Stock market’s fear gauge spikes to highest since financial crisis

Mar 12, 2020

Lead Stories

Stock market’s fear gauge spikes to highest since financial crisis
Carmen Reinicke – Markets Insider
Amid a morning of wild trading, Wall Street’s fear gauge has spiked to levels last seen in 2008.
The Cboe Volatility Index (VIX) spiked to 67 on Thursday, its most elevated level since the height of the financial crisis.

A Robinhood trader tells us how he raked in a 2,400% return in 5 days as the coronavirus and oil hammered markets
Theron Mohamed – Markets Insider
A Robinhood trader said he turned $5,000 into more than $123,000 in five days.
A Redditor with the username SpeaksInBooleans netted the 2,400% return by purchasing call options on the iPath S&P 500 VIX Short-Term Futures ETN (VXX), an exchange-traded note linked to the Cboe Volatility Index (VIX). The VIX, known as the “fear gauge” because it indicates expectations of market volatility, soared on Monday as fears about the coronavirus outbreak and the start of an oil-price war sparked a brutal market sell-off.

****JB: Unusually for a Redditor, this trader had a good rationale for placing the trade and he realizes he got very lucky that the market turned in a big way to his benefit.

S&P 500 Futures for June Hit Limit-Down Again Amid Global Rout
Filipe Pacheco – Bloomberg
U.S. stock-index futures plunged as much as 5%, triggering exchange rules that limit losses for the third time this week, after President Donald Trump’s measures to combat the spreading coronavirus further rattled financial markets.
Contracts on the S&P 500 expiring in June were down the maximum 5% at 8:42 a.m. in New York, hitting a limit-down band that prevents further losses. Contracts that expire March 20 also hit the exchange-enforced lower limit.

Trading in S&P 500 ETF implies the stock market may trigger a circuit breaker for the second time this week
Mark DeCambre – MarketWatch
S&P 500 exchange-traded funds on Thursday were signaling that stock-market circuit breakers, which halt the market briefly in order to mitigate volatility, will likely be triggered for a second time this week as the market reels from uncertainty around the spread of COVID-19, the infectious disease that was first identified in Wuhan, China and that has spread world-wide.

Stock, bond and FX trading volumes boom as volatility jumps
Tommy Wilkes – Reuters
Amid frenzied selling in financial markets this week, there was a silver lining for banks and trading platforms which attracted a rush of business as investors scrambled to protect portfolios from the volatility.

Explosion in forex volatility cheers some, bruises others as virus fears drive swings
Saqib Iqbal Ahmed – Reuters
Investors are scrambling to adjust their portfolios to a surge of volatility in foreign exchange markets, as the coronavirus outbreak and massive swings in oil prices roil currencies around the globe.
Some of the recent moves in currencies have been among the most dramatic since the financial crisis. The Japanese yen notched a 5% price rise against the dollar between last Thursday and Monday, its largest three-day rally since 2008. Meanwhile, the Mexican peso and the Russian ruble are off 13% and 16% from their highs of the year, highlighting how the tumble in oil has hit emerging market currencies.

Volatility Spikes as Liquidity Evaporates
Bloomberg (VIDEO)
Chris Brankin, chief executive officer at TD Ameritrade Asia, discusses fear in the markets and how he’s advising clients. He speaks on “Bloomberg Daybreak: Middle East.”

Virus volatility a shot in the arm for China’s dormant derivatives market
Samuel Shen and Andrew Galbraith – Reuters
Trading in China’s equity derivatives has hit a five-year high, with some products seeing record volume, in a sudden comeback for a market considered essential in other major economies but shunned in China following a crash in 2015.
Panic about the economic impact of the coronavirus outbreak and a huge drop in oil prices has sparked extreme market volatility, encouraging investors to find ways of hedging risk with products such as stock index futures and equity options.

Bear Market Claims Dow Jones Industrial Average
Ben Levisohn – Barron’s
Another day, another 1,000-point drop for the Dow Jones Industrial Average as investors fret about the absence of fiscal stimulus for a coronavirus-besieged economy even as the World Health Organization declared a pandemic. And it was enough to send the Dow into a bear market.

Inside Volatility Trading: March 11, 2020
Kevin Davitt – Cboe blog
It’s difficult to strike an appropriate chord when analyzing and educating interested parties about volatility in the current environment. If “a picture says a thousand words” then the word count for this Inside Volatility Newsletter will come in between David Foster Wallace’s magnum opus, Infinite Jest (543,709 words) and Marcel Proust’s In Search of Lost Time (1,267,069 words). For reference, the charts/data were pulled the afternoon of March 6. This is a very fluid market. Sentiment can shift meaningfully over the course of a few hours. It is important to keep this in mind during times like these. Maintaining perspective when markets move with the velocity they have over the past two weeks can be very difficult.

Exchanges and Clearing

CME to Close Its Trading Floor Amid Coronavirus Outbreak
Matthew Leising – Bloomberg
CME Group Inc. will close its trading floor at the end of the week as exchanges alter their operations to control the spread of the coronavirus. CME Group said all products will continue to be available to trade on its Globex electronic system, according to a statement released Wednesday. The move by the Chicago-based market operator follows the New York Stock Exchange, which on Wednesday restricted access to its iconic trading floor in downtown Manhattan.

CME Group Energy Futures and Options Reach All-Time Daily Volume Record of 6.8 Million Contracts
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, announced an all-time daily volume record for energy futures and options of 6.8M contracts on March 9, surpassing the previous record of 6.2M set on September 16, 2019. In addition, CME Group WTI Light Sweet Crude Oil futures and options also reached a record 4.8M contracts, surpassing the previous record of 4.3M contracts traded on September 16, 2019.

