Traders Position For Lower Volatility; Stock Valuations Are ‘Frightening’

Jul 2, 2020

Observations & Insight

Editor’s Note: In observance of the U.S. Independence Day holiday there will be no JLN Options newsletter on Friday, July 3. Also, there will not be a new episode of The Spread this week. We’ll be back on Monday, July 6. Have a great weekend!


Equity Volatility Aside, Market Structure Debate Back in the Fray
By Suzanne Cosgrove – John Lothian News

Exchanges often have an uneasy relationship with regulation, but Adam Inzirillo, head of U.S. equities at Cboe Global Markets, began a Wednesday webinar on market structure hosted by Eventus Systems with a tip of the hat to Regulation SCI, rules adopted by the SEC in 2014 to bolster the technology infrastructure of securities markets and reduce system issues.

Markets have not seen this much volatility since 2008, but the notable thing since March has been their resiliency, Inzirillo said. “There have been a lot of comparisons with the flash crash, but we saw Reg SCI come into play,” he said.

Market-wide circuit breakers were triggered four times during the swings sparked by the start of the COVID-19 pandemic, Inzirillo said, “but when looking at ways we can improve on that, we don’t see anything significant.” There have been some clearing and settlement issues, he added, but the markets themselves have worked and “equities have been fairly efficient.”

To read the rest of this story, go here.


OCC Monthly Volume by Exchange – June 2020

Lead Stories

Traders Position For Lower Volatility
Gunjan Banerji – WSJ
Traders are projecting calmer markets ahead. The Cboe Volatility Index, or VIX, edged down to 27.29 Thursday, continuing a weeklong descent that puts it on track for the lowest closing level since early June. The gauge is based on options prices on the S&P 500 and tends to slip as stocks are rising. Leveraged funds like hedge funds have increased bearish positions tied to the VIX. Bearish bets recently outweighed bullish ones by the most since February, before U.S. stocks tumbled into a bear market and the volatility gauge hit its highest level on record, according to data from the Commodity Futures Trading Commission as of June 23.

Stock Valuations Are ‘Frightening.’ What That Means for the Market.
Daren Fonda – Barron’s
As of June 30, stocks just posted their best 100-day period in more than 80 years, going back to 1938, according to Bespoke Investment Group.
But RBC Capital Markets’ chief U.S. stock strategist is urging caution, saying valuations look “frightening” amid a surge in new coronavirus cases and weakness emerging in U.S. economic data.

Investors are waking up to a possible Biden victory in U.S. presidential election
Saqib Iqbal Ahmed – Business Insider
Investors are increasingly preparing for market volatility ahead of the U.S. presidential election, with some shifting stock positions and selling the dollar, as Democratic contender Joe Biden maintains a lead against President Donald Trump in opinion polls.
Plenty can change in the four months before the Nov. 3 vote, and many investors remain focused on whether a resurgence of the coronavirus will damage a nascent U.S. economic rebound.
Some money managers, however, are already preparing for the possibility of a Biden victory by betting against the dollar and cutting their positions in U.S. stocks.

JPMorgan volatility haul nearly triples revenues to over $700 million
Alex Morrell – Business Insider (SUBSCRIPTION)
This week marked the end of the first half of the fiscal year for most banks. For one equities-trading desk at JPMorgan Chase, they’ve already eclipsed their revenue haul for the entirety of 2019 — nearly three times over.
The market convulsions amid the COVID-19 pandemic have produced bizarre and historic results, and created stark swings and diverging fortunes. There is perhaps no clearer example of it than the world of equity derivatives and the traders that bet on volatility.

Northern Trust to Add Options and Derivatives Outsourced Trading Capabilities
Northern Trust plans to add outsourcing capabilities for European listed options and derivatives by the fourth quarter of this year. Plans for the rollout are currently underway, according to Gary Paulin, global head of integrated trading solutions in Northern Trust’s institutional brokerage business.

Exchanges and Clearing

OCC June 2020 Total Volume Up Nearly 81 Percent from a Year Ago
OCC, the world’s largest equity derivatives clearing organization, announced today that June 2020 total cleared contract volume was 693,042,180 contracts, the U.S. equity options industry’s highest month ever – up 80.7 percent from June 2019 volume and beating the previous record of 670,646,998 cleared contracts set in March 2020 by 3.34 percent. Three trading days in June landed within the top five trading days on record, with Friday, June 11 clearing 48,039,191 contracts – the second highest cleared contract volume day in OCC’s history.

