The Ghost of ‘Volmageddon’ Is Back to Haunt New Volatility Funds; Environmental derivatives firm IncubEx raises $12m in funding round

May 4, 2021

$40,526/$300,000 (13.5%)

Observations & Insight

Credit Suisse Sued for Alleged Market Manipulation; OIC 2021 a Virtual Success – The Spread

This week on The Spread, Credit Suisse prepares for round two of a lawsuit alleging it committed market manipulation, a New York vol quant wins big on momentum trades, the OCC wins and gives awards, and more.

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Look for a discussion on trading and best execution in derivatives, futures, options and FX next week at the virtual Capital Markets Strategies/Trading Evolved “U.S. Trading and Best Execution Summit” on May 12-13, 2021. The panel will be moderated by Walter Lukken, president and chief executive officer at FIA, Inc., and panelists will include David Farrell from ICE Futures U.S., Inc., Michael Golding from Optiver, Ellen Greene from SIFMA, and Joe “JJ” Kinahan from TD Ameritrade. — Capital Market Strategies

Lead Stories

The Ghost of ‘Volmageddon’ Is Back to Haunt New Volatility Funds
Yakob Peterseil and Katherine Greifeld – Bloomberg
Forget a Bitcoin ETF. For many Wall Street stock traders the most eagerly awaited exchange-traded funds are just as speculative — and even more controversial.
Known as short-volatility products, a fresh twist in a legal battle is bringing these strategies riding calm markets back into the limelight at a time when at least three issuers are trying to launch new funds.

Environmental derivatives firm IncubEx raises $12m in funding round; Investment is latest sign of growth in instruments such as carbon contracts
Philip Stafford – FT
A trio of financial industry veterans has invested in environmental derivatives platform IncubEx in the latest sign of the growth of trading in instruments such as carbon contracts that let companies offset their pollution.

Funds unexpectedly sell CBOT corn as end users face unpleasant price tag
Karen Braun – Reuters
Speculators were expected last week to have gone on a record buying spree in Chicago corn, but it was a commercial short squeeze that seemed to better explain the highly volatile price activity.
In the week ended April 27, money managers reduced their net long in CBOT corn futures and options to 378,663 contracts from 383,998 in the prior week according to data published on Friday by the U.S. Commodity Futures Trading Commission.

Volatility Measurement and Volatility Trading Advances Are Here
Tom Jarck – MIAX via Traders Magazine
In investor terms, volatility is the word often associated with the condition markets fear most: uncertainty. There is a certain amount of volatility every day, exacerbated occasionally by dramatic events — like a global pandemic. When investors want to measure or protect themselves from volatility, they have traditionally turned to VIX, commonly referred to as the “fear gauge” — a term I do not necessarily agree with, because volatility more closely relates to uncertainty. In the past, investors had no alternative to VIX options and futures for managing volatility exposures as measured by VIX levels. This was the case despite certain flaws that were often highlighted by many in the market community. More recently, a new index called SPIKES has come to light, and it also offers options and futures to hedge and/or speculate against future volatility expectations.

Exchanges and Clearing

Ether options trading volume surpassed that of bitcoin’s for the first time on Deribit
Yogita Khatri – The Block
Crypto derivatives exchange Deribit experienced an unusual trend for the first time ever on Monday: Its ether (ETH) options trading volume surpassed that of bitcoin’s (BTC’s). While the total trading volume for bitcoin options was $879.5 million on Monday, ether’s was $1.32 billion, which is 50% more. Options are derivatives contracts that give their holders the right to buy or sell an underlying asset at a stated price within a specified period.

Cboe To Enter ESG Space
Shanny Basar – MarketsMedia
Cboe Global Markets said the exchange group will work with its partners to develop environmental, social and governance data and tradable products. Ed Tilly, chairman, president and chief executive of Cboe Global Markets, said on the first-quarter results call that ESG is top of mind for the firm and all its associates. He said: “This is a big deal for us.”

Robinhood Filing Shows Enormous Growth in Controversial Revenue Source
Avi Salzman – Barron’s
Robinhood had a tumultuous first quarter that led to its CEO testifying before Congress, but it is becoming clear it was also an enormously lucrative period for the company.
A federal securities filing shows that Robinhood was paid $331 million by market-makers that execute stock and options orders for the broker’s clients in the first quarter, when the GameStop frenzy grabbed hold of the market. That is up from $91 million in the first quarter of 2020.

CME Group Reports April 2021 Monthly Market Statistics
PR Newswire
CME Group, the world’s leading and most diverse derivatives marketplace, today reported April 2021 market statistics, including average daily volume (ADV) of 16.4 million contracts during the month. Market statistics are available in greater detail at

MGEX Reports the Second Best Month in History
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports that April 2021 closed as the second best month in Exchange history with a grand total of 322,207 contracts traded. This past month was the best April in history, beating the previous record holder April 2018 by over 50,000 contracts.

OCC April 2021 Total Volume Up 29.7 Percent from a Year Ago
OCC, the world’s largest equity derivatives clearing organization, announced today that April 2021 total cleared contract volume was 715,606,410 contracts, up 29.7 percent compared to April 2020 and the highest April volume on record. Year-to-date average daily cleared contract volume through April was 40,143,253 contracts, up 44.1 percent compared to April 2020.


