Observations & Insight
We forgot to mention after the OCC’s record-breaking news yesterday that the MIAX PEARL Options Exchange also set a new contract record this week with 2,326,629 contracts executed, beating their previous record of 1,910,447 contracts set the day before. The MIAX Exchange Group also set a new group contract record earlier this week with 4,112,281 contracts executed. Their previous record was set only several days ago with 3,562,532 contracts executed last Friday.~MR
The Invisible Forces Exacerbating Market Swings
Gunjan Banerji – WSJ
The rapid spread of the coronavirus outside China spurred turmoil in financial markets this week. Investors say hedging activity by options traders might have made it even worse. Market volatility roared back this week, smashing a streak of tranquility that helped pull major U.S. stock indexes to records just days earlier. The S&P 500 suffered its biggest two-day slide since August 2015 on Monday and Tuesday, while listed options activity hit the second highest level ever Tuesday.
Wall Street’s ‘fear index’ on pace for 2nd-biggest weekly jump in its history as coronavirus sends stocks into correction
Mark DeCambre – MarketWatch
The Cboe Volatility Index VIX, +23.19% early Thursday was on pace for its second-sharpest weekly surge in its history as fears about the spread of COVID-19, the infectious disease derived from the novel strain of coronavirus that originated in Wuhan, China last year, slammed equity markets anew.
Reddit Traders in r/wallstreetbets Shake Up the Stock Market
Luke Kawa – Bloomberg
In a dingy corner of the internet is a message board, soaked in profanity, bro-speak, and greed, where posters with handles such as OverthrowYourMasters and yolo_tron campaign for their favorite stocks, putting up screenshots from their online brokerage accounts of their moonshot victories—or showing off their massive losses like badges of honor. Some of them think they’ve found the key to fast wins on the stock market. Wall Street doubts they’re right, but it’s getting nervous about what it sees there.
Anomaly in Volatility Markets Portends Prolonged Pain for Stocks
Luke Kawa – Bloomberg
The options market has a message for equity traders: Get used to the mayhem.
Volatility has surged to levels not seen in more than a year as investors try to gauge the risks to global growth from the coronavirus’s spread. The VIX Index, which tracks the implied volatility of the S&P 500 over the next month based on out-of-the-money options prices, peaked above 30 on Tuesday during the broadest two-day sell-off in this decade-long bull market.
One Trader Is Shorting Stock Volatility as the Market Crumbles
Yakob Peterseil – Bloomberg
The rout that sent equity volatility spiking to its highest in more than a year on Monday had many investors scrambling for hedges if they hadn’t prepared themselves already. But in Greece, Yannis Couletsis had a different idea.
Athens-based Couletsis started shorting volatility on U.S. stocks — even as traders were fleeing in the opposite direction on rising fears that a global pandemic is at hand.
‘The brink of a global recession’: A financial expert warns of severe coronavirus fallout as markets tank
Ben Winck – Markets Insider
The continued threat of coronavirus to consumer spending, supply chains, and trade is bringing the world “to the brink of a global recession” in 2020, the CEO of financial services firm deVere Group said Wednesday.
Global stocks extended their downturn on Wednesday as concern around the coronavirus outbreak intensified. The S&P 500 and Dow Jones Industrial Average erased the last of their year-to-date gains on Tuesday before opening roughly 1% higher the following morning.
Coronavirus sends US and European stocks into correction territory
Katie Martin, Philip Georgiadis, Hudson Lockett, Richard Henderson – Financial Times
US and European markets slumped into correction territory on Thursday as selling pressure driven by the spread of the coronavirus produced the worst week for American stocks since the depths of the financial crisis in October 2008.
The S&P 500 fell 2.4 per cent in early trading in New York, bringing its decline since an intraday peak last week to more than 10 per cent. The moves mark the start of what traders define as a correction.
A stock-market bounce will give way to ‘drop’ and retest of the low, says Wall Street analyst
William Watts – MarketWatch
Investors looking to get back into the stock market once the selling stampede finally subsides might not want to chase the initial bounce, said a prominent Wall Street analyst.
The Dow Jones Industrial Average turned lower Wednesday after jumping more than 460 points in early trade, while the S&P 500 also turned south. Both gauges dropped more than 6% over the course of Monday and Tuesday — the S&P 500’s biggest two-day loss since 2015 — as worries rose over the spread of COVID-19 outside of China.
