Stock Market Disaster Hedges Are the Cheapest in Nine Years

May 7, 2024

Observations & Insight

Lead Stories

Stock Market Disaster Hedges Are the Cheapest in Nine Years; VIX volatility index closed Monday at lowest since May 2015; S&P 500 has surged on strong earnings, Fed rate cut hopes
Carly Wanna – Bloomberg
Buying options to protect against a stock market plunge is the cheapest in nine years.
As the Cboe Volatility Index — or VIX, which measures expected swings in equity markets — sank over the past couple weeks, so did an index tracking the implied volatility of VIX options, known as the VVIX. The VVIX finished Monday’s session just above 73, its lowest closing value since May 2015. Early in Tuesday’s session, the index advanced only slightly, holding well below its one-year average of 89.

Bitcoin Rebound Has Crypto Options Traders Anticipating $100K; The number of active bitcoin call contracts is significantly higher than puts, indicating bullish market sentiment.
Omkar Godbole – CoinDesk
Bitcoin’s (BTC) renewed price upswing has options traders reconsidering the possibility of the cryptocurrency reaching the $100,000 level at some point this year.
The leading cryptocurrency by market value has risen over 12% to $63,470 since Federal Reserve Chairman Jerome Powell ruled out additional tightening or rate hikes as the next policy move last Wednesday, CoinDesk data show. Friday’s disappointing U.S. nonfarm payrolls (NFP) data validated Powell’s stance, accelerating BTC’s recovery.

BNP Paribas targets hedge funds with equity vol carry options; Bank aims to meet demand for QIS options extending beyond commodities
Helen Bartholomew –
BNP Paribas has begun offering options on equity volatility carry strategies, in a sign of hedge funds’ growing demand for options-based access to quantitative investments.
The French bank says that so far it has only traded the contracts with a limited number of “key partners” – typically investors that have already traded options on baskets of commodity strategies. BNP Paribas was one of the first dealers to offer the latter type of option, which it began trading in November 2022.

Wall Street’s ‘fear gauge’ shows no panic for 130th consecutive trading day
Isabel Wang – MarketWatch
There have been some sizeable swings in the U.S. stock market so far in 2024, but this closely watched gauge of market volatility is not yet flashing red despite rising market uncertainties.
The Cboe Volatility Index, otherwise known as the VIX, or Wall Street’s “fear gauge,” on Monday was on pace to close below 20 for the 130th trading day in a row.

Volatility gauges show easing anxiety across assets
Jamie Chisholm – MarketWatch
A more dovish-than-expected Federal reserve last week, along with Friday’s softer-than-forecast jobs report, has helped pull various gauges of expected volatility lower, notes Mandy Xu, head of derivatives market intelligence at CBOE.

Fear Gauge for India Jumps as Stock Traders Mull Modi Win Margin; NSE’s India volatility index jumps to highest since early 2023; Speculation is Modi’s party may win fewer-than-expected seats
Chiranjivi Chakraborty and Ashutosh Joshi – Bloomberg
A period of relative calm in India’s $4.6 trillion stock market has been shaken by speculation that Prime Minister Narendra Modi’s party may win fewer seats than initially expected in the ongoing national elections, which could affect its ability to carry out policy reforms.
The India VIX Index — a measure that uses equity option prices to gauge expected market swings over the next 30 days — rose for a ninth straight day Tuesday, capping its longest run since March 2020. The so-called fear gauge, which hit a record low just two weeks ago, marked its highest close since early 2023.

US Election Risks Are Starting to Show Up in Foreign Exchange Markets; Yuan’s 6-to-3-month volatility spread surges to record high; JPMorgan to maintain long dollar exposure through options
George Lei – Bloomberg
Currency markets have started pricing in elevated foreign exchange volatility around the US vote on Nov. 5, even with election day almost six months away.
That concern is particularly pronounced in options betting on the Chinese offshore yuan, with the spread between six- and three-month implied volatility for the currency soaring for a second day. The spread rose to 1.20 percentage point on Tuesday, up from 0.73 percentage point on Friday, the biggest increase since 2011 when that information first became available, according to data compiled by Bloomberg.