CME Group Reports June and Second-Quarter 2020 Market Statistics
Markets Insider
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its June and second-quarter 2020 market statistics, showing it reached average daily volume (ADV) of 17.6 million contracts during the quarter and 17.1 million contracts during the month of June. Open interest at the end of June was 101 million contracts. Market statistics are available online in greater detail at

EURO STOXX 50 Index Options: Introduction of additional expirations
The Management Board of Eurex Deutschland decided, with effect from 24 August 2020, to introduce for EURO STOXX 50 Index Options (OESX) two additional quarterly expirations in the second year of the offered terms. These additional quarterly expirations will be introduced for March and September.

BOX Exchange Fee Change – July 2020
BOX Exchange LLC (“BOX” or “Exchange”) is including long stock strategies to the BOX Fee Schedule. 1 A long stock interest strategy is defined as a transaction done to achieve long stock involving the purchase, sale, and exercise of in-the-money options of the same class.

Miami International Holdings Reports June 2020 Trading Results and New Volume and Market Share Records for MIAX Exchange Group
MIAX Exchange Group (press release)
Miami International Holdings, Inc. (MIH) today reported June 2020 trading results for its three fully electronic options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). The MIAX Exchange Group collectively executed over 82 million equity option contracts in June for a combined average daily volume (ADV) of 3,728,639 contracts, representing a total U.S. equity options market share of 12.60%.

CME Globex Notices: June 29 2020
CME Group

Regulation & Enforcement

Singapore to probe LSE-Refinitiv deal over currency concerns
Philip Stafford and Stefania Palma – Financial Times
The London Stock Exchange Group’s $27bn acquisition of data provider Refinitiv faces a new hurdle after Singapore regulators said they would examine whether the deal threatens competition in the currency market.
The Competition and Consumer Commission of Singapore said on Thursday that the blockbuster deal might curb access to fair and reasonable pricing for foreign exchange rates, as the regulator embarked on a review that could take 120 working days.

Subject to filing a rule change with the SEC, the Options Exchanges plan to extend filing requirements for written reports pursuant to Rule Options 10, Section 7(g). The Options Exchanges are similarly planning to extend the deadline for submission of the 7(g) report to control persons pursuant to Options 10, Section 7(h). The Options Exchanges anticipate the new filing deadlines for the following requirements will be July 31, 2020. The Exchanges will issue another notice when the required filing is completed.


LME Issues Discussion Paper on Development of Electronic Options Market
LME (press release)
The London Metal Exchange (LME) today issued a market-wide discussion paper regarding the proposed development of its electronic options market. Following extensive engagement with its Traded Options Committee and in response to demand from market participants, the LME plans to develop its electronic options market while maintaining the flexibility of its current inter-office options trading structure.


2020 Educational Series: Essential Theory
The Options Industry Council continues its 2020 educational series in the third quarter with another set of webinars focused on the benefits, risks and many uses of exchange-listed equity options. For the upcoming quarter, the theme is Essential Theory – and essential is the key word.

(Podcast) OBC 93: Your Q’s about Covered Calls, Worthless Greeks and the Death of TVIX
Options Boot Camp – Options Insider

“All About The Greeks” // TastyBeats June 29 – July 3
Independence Day is just around the corner, and I have a sneaking suspicion that people may enjoy this one more than the past few, simply because they’ve been cooped up for months! My hope is that quarantine will help people live in the present, rather than in their phones, but time will tell. Hopefully everyone has something fun planned, but if not, you can always binge tastytrade content at 2x speed!


Insights into the derivatives clearing landscape
Will Mitting, founder and managing director of Acuiti, a management intelligence platform focused on the derivatives industry, will join Will Acworth, senior vice president of FIA, in a 30-minute presentation on trends in the business of clearing listed and OTC derivatives. The discussion will cover proprietary data from global surveys of derivatives industry executives conducted by Acuiti as well as the latest data from the U.S. on customer funds flows. (July 16, 10:30 AM – 11:30 AM ET)


Stocks Are the Default Choice In a World of Bad Options; Investors are opting to hold equities, not because they’re attractive, but because everything else is much less attractive.
Aaron Brown – Bloomberg
At the bottom of the stock market crash three months ago, I wrote: There are four big unknowns for investors. First, how long and deep will be the reduction in economic activity from social isolation? Second, how much money will the government spend during that period, and how will it deal with the increased debt afterwards? Third, what will be the long-term public health impact? Fourth, what permanent changes will result?

Billionaire John Paulson, who netted $20 billion from the 2008 ‘Big Short’ crisis, quits the hedge fund world
Shalini Nagarajan – Markets Insider
Billionaire John Paulson is the latest hedge fund celebrity to walk away from the business, Bloomberg reported on Wednesday.
64-year-old Paulson will be converting his hedge fund, John Paulson & Co, into an investment firm solely meant for his family.

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Past Options Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

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