Speculation in tech stocks points to wild swings; Markets predict elevated volatility after burst of trading in call options on Apple and Tesla
Richard Henderson and Michael Mackenzie and Richard Waters – FT
A speculative frenzy in derivatives on US technology stocks is rippling through financial markets, signalling large swings to come after a rally that has already broken records. Expectations for future volatility in the Nasdaq 100, a benchmark dominated by Apple and a handful of other tech giants, have soared to a 16-year high relative to the rest of the stock market.
Why the Stock Market Gets a Little Scarier Every Day
Ben Levisohn – Barron’s
The stock market gets a little scarier every day—and it’s not even falling.
On the surface, there doesn’t seem to be much to worry about. The Nasdaq Composite advanced 1% to 12056.44, while the S&P 500 rose 1.5% to 3580.83, and the Dow Jones Industrial Average, for once, led the market higher by climbing 453.39 points, or 1.6%, to 29,988.05. The Nasdaq and S&P both closed at record highs, while the Dow finished just 1.5% away from its own.
“We are witnessing a major melt-up,” says NatAlliance Securities’ Andrew Brenner.
And melt up it did.
Markets are facing a potential ‘Minsky moment’ collapse, strategist says
Elliot Smith – CNBC
Asset prices could be on the cusp of a sharp collapse known as a “Minsky moment,” and may retest lows last seen in March, according to Ron William, market strategist and founder of RW Advisory.
Markets have experienced a broad bullish period in recent months as investors bet on further stimulus from governments and central banks, and the prospect of a coronavirus vaccine. Despite lingering global economic risks from the Covid-19 pandemic and geopolitical tensions, Wednesday saw the S&P 500 and Nasdaq both notch record highs, while the Dow Jones Industrial Average closed above 29,000 points for the first time since February.
Bank of America sees 45% upside in S&P 500 over the next decade
Matthew Fox – Business Insider
Investors should continue to bet on stocks for the long term, but be prepared for volatility in the short term, Bank of America said in a note published on Thursday.
The firm expects the S&P 500 to trade to 5,200 over the next decade, representing potential upside of 45% from Wednesday’s close. BofA’s earnings model suggests stocks will generate annual price returns of 3% to 4% over the next 10 years, with an additional 2% in dividend returns boosting stocks’ annual total return range to 5% to 6%.
Euro v. Dollar: A Currency War Is the Last Thing the World Needs
Mark Gilbert and Marcus Ashworth – Bloomberg
“It’s our currency, but it’s your problem,” John Connally, Richard Nixon’s treasury secretary, told the world in 1971. Four decades later, the dollar’s weakness threatens to incite a full-blown currency war that could distract policy makers from their key task of mending the post-pandemic global economy.
The U.S. currency has been on a downward trend for several months. The Federal Reserve’s recent shift to an even more dovish stance — saying that it will allow inflation and the labor market to run hotter for longer than previously — looks set to exacerbate the dollar’s decline.
Exchanges and Clearing
Cboe Global Markets Reports August 2020 Trading Volume
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding
companies, today reported August monthly trading volume. The data sheet “Cboe Global Markets Monthly Volume & RPC/Net Revenue Capture Report” contains an overview of August and year-to-date trading statistics and market share by business segment, volume in select index products, and RPC, which is reported on a one-month lag, across business lines. In addition, a supplemental data sheet that provides electronic trading statistics for Cboe Options Exchange is available on the website.
Miami International Holdings Reports August 2020 Trading Results for MIAX Exchange Group; Year-to-Date Market Share up Approximately 19% from 2019
Miami International Holdings, Inc. (MIH) today reported August 2020 trading results for its three options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 70.9 million equity option contracts in August for a combined average daily volume (ADV) of 3,380,801 contracts, representing a total U.S. equity options market share of 12.19%.
Nasdaq Reports Mixed Metrics in August, Fixed Income Trading Increases
Celeste Skinner – Finance Magnates
Nasdaq, a leading American stock exchange, has published its trading volumes for the month of August. During the month, the trading provider recorded a drop in equity and cash derivatives volumes.
