The Father of the Fear Gauge Says He Feels Reassured by the VIX; ETF giants want better labeling. Not everyone is convinced

May 15, 2020

Observations & Insight

Thank you to Don Wilson, Jerry Hanweck and Lee Betsill for participating in the Bachelier Options Model virtual panel yesterday. It was quick and went well for the most part, though I am out of practice as a moderator and virtual panels are different. Thank you to the audience who showed up. ~John Lothian

Lead Stories

The Father of the Fear Gauge Says He Feels Reassured by the VIX
Jon Asmundsson – Bloomberg
Robert Whaley spent the last four months of 1992 in a small town near Dijon, France, with a set of large hard drives containing what was then the entire series of index option prices from the Chicago Board Options Exchange. On sabbatical from Duke University, he’d been commissioned by the exchange to create a volatility index. With two powerful PCs, he worked out the formula for the Chicago Board Options Exchange Volatility Index. The VIX was unveiled in Chicago on Jan. 19, 1993.
Now the Valere Blair Potter Professor of Management at Vanderbilt University in Nashville, Whaley connected for an interview via videoconference on April 21, the day after crude oil futures had traded at negative prices for the first time.

ETF giants want better labeling. Not everyone is convinced
Andrea Riquier – MarketWatch
One day after large asset managers like BlackRock, State Street and Invesco unveiled a proposal to more precisely label exchange-traded funds, some industry participants pushed back, calling the idea welcome in general, but misguided in practice.
The proposal from the self-named “industry coalition” asked three major exchanges — CBOE, Nasdaq and NYSE — to more clearly identify and categorize the different types of products that are all usually painted, in broad strokes, as “ETFs.”

OCC Named Best Clearing House – Equities by Markets Media
OCC, the world’s largest equity derivatives clearing organization, announced today that it was named Best Clearing House – Equities by Markets Media for the third consecutive year. The award was announced today as part of the publication’s 8th Annual Markets Choice Awards.

Bitcoin Options Trading at CME Surged to New Highs in Halving Week
Omkar Godbole – Coindesk
Investor interest in bitcoin options listed on the Chicago Mercantile Exchange (CME) peaked to record highs in the days after the recent halving event.

When Failure Is an Option: A Trading Strategy Soaks Investors
Jason Zweig – WSJ
The catchier an investment’s name, the more you should ask: What’s the catch? Just consider YES. Offered to wealthy advisory clients of UBS. Group AG, YES stands for Yield Enhancement Strategy. Who doesn’t love getting to yes? And who wouldn’t want to enhance yield?

Exchanges and Clearing

NYSE set to partially reopen trading floors later this month; The American options and equities trading floors at NYSE will open to a small number of personnel at the end of the month.
Kiays Khalil – The Trade
The New York Stock Exchange (NYSE) will soon begin to partially reopen its American options and equities trading floors, after being forced to close them due to the global coronavirus pandemic. Both trading floors will resume trading activity on 26 May, NYSE said, but they will function with a reduced headcount as part of health and safety precautions.

*****Will the Starbucks on the trading floor be open? That is what I want to know.~JJL

Fixed Income Highlights – May 2020 edition
Firstly, I would like to send all of our members my sincerest regards in these extraordinary times and thank them for their continued support. April was a mixed month for European Fixed Income (FIC) markets. Overall, our volumes were down across the German benchmarks except for our Schatz options, which saw a growth of 198.4%. The options were primarily driven by flows emanating from OTC markets in the cap/floor versus swaption space. With Euribor’s high relative to the same period last year, investors looked to position themselves in the spread between the two in the front end. The Italian and French segments continued to be well supported, with volume growths of 32% and 111.4% respectively in options as intra-month volatility spiked to circa 17% in BTP’s.

Reminder: Reduction of the Pre-Open Time Period for all Livestock Futures and Options Contracts
CME Group
Effective Sunday, May 31, 2020 for trade date Monday, June 1, 2020, and pending all relevant regulatory CFTC review periods, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will reduce the pre-open time period in connection with trading on the CME Globex electronic trading platform for all livestock futures and options contracts as listed in the table below (the “Contracts”) from 6:00 a.m. – 8:30 a.m. Central Time (CT) to 8:00 a.m. – 8:30 a.m. CT. SER 8599R provides a comprehensive list of products and trading strategies impacted by this change.

Regulation & Enforcement

Market Regulation Advisory Notice
CME Group
Effective on trade date Monday, June 1, 2020, and pending all relevant CFTC regulatory review periods, this Market Regulation Advisory Notice will supersede CME Group Market Regulation Advisory Notice RA2002-5 from February 10, 2020. It is being issued to add a reference in Section 1. to the introduction of Directed Request for Quote (“DRFQ”) functionality within CME Direct for the electronic private negotiation and execution of block trades.


Bitcoin options trading no longer at the mercy of slow blockchains
Alexander Behrens – Decrypt
Bitcoin options trading just got a little less risky. Deribit, the Panama-based Bitcoin derivatives exchange announced on Thursday integration of ClearLoop, a new solution for instant and frictionless off-chain transfer settlement. With added protection against liquidations caused by blockchain transaction congestion, the solution could lead to a flood of institutional asset managers into the world’s most popular Bitcoin options exchange.


Getting to Know Jerry Hanweck, Cboe’s Newest Leader by Acquisition
Cboe blog
At the beginning of February, Cboe acquired real-time analytics firm Hanweck to further build out our Information Solutions offering. Hanweck delivers real-time, high performance risk management analytics for banks, broker-dealers, hedge funds, clearing houses and exchanges. Hanweck’s offering ranges in services, from real-time options analytics to risk-based portfolio margin calculations, and across asset classes and regions. We talked to the company’s founder Jerry Hanweck about his experience in the industry, founding Hanweck and why he’s excited to be join the Cboe team.


Virtual Briefing: Digital Leadership in the Times of Change
BSO IX Reach
In light of COVID-19 companies are having to think seriously about their business continuity plans. It is quite likely that even after COVID-19 that business leaders need to think digitally in order to ensure that their companies are able to withstand the next global crisis.


How bank hedging jolted investors into talk of negative rates
Eric Platt, Colby Smith and Laura Noonan – Financial Times
Hedging by some of the biggest banks in the US last week sparked a flurry of concern that the Federal Reserve could cut interest rates below zero for the first time, senior traders say.
Rates on so-called fed funds futures contracts — key tools for investors seeking to bet on or hedge against interest-rate shifts — popped above 100 last week. That appeared to be a signal from the market that negative policy rates were on their way.

An Investor’s Survival Guide to Extreme Volatility
Cheryl Winokur Munk – Barron’s
NEUBERGER BERMAN’S SETH FINKEL BELIEVES the economy will start to grow again as early as the fourth quarter—but the stock market is in for more turbulence before a sustainable recovery takes hold. “I don’t know if we’ll necessarily retest the lows we saw on March 23, but I am advising clients to expect continued volatility both up and down,” says Finkel, Barron’s 22nd-ranked advisor nationwide.
Speaking with Barron’s Advisor, Finkel, who manages more than $3 billion from New York City, reports that he’s harvesting tax losses and recommending Roth IRA conversions, and he explains why he sees opportunity in small-cap stocks and MLPs.

Uncovering the Known Unknowns of the Pandemic
RCM Alternatives (podcast)
In today’s episode, we have a little different structure and three unique guests to bring a fresh twist on The Derivative podcast. Blu Putnam of the CME Group, Rodrigo Gordillo of ReSolve Asset Management, and Dan Deering of Teza Technologies join us to discuss the economic & strategy impacts of the COVID-19 pandemic.

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