The U.S. Economy Is Roaring Back. One Way to Play for Gains.
Steven M. Sears – Barron’s
Go macro.
That is increasingly the recommendation from strategists at big banks as macroeconomic conditions strength, suggesting that cyclical stocks could be poised to outperform other investment styles, such as growth.
Wall Street’s focus is turning from the traditional market leaders found among major technology stocks to names that aren’t often part of the market narrative.


Inside Volatility Trading: The Constant Change of Volatility
Kevin Davitt – Cboe
In classes and other client engagements, the Options Institute will often point out that volatility is one of the most misunderstood topics in capital markets. The term itself has a powerful connotation that typically runs independent of the word’s denotation. That dichotomy between the term’s definition and how it’s (typically) interpreted presents opportunity and risks. Volatility references the range of price changes in an underlying security, commodity, or index over a defined time horizon. Volatility is how we quantify the speed and magnitude of moves in the market. It is “a statistical measure of the dispersion of returns for a given security or market index over a given period of time” (Investopedia) and is typically based on closing values for the underlying. Volatility is a relative measure of change.

All About Options (With) Expert Sheldon Natenberg
Join Cboe Options Institute on Wednesday, May 12, to learn from one of the industry’s most renowned option trading educators. This webinar will interest traders of all ages and experience levels, but if you are new to options trading you really won’t want to miss it.
Wednesday, May 12, 2021
12:00 p.m. ET

Fundamentals of Futures & Options (also applicable to Series 3 Exam)
For more than 30 years, IFM has consistently provided learners with a solid foundation and understanding of futures and options markets and trading including terminology, risk management, pricing, and basic trade strategies. This instructor-led virtual course includes lectures from an engaging instructor with real-world expertise and supported by class discussion, practice exercises and educational materials. The course fee includes two must-read industry books, “Futures and Options” and the “Guide to U.S. Futures Regulation.”
Dates: May 10, 2021 through May 14, 2021, 12:00 p.m. to 2:00 p.m. ET.
Location: Virtual Live. 2-hour sessions over 5 days.
Early-bird $495
Fee $595
Instructor: Marti Tirinnanzi
Class size registration is limited to approximately 20 participants to promote student participation and interaction.

The Covered Call Options Strategy
Date: Wednesday, May 12, 2021
Time: 3:30 p.m. CT
Duration: 1 hour
Mark Benzaquen – Principal, Investor Education – OCC
For options investors, the covered call is one of the core strategies for income generation, but there are many details to consider before opening a position. On May 12, join The Options Industry Council’s Mark Benzaquen, a former pit broker who now focuses on options education, for a detailed overview of the covered call.


Clearing 101: Exchanges, Clearinghouses and CCPs
Dates: Sep. 15, 2021 12:00 p.m. – Sep. 16, 2021 1:30 p.m. ET.
Location Virtual Live. Two 90-sessions over 2 days.
Early-bird $199
Fee $225
Instructor: Marti Tirinnanzi
Registration is limited to approximately 20 participants to promote student participation and interaction.
Join us for a short program (90 minutes each day for 2 days) that explains the multilateral systems that provide the infrastructure for transferring, clearing and settling payments, derivatives and other financial transactions among financial institutions and end users. Following Dodd Frank, clearinghouses became designated as Systemically Important Financial Market Utilities, vital to the operations of the financial markets and subject to heightened regulatory scrutiny. Buyers and sellers in exchange transactions rely on clearinghouses to intermediate transactions and to manage credit risks between trading parties. As such, clearinghouses promote transparency, efficiency, and stability by providing market-based pricing, daily settlement, and ensuring adequate capitalization for markets to function.

Q1 2021 ETD Volume
May 5, 2021; 10:00 a.m. to 11 a.m. ET
The webinar will highlight the main trends in trading activity in Q1 2021 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings. The webinar also will feature two guest speakers from UBS discussing the rise of retail participation in the U.S. ETD markets.


Binance CEO explains how herd mentality causes bitcoin price volatility – but argues the same behavior can be seen in the stock market
Isabelle Lee – Markets Insider
Binance founder and CEO Changpeng Zhao points to herd mentality as one of the causes of bitcoin’s price volatility.
“The herd followers are less committed,” Zhao said in an interview with Bloomberg TV Monday. “Whenever there’s some negative news, they run away. Whenever there’s positive news, they try to rush in.”

Warren Buffett’s right-hand man blasted bitcoin, slammed SPACs, and shamed Robinhood at Berkshire Hathaway’s annual meeting. Here are the 16 best quotes.
Theron Mohamed – Business News
Currency News | Financial and Business News | Markets Insider
Warren Buffett’s right-hand man blasted bitcoin, Robinhood, and SPACs at Berkshire Hathaway’s annual meeting on Saturday.
Charlie Munger – Berkshire’s 97-year-old vice-chairman – also defended “big tech” companies from claims they need to be broken up, and warned that unchecked federal spending will ultimately end in disaster.

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