According to data published on Wednesday, the 2nd of September 2020, a total of 215 million US equity options contracts were traded in August. This is slightly lower when measured against the previous month when 218 million contracts were traded. As a percentage, it’s down by 1.4 per cent.
Addition of the CME Globex Electronic Trading Venue for all Options on Weather Futures Contracts and Related
Addition of the CME Globex Electronic Trading Venue for all Options on Weather Futures Contracts and Related Administrative Amendments to Certain Product Chapters
Additional Information Relief from Exchange Rules as a Result of Covid-19
(SER 8560R supersedes SER 8560 dated March 13, 2020 and addresses the listing of the contracts cited in (2) below on the CME Globex electronic trading platform (“CME Globex”). CME will list the balance of the options on weather futures contracts on CME Globex. Therefore, effective on trade date Monday, September 21, 2020, all weather futures and options will now be listed for trading on CME Globex and for submission for clearing via CME ClearPort. The action associated with (2) below shall be terminated effective on trade date Monday, September 21, 2020 – See SER 8647.)
Regulation & Enforcement
Robinhood Faces SEC Probe for Not Disclosing Deals With High-Speed Traders; Company could have to pay a fine exceeding $10 million if it agrees to settle
Dave Michaels and Alexander Osipovich – WSJ
Robinhood Markets Inc. faces a civil fraud investigation over its early failure to fully disclose its practice of selling clients’ orders to high-speed trading firms, people familiar with the matter said.The investigation is at an advanced stage and the company could have to pay a fine exceeding $10 million if it agrees to settle the Securities and Exchange Commission probe, one of the people said. A deal, however, is unlikely to be announced this month, the people said, and the two sides haven’t formally negotiated a proposed fine, the person said.
CFTC Charges 5 Canadians, 1 American, and 4 Companies in $165 Million Global Binary Options Fraud Scheme
The Commodity Futures Trading Commission today announced the filing of a civil enforcement action in the U.S. District Court for the Western District of Texas charging six individuals and four companies with operating a fraudulent binary options trading scheme that received over $165 million in connection with illegal, off-exchange binary option transactions on currency pairs, oil, and other commodities.
CFTC Approves LedgerX, LLC to Clear Fully-Collateralized Futures and Options on Futures
The Commodity Futures Trading Commission today announced it has approved an Amended Order of Registration for LedgerX, LLC to clear additional products, subject to the terms and conditions specified in the order, as a derivatives clearing organization under the Commodity Exchange Act.
This Election Could Be Really Weird. Hedge Your Portfolio.
Steven M. Sears – Barron’s
As we careen toward a U.S. presidential election unlike anything we have ever experienced in modern America, investors should consider insulating their investment portfolios from bizarre political shocks.
Portfolio hedging is something we rarely endorse because most investors are terrible at it, and the market generally prices downside put options with such intense fear premiums that most people stand a better chance of winning the lottery. Because of those dynamics, we have long advocated selling cash-secured puts to potentially buy admired stocks at lower prices, a strategy that monetizes the fact that puts are mostly overpriced most of the time.
If 60/40 Keeps Working, Democracy Has Failed, Paul McCulley Says
Joe Weisenthal – Bloomberg
Strategy’s success signals capital’s win over labor, he says; Former Pimco economist hopes Wall Street finds ‘new paradigm’
Portfolios consisting of 60% equities and 40% bonds have had an incredible run, both this year and over the long term. However, with yields on long-term Treasuries near all-time lows, the chorus of naysayers toward the so-called 60/40 portfolio has grown. The criticism is based on the very reasonable grounds that you’re not getting paid much to hold bonds and there isn’t much scope left for capital appreciation.
What is a Financial Transaction Tax? How Much Could It Cost You?
As the 2020 presidential election approaches, a financial transaction tax (FTT) is coming back into focus for investors. What, exactly, is an FTT? And how could it impact Main Street and Wall Street?
An FTT is a tax, usually a fraction of a percent, on the sale and/or purchase of a security, such as a stock or bond. Supporters of an FTT say it would be a substantial revenue source that could generate billions of dollars annually. But, as taxes do, it would raise the transaction cost, and not just for banks and professional traders, but Main Street investors as well.