The Cboe wants to ‘debunk’ some 0DTE myths; Zero-problem options?

Apr 15, 2024

Observations & Insight

Catherine Clay, Global Head of Derivatives at Cboe Global Markets, Discusses Vision for Unified Derivatives Franchise

Catherine Clay, the global head of derivatives at Cboe Global Markets, recently shared insights into the strategic reorganization of the company’s derivatives operations in an interview with John Lothian News at FIA’s International Futures Industry Conference in Boca Raton, FL. This discussion was part of the JLN Industry Leader video series sponsored by Wedbush.

Watch the video »


Volatility Insight of the Week: CME Group’s volatility index indicates Soybean Oil Skew Ratio is reaching a 3-month high. To learn more about CME Group’s Volatility Index, please visit here


Lead Stories

The Cboe wants to ‘debunk’ some 0DTE myths; Zero-problem options?
Robin Wigglesworth – Financial Times
As HL Mencken, Upton Sinclair or William Jennings Bryan was said to have roughly quipped, it is difficult to get someone to understand something when their salary depends on their obliviousness. On an unrelated note, here is a take from the Cboe: That’s from a report the dominant US options exchange just published that aims to “set the record straight” and debunk some of the myths surrounding zero days to expiry options (0DTEs) – derivatives that expire the day they’re written.

****** The last time I was “debunked” was when I rolled off the top level of a bunk bed.~JJL

Bullish Oil Options Traded at Record Pace Before Iran Attack; Call volumes surge as traders hedge against Middle East risks
Alex Longley – Bloomberg
Oil investors piled into the options market days before Iran launched its attack on Israel and traded a record amount of contracts that profit from higher prices.
Just over 1 million calls on the global Brent crude benchmark traded last week, surpassing a previous record, according to data compiled by Bloomberg. The volumes were focused on contracts at $95 and above $100, with bullish calls trading at hefty premiums to bearish puts in recent weeks.

Fear Is Back in the Stock Market as Options Traders Bet on Volatility
Gunjan Banerji – The Wall Street Journal
Market volatility is roaring back after a prolonged calm stretch.
The S&P 500 is coming off its worst week since October, falling 1.6% over the past week. That has stoked a jump in the Cboe Volatility Index, which rose above 17 Friday and closed at its highest level since October. It’s a sign that investors are picking up bets that would profit if the tumult continued, driving up prices of options tied to the S&P 500.

Demand for volatility bets soars to 6-year high as Wall Street’s ‘fear gauge’ hits 2024 peak
Joseph Adinolfi – MarketWatch
Trading in options tied to the Cboe Volatility Index, better known as the Vix or Wall Street’s “fear gauge,” has hit a six-year high, according to data shared by Cboe Global Markets.
Demand for hedges remained elevated on Monday, helping to send the Vix toward its highest settlement level since Oct. 30, according to Dow Jones Market Data. The index stood at 19.28 in recent trade.

Hedge Funds Pile Into Mexican Peso, Fueling World’s Best Rally; Hedge funds added to peso longs by the most in three weeks; Currency leads EM gains Monday as global tensions ease
Davison Santana – Bloomberg
Hedge funds continue to boost bullish bets on the Mexican peso, strengthening its position as the best major currency in the world and keeping it on track to reach fresh highs. Derivatives data from the Commodity Futures Trading Commission show leveraged funds are the main force behind the peso’s strength, increasing holdings to 57,711 on the week through April 9 – the highest since March 2023. It was the biggest move in three weeks, and almost double the one seen the prior period.

Wall Street still isn’t fretting about geopolitics, even after Iran attacked Israel
George Glover – Business Insider
The market served up another reminder of its indifference to geopolitics on Monday, as traders seemingly shrugged off the potential impact of Iran’s strikes on Israel.
US stock futures climbed higher in premarket trading to pare back some of their losses from a rough Friday session, while benchmark Brent and West Texas Intermediate oil prices fell despite the threat of supply disruptions in the Middle East.

