Ossinger – Bloomberg
Rising U.S.-Iran tensions are creating dislocations in the options market, strategists say, providing opportunities for investors who know where to look.
Take oil, which behaved “relatively well” after a U.S. airstrike killed a top Iranian general last week, according to Credit Suisse Group AG derivatives strategist Mandy Xu. WTI crude’s one-month implied volatility rose just two points to 26.5%, its bottom quartile over the past year, she wrote in a note on Monday.
That compares with a 14-point jump to 46% in September, when drones attacked Saudi Arabian oil fields.

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