Farmer sentiment declines to lowest level since June 2022 amid weakened financial outlook
CME Group
April witnessed a steep decline in U.S. farmer sentiment, as indicated by the Purdue University/CME Group Ag Economy Barometer, which fell 15 points from March to a reading of 99. Both subindexes of the barometer also saw declines: The Current Condition Index dropped by 18 points to 83, while the Future Expectations Index fell by 14 points to 106. April marked the lowest farmer sentiment reading since June 2022 and the weakest current condition rating since May 2020. The sentiment decline was driven by worries regarding the current financial situation on farms and anticipated financial challenges in the coming year. The April Ag Economy Barometer survey was conducted from April 8-12, 2024.


Exchange operator Cboe launches push to attract retail investors in Europe
Huw Jones – Reuters
Cboe Global Markets said on Tuesday it has launched a tariff program to attract retail brokers, as bourses, asset managers and banks urge the European Union to improve retail access to the bloc’s capital market to catch up with Wall Street. The exchange operator said it launched the tariff program last Friday. Retail investors make up about 14% of on-exchange share trading in Europe, compared with roughly triple this in the United States, Natan Tiefenbrun, president of North American and European equities at Chicago-based Cboe, told reporters.

CME Group to Expand Expiries for its Fastest Growing Energy Products
CME Group
CME Group, the world’s leading derivatives marketplace, today announced that it will expand its suite of short-term WTI Crude Oil options to include Tuesday and Thursday expiries, pending regulatory review. With the addition of these new contracts, which will begin trading on July 22, 2024, Weekly WTI Crude Oil option expiries will now be available every day of the business week, Monday through Friday.

Regulation & Enforcement

Top Crypto Options Desk QCP Gets Abu Dhabi Regulatory Nod; QCP did $60 billion in crypto derivatives volume last year; Abu Dhabi has “progressive” regulators, QCP’s Deng says
Muyao Shen – Bloomberg
QCP Capital, one of the largest options trading desks for digital assets, won initial approval to operate in Abu Dhabi, becoming the latest crypto firm to expand in the Middle East.
The seven-year-old company received in-principle approval from the Financial Services Regulatory Authority of Abu Dhabi Global Market to conduct regulated activities, according to a statement Tuesday. The firm is the first Singapore-based digital-asset market maker and broker dealer to receive preliminary approval, according to a spokesperson of ADGM.


Gauge of stock market’s long-term trend hits record high
Joseph Adinolfi – MarketWatch
April’s selloff helped emboldened stock-market bears. But according to one closely watched gauge of the stock market’s long-term trend, last month’s market ructions barely registered.

Bitcoin options traders bet on a bullish September price move above $100,000, analysts say
Brian McGleenon – The Block
Analysts are observing bullish conditions in the bitcoin options market following the digital asset’s bounce back on Friday — an uptick sustained throughout the weekend and into early week trading.
QCP Capital analysts say bitcoin risk reversals have gone positive, with calls now more expensive than puts. This suggests a bullish sentiment among investors, as they are willing to pay more for options that benefit from a rise in bitcoin than options that protect against a decline in price.

Ether options’ implied volatility remains elevated, analysts say
Brian McGleenon – The Block
Uncertainty surrounding the future price of ether is keeping the asset’s options implied volatility at a much higher level than that of bitcoin, analysts said.
In contrast, bitcoin’s implied volatility has seen a more dramatic reduction, indicating that derivatives traders perceive the bitcoin market to be trending towards stability.

Equity Options
Cboe (Video)
In #Vol411, Joel Hawthorne @louiswinthrop fills us in on Friday’s trading activity, today’s most active index and equity options, this week’s economic data and more.


Dubai’s Financial Center Expects ‘Busiest Year’ as Firms Rush In
Abeer Abu Omar – Bloomberg
Dubai’s financial center is expecting a record number of firms to set up in the Middle East business hub this year after attracting hedge fund heavyweights such as Millennium Management and asset managers like State Street. “This year is going to be our busiest year ever,” Ian Johnston, the chief executive officer of the Dubai Financial Services Authority, said in an interview. The regulator of the Dubai International Financial Center issued 117 new financial services licenses in 2023, and this year “we are already about 50% ahead of where we were this time last year,” he said.

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