Investors get a ‘tough wake-up call’ as Treasury yields rise
Joy Wiltermuth – MarketWatch
The Dow was clinging to a gain Monday as the 10-year Treasury yield jumped and investors monitored the Middle East conflict.
The U.S. bond market’s sharp selloff off Monday might come as a surprise, given that Middle East tensions as recent as Friday were credited with sparking a flight to safe-haven assets.
But another way to look at the 10-year Treasury yield’s big jump to 4.63% on Monday would be through the lens of how hard it may be for the Federal Reserve to tame inflation — and dramatically lower interest rates — given the recent upward pressure on oil prices.


New Listing Options For Micro-Cap Companies And Beyond: Cboe Global Markets
Joseph Lucosky – Forbes
Historically, companies rapidly scaling their businesses—typically micro and small-cap in nature—had two options when choosing a senior exchange on which to execute their initial public offering, uplisting or cross-listing transaction: the Nasdaq Capital Market (Nasdaq) or the NYSE American (NYSE). That changed in June 2023, when Cboe Global Markets made it possible for companies to go public on its U.S. market, Cboe US (Cboe), thereby offering micro and small-cap companies and their stakeholders another alternative for their senior exchange “going public” destination.

CME Group International Average Daily Volume Reached Quarterly Record of 7.4 Million Contracts in Q1 2024
CME Group
CME Group, the world’s leading derivatives marketplace, today announced that its quarterly international average daily volume (ADV) reached a record 7.4 million contracts in Q1 2024, up 2% year on year. Reflecting all trading reported from outside the United States, volume was driven largely by 38% growth in energy products, a 29% increase in agricultural products, and 7% growth in metals.

CME Group Metals Complex Reaches All-Time Daily Volume Record
CME Group
CME Group, the world’s leading derivatives marketplace, today announced that volume in its metals complex reached a record 1,728,362 contracts on Friday, April 12, 2024, surpassing the previous record of 1,670,920 contracts traded on February 28, 2020.
“Amid shifting geopolitical conditions directly impacting the global metals trade and related sectors, market participants are utilizing our entire suite of metals products to adjust their portfolios and manage risk,” said Jin Hennig, Managing Director and Global Head of Metals at CME Group. “In addition to Friday’s single-day volume record, strong participation from every client segment is also driving our April ADV to a record 1 million contracts, up 92% year over year.”

Eurex Home Market Settlement drives the further unification of the single stocks derivatives market
The growth of European single stocks derivatives (SSDs) created a large and diverse range of products for equity market exposure. However, this growth came with complexity, often adding costs to trading. As the key hub for the European market, Eurex has undertaken constant upgrades to ensure cost-efficiencies for traders. The newest feature is enabling the home market settlement. While equity derivatives investors can take positions in OTC and structured products, changes such as stricter regulatory enforcement of uncleared margin and the demand for higher transparency made more traders choose listed venues to trade single stock contracts.


Don’t Get Stuck Paying the Dividend on Your Short Trade; If you’re writing options on dividend-paying equities, you need to understand the risks of early assignment
Many trading strategies, such as covered-call or spread trading, involve options writing (selling), where the primary risks are market movement and volatility. But there’s another risk if you happen to be writing options on dividend-paying equities like SPY ETFs: early assignment.

How Taxing Is Your Options Trade?
Index and ETF options both offer broad market exposure to execute trading strategies, however they’re not treated the same at tax time.
If you’re an active trader, you work hard to generate profits in your trading account. You study the charts, you watch the day’s headlines, and research your entry and exit points before placing an order. If things go your way, you end up with a winning trade in your account. But if you’re using a broad-market ETF to trade options on the S&P 500 , you may be paying more in taxes than you would by using index options.* That means you may be giving up more of your hard-earned trading profits.

Why Option Settlement Style Matters; Options may be cash settled or physically delivered, which is particularly important when there is a gap move in the market
There are a number of different types of options contracts available on broad-based U.S. equity indexes. Some of the most actively traded products include options on SPY, SPX and XSPSM (Mini-SPX). They all track the S&P 500 and both SPY and XSP options have the same notional size, making them somewhat interchangeable. A key difference, however, is settlement style.

Apple Active
Cboe (Video)
In #Vol411, Joel Hawthorne @louiswinthrop updates us on Friday’s market activity, today’s most active $VIX and $SPX #options, and economic data to look out for this week.

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