Stocks in U.S. Risk Rough Road as Options Market Flashes Warning

Sep 14, 2021

Observations & Insight

The 10 shortlisted nominees for the Women in Derivatives (WIND)’s Rising Stars Award at this year’s gala are:
– Brittany Garland, Executive Director at IHS Markit
– Miglena Lazarova, Executive Director Head of Client Service Operations at The Depository Trust & Clearing Corporation (DTCC)
– Sara Levin, Vice President, Institutional Cross Asset Solutions at WallachBeth Capital
– Rosalind Li, Options Quant Trader at Virtu Financial
– Chelsea Lo, Vice President, Markets and Securities Services at Citi
– Dipshikha Mahajan, Associate Director, Commodities Sales, at Standard Chartered Bank
– Kathleen McArthur, Partner at Sullivan & Cromwell LLP
– Reshma Ballie McGowan
– Corentine Poilvet, Head of RepoClear, Collateral and Liquidity Management at LCH
– Meghan Tomczyk, Operations Manager at SIMON Markets LLC

Lead Stories

Stocks in U.S. Risk Rough Road as Options Market Flashes Warning
Justin Zacks – Bloomberg
U.S. stocks hold the bragging rights over Europe when it comes to returns this year. Traders, however, are bracing for the rest of 2021 to be rockier in America.
That’s the signal from the options market, where more volatility is seen this fall in the U.S. than in Europe. Both regions face near-term political and monetary-policy uncertainty, but stretched valuations in America compared with Europe may account for the discrepancy.

Equities Have Little to Fear Now Fear Itself Has Made a Comeback
Joanna Ossinger – Bloomberg
Wall Street’s fear gauges are sounding some alarms after the S&P 500’s worst week in almost three months. But that’s actually a good sign for this bull market longer term, according to Sundial Capital Research Inc.
While options trading shows that implied volatility has climbed, the actual level of price swings is easing down toward long-term lows. That kind of divergence traditionally has signaled near-term pain followed by long-term gains.

RBC joins chorus of banks predicting a sharp pullback in stocks – but says it’ll be a buying opportunity
Harry Robertson – Markets Insider
RBC Capital Markets has joined the voices in the banking world predicting that US stocks will stumble before the end of the year, having racked up months of gains – although it said the drop will be a buying opportunity.
Analysts at RBC, the investment arm of the Royal Bank of Canada, said they expect a decline of 5% to 10% in the benchmark S&P 500 stock index by December’s close.

Brace for ‘choppy’ market after Wall Street analysts trim S&P 500 earnings estimates for third quarter
Christine Idzelis – MarketWatch
Another crack may be emerging in the U.S. stock market.
“We don’t want to make too much of this (yet), but Wall Street analysts actually cut their Q3 2021 earnings estimates for the S&P 500 last week,” DataTrek co-founder Nicholas Colas wrote in a note Monday. “This, along with slowing economic growth, will make for further volatility.”


NYSE Pillar Options Migration: First Mandatory Weekend Testing Opportunity
Weekend Production Testing
On Saturday, September 18, 2021, NYSE Arca Options (the “Exchange”) will conduct its first of two mandatory weekend testing opportunities. All Participants that connect directly to the Exchange must complete one of the mandatory testing sessions. Upcoming testing opportunities are: September 18: End-to-end test including CAT submission and OCC participation – Mandatory test opportunity 1. October 16: End-to-end test including CAT submission – Mandatory test opportunity 2, October 30: Final confidence test

Cboe FX to launch hosted algo service with XTX Markets
Cboe Global Markets
Cboe FX to support access to XTX Markets Execution Algo via its ECN platform; Participants will be able to access advanced agency execution solution utilizing Cboe FX’s technology and credit infrastructure; This service meets growing demand for algorithmic execution in FX markets
Cboe FX Markets, a Cboe Global Markets, Inc. (Cboe: CBOE) company and a leading platform for institutional foreign exchange (FX) trading globally, today announced the launch of a hosted algorithmic execution service in collaboration with leading electronic liquidity provider XTX Markets. This service will help enable Cboe FX participants to access the XTX Markets Execution Algo (‘XTX Algo’), which is designed to alleviate implementation shortfall, via the Cboe FX ECN. Cboe FX has been granted exclusive rights over use of the XTX Algo in the anonymous ECN space and this service is available for execution of the most actively traded pairs in the spot FX market, including: EUR/USD; USD/JPY; GBP/USD; AUD/USD; USD/CAD; USD/CHF; USD/CNH.

Regulation & Enforcement

Biden to Nominate CFTC Picks to Fill Three Democratic Seats
Benjamin Bain and Justin Sink – Bloomberg
Rostin Benham has been acting chair of regulator since January; Kristin Johnson, Christy Goldsmith Romero also to be nominated
President Joe Biden plans to nominate officials for three Democratic seats on the Commodity Futures Trading Commission, the nation’s main derivatives regulator. The White House will tap Rostin Behnam to lead the agency, as well as Christy Goldsmith Romero and Emory University law professor Kristin Johnson to serve as commissioners, the White House said Monday in an e-mailed statement. The CFTC’s only current Republican member is Dawn Stump, following the departure last month of Brian Quintenz, leaving an open GOP seat.

***** Here are the WSJ version and the Reuters version of this story.


How Math Teacher Earned $114,000 Trading Stocks With Low-Risk Strategy
Laila Maidan – Business Insider
Steve Chen began his career as a math teacher for middle school students in 2014. Even though he had a decent monthly salary of about $5,000 a month before benefits according to the public employee-pay database Transparent California, taxes and living in an expensive city like Los Angeles were cutting into his pay.
As a result, he began thinking of ways he could increase his income, including through investing.

The flexibility factor: who is going back to the office?
Andrew Hill – Financial Times
Technology companies: remote and flexible. Financial services companies: office-centric and more rigid. Everyone else: hybrid.
Those are the broad trends emerging from an FT sampling of companies’ “flexibility factor”, or the extent to which they are allowing employees to decide where they work once pandemic conditions ease.

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