CME Globex Notices: March 9, 2020
CME Group

Harmonization of final settlement prices for expiring out-of-the-money options on April 20, 2020
CME Group
On the expiration date of an option, there has long been a difference in the way the final settlement price is published for out-of-the-money strikes between the New York products – NYMEX and COMEX – versus the Chicago ones – CME and CBOT. In particular, for NYMEX and COMEX options, beginning on expiration date, the final settlement price for out-of-the-money options is assigned as zero. For CME and CBOT options, however, the final settlement price for out-of-the-money strikes is assigned as its “fixed cabinet” value (half the normal tick for CME options, one dollar for CBOT options.) Effective on Monday, April 20, 2020, the behavior for CME and CBOT options will be made consistent with the behavior of NYMEX and COMEX options.

NYSE Braces for Coronavirus With Potential Trading Floor Closing
Alexander Osipovich – WSJ
Fears over the coronavirus pandemic are prompting the New York Stock Exchange to prepare to implement an unprecedented contingency plan to close its iconic trading floor and switch to backup electronic trading systems. The plan has some on Wall Street worried that it could lead to trading disruptions when markets are already fragile. The Dow Jones Industrial Average dropped 5.9%, sinking into a bear market Wednesday, the latest salvo in a barrage of volatility that has roiled the markets since February.

NYSE president says no plan to close trading floor now
John McCrank – Reuters
The New York Stock Exchange does not currently plan to close its trading floor and the markets are functioning as expected, even as concerns over the coronavirus cause sharp spikes in volatility, NYSE President Stacey Cunningham said on Thursday.

Kraken Opens up FX Trading for Crypto Users, Except US Residents
Aziz Abdel-Qader – Finance Magnates
Kraken, one of the world’s longest-operating cryptocurrency platforms, has introduced FX trading to its customer base with the launch of nine new currency pairs. The San Francisco-based platform said their cryptocurrency traders are now able to expand their horizons and begin trading into a $6 trillion market, further diversifying their portfolios and trading options.

Eurex expands reach of its OTC clearing services to Japan
Eurex (press release)
Japan’s Financial Services Agency (FSA) has granted Eurex Clearing a license as a “foreign financial instruments clearing organization”. This enables Eurex’s central counterparty to offer its clearing services not only in the European Union and the U.S. but also in Japan. The service extension into one of the largest Fixed Income markets is driven by client demand and will support the strong momentum of Eurex Clearing’s EU-based liquidity pool for Euro Swaps. With the new license, Japanese financial institutions can directly access Eurex for swap clearing and combine their listed and OTC euro yield curve business in one single place.

Risk Managing the Clean Energy Transition
Kirsten Hyde – Market Voice
Over the past few months, a great deal has changed in the world’s awareness of climate change. Larry Fink, the CEO of BlackRock, the world’s largest asset manager, stirred up Wall Street in January stating in his annual letter to CEOs that the intensifying climate crisis will bring about a “fundamental reshaping of finance.” Then in February, energy giant BP pledged to cut its carbon emissions to net zero by 2050, following the lead of other oil and gas firms in setting targets amid mounting pressure from investors and climate activists.


TP ICAP Launches FX Options Platform
Trader’s Magazine (press release)
TP ICAP, an interdealer broker, has launched an innovative foreign exchange options platform, FXOhub. FXOhub represents a step-change in intuitive liquidity sourcing and trade execution on an industry leading FX Options platform. FXOhub provides a single logon to the TP ICAP Order Book screen for ATM Straddles, Risk Reversals and Butterflies as well as a Request For Quote (RFQ) screen which shows the received specific interests for the day and associated liquidity. Customers connecting via API will benefit from the liquidity pools of both brands, where available. Front end users will also benefit from being able to view liquidity provided by both brands on a single screen.


Revenge of the Trades
Have you ever lost big? Did you think about placing a bigger, riskier trade to off-set the loss? You probably thought to yourself “if this works, I’ll make back more than I lost.” With all of the sudden drops in the markets the last three weeks, you may be feeling like putting on a bigger trade to recoup some losses – this is kind of trading is sometimes called revenge trading. It’s called a revenge trade because when the market has sudden drops, like the ones recently experienced from the Coronavirus and the Oil Price war, it provides a “perceived” buying opportunity to get revenge on the market for prior losses. Revenge trading is considered to be risky, and it comes from an emotional place motivated when someone believes the market owes them.

How to use options to navigate wild volatility
Tyler Bailey – CNBC
Just about a month after hitting brand new all-time highs, the S&P 500 is in bear market territory as the ongoing coronavirus outbreak wreaks havoc on the markets. No part of the market remains unscathed at this point, and if you find yourself paralyzed by the wild swings in equities over the last few weeks, you aren’t alone. However, there is a way to gauge where traders believe stocks may be heading next by looking at the options market.


Even Gold Takes a Beating as Broad Market Rout Intensifies
Amrith Ramkumar – WSJ
Gold prices fell sharply Thursday, a worrisome development for some analysts who are concerned that investors are being forced to sell many assets to raise cash.
Most-active gold futures fell 3.8% to $1,580.10 a troy ounce on the Comex division of the New York Mercantile Exchange, erasing about half their gains for the year to date.

Wall Street Is Watching Fed and How It Can Keep Markets Running Smoothly
Alexandra Scaggs – Barron’s
As people on Wall Street wait for fiscal stimulus, they are also weighing the Federal Reserve’s options to ease pressure on markets.
Treasury prices were falling across most maturities on Wednesday despite a selloff in the stock market that left the S&P 500 on the edge of bear-market territory. That is unusual because investors normally pile into Treasuries, a haven investment, when stocks decline sharply.

FIA Industry Coordination For Coronavirus (COVID-19)
Below is the current status of our planned events for the next month. FIA will update this page regularly and advise if additional events are postponed or cancelled.

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