Citadel Securities Expands an Already Dominant Options Business
Liz McCormick – Bloomberg
Ken Griffin’s Citadel Securities, already a giant in trading U.S. stock options, has a plan to gobble up even more market share in this key derivatives business.
The market maker has assembled a seven-person team, led by former Deutsche Bank AG Managing Director David Silber, to win order flow from institutional investors. Launched in January, the venture buys and sells exchange-traded options tied to individual U.S. stocks and equity indexes on behalf of those customers. Citadel Securities is a huge presence in this industry. Exchange trading of U.S. stock options is anonymous, but the market-making firm says it accounts for about a quarter of all volume. And that’s before this new institutional business has a chance to ramp up.
China Stock Option’s 2,800% Surge Shows Desperation for Hedges
In China’s $7.8 trillion ocean of equities, there are only four options contracts. It’s perhaps no wonder then that one of them, introduced just in December, saw extraordinary demand when Chinese markets were roiled by coronavirus fears on Feb. 3. As trading came back online after an extended holiday, traders rushed into put contracts on the Huatai-Pinebridge CSI 300 exchange-traded fund, which itself is linked to one of the nation’s benchmark equity indexes. There was so much demand the contracts jumped 2,849% that day.
Volatility Market Signals the Stock Pain Isn’t Going Away Soon
Luke Kawa – Bloomberg
The options market has a message for equity traders: Get used to the mayhem. Volatility has surged to levels not seen in more than a year as investors try to gauge the risks to global growth from the coronavirus’s spread. The VIX Index, which tracks the implied volatility of the S&P 500 over the next month based on out-of-the-money options prices, peaked above 30 on Tuesday during the broadest two-day sell-off in this decade-long bull market. Beyond the headline spike for the so-called fear gauge, there’s an even more worrying signal for investors who take a deeper look into the byzantine machinery of the derivatives market.
Exchanges and Clearing
Cboe Global Markets to Present at the Raymond James Conference on Monday, March 2
Cboe Global Markets, Inc. , one of the world’s largest exchange holding companies, announced today that Ed Tilly, Chairman, President and Chief Executive Officer, and Chris Isaacson, Executive Vice President, Chief Operating Officer, will present at the Raymond James 41st Annual Institutional Investors Conference on Monday, March 2, at 8:05 a.m. (Eastern Time).
CME Globex Notices: February 24, 2020
Vela’s Metro Wins Best Options Trading Platform
BusinessWire (press release)
Vela, a leading independent provider of trading and market access technology for global multi-asset electronic trading, today announced that it was named Best Options Trading Platform for its Metro product at the Fund Intelligence Tech and WSL Awards 2020 at a ceremony held last night in New York.
Fear Has Overtaken This Market. How to Use It to Turn a Profit.
Steven M. Sears – Barron’s
Fear is your friend.
We have profitably made this point many times over the years, and we reiterate it again during a time when many investors are afraid that global economic growth will be slowed by the coronavirus.
In anticipation, the stock market has experienced some of its most dramatic losses in two years. One measure of investor fear, the Cboe Volatility Index, or VIX, has surged, too, and fears of lower lows in stocks have spread into the options market too.
10 cheap stock options for rally after coronavirus sell-off: Goldman
Akin Oyedele – Business Insider
The law of gravity also applies to financial markets — with the caveat that stocks always defy it in the long run.
Investors are getting seesawed again this week, owing to fears about the economic impact of the coronavirus outbreak that has claimed over 2,700 lives. Stocks staged a small recovery early on Wednesday following sharp retreats during the prior two days that took the S&P 500 to its lowest level since October.
Why The Coronavirus Might Be Presenting A Buying Opportunity
“It is scary stuff, but I don’t think the coronavirus outbreak should affect what you do in stocks… the sell-off is a chance to buy stocks at a cheaper price.” – Warren Buffett
As the coronavirus outbreak spreads beyond China, this will probably only get worse for the foreseeable near-term future. Our hopes are of course with all the medical professionals racing to contain it. From an investing standpoint, though, don’t let this fool you.
Protecting Against A Market Mutiny With Tail Risk, Convexity, & Long Vol
RCM Alternatives blog
Has anyone been having fun the past few days? The “market”, as if there’s only one, has been in free-fall as the world tries to figure out what this Corona Virus will look like in terms of a possible global pandemic, down -8% in a week. That’s not a terribly huge move in the grand scheme of things, but the veracity and speed at which it’s gone down (and the lack of the 2009-2019 trademark bounce-back) has been a little worrisome.