Traders Test Fed’s Power With Bets on More Currency Volatility; Wall Street’s ‘fear gauge’ jumps on fears of coronavirus resurgence

Jun 12, 2020

Lead Stories

Traders Test Fed’s Power With Bets on More Currency Volatility
Susanne Barton and Robert Fullem – Bloomberg
Citi’s Fitzpatrick recommends 6-month euro-dollar call options; Expect ‘virus differentiation across economies’: Deutsche Bank
The market horizon is littered with risks that could trigger bigger moves in currencies even as the Federal Reserve and other central banks double down on the policies that have anchored volatility close to historic lows.

Wall Street’s ‘fear gauge’ jumps on fears of coronavirus resurgence
April Joyner – Reuters
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” jumped to its highest level in more than a month on Thursday as concerns over a resurgence of the novel coronavirus pandemic felled U.S. stocks.
The VIX rose to 40.79, its highest closing level since April 23. It registered its biggest daily point gain since March 16, in the midst of the plunge that signaled the end of the nearly 11-year bull run in U.S. stocks.
The S&P 500 ended 5.9% lower on Thursday.

‘The market collapsed under its own weight,’ says Nomura quant guru to explain Wall Street’s violent selloff on Thursday
Sunny Oh – MarketWatch
After Wall Street stocks on Thursday were convulsed by the biggest selloff since March, dazed analysts scrambled for answers, pointing the finger at the euphoria-driven buying seen among retail investors. But Charlie McElligott, cross-asset strategist at Nomura, says a bigger culprit for why the S&P 500 index experienced a near 6% drop on Thursday was trading by options dealers that had to sell regardless of where they thought equities were headed.

Asia’s Biggest Market Winners Get Hit In Latest Volatility
Cormac Mullen and Adam Haigh – Bloomberg
Thursday’s rout on Wall Street saw many of the standout performers from this year’s epic risk-asset rebound lead markets lower. The same dynamic was evident in Asian markets Friday.
Here’s a look at how some of the region’s best-performing assets in the rally are faring in the latest downdraft:

The Stock Market’s Volatility Begets Volatility
Thursday was a bad one for investors, as the Dow Jones Industrial Average suffered its fourth-largest point decline on record.
Of course, the points don’t matter. The numbers get larger as the index grows. The second-largest percentage decline in the Dow’s history—a 21% drop back in 1914—came on a whopping 15 point tumble.

Pound Watchers Are Finally Embracing the Harsh Reality Ahead
Vassilis Karamanis – Bloomberg
Traders have finally started to brace themselves for the risks that lie ahead for the pound.
Even though the currency is up against the dollar Friday, the cost to hedge against swings in sterling has risen, fueled by concerns over Brexit trade talks and fears of a second wave of coronavirus infections. While these risks aren’t new, volatility expectations had been relatively subdued since mid-April.

Euro implied volatility levels inch to 2-month high
Olga Cotaga – Reuters
Implied volatility gauges for euro/dollar rose to their highest levels in more than two months on Friday as a bout of risk aversion in global markets fuelled demand for derivatives to guard against a broader drop in the single currency.

Airbus set to drop plans for derivatives trading market
Philip Stafford and Peggy Hollinger – FT
Airbus is set to ditch its planned derivatives market for the airline industry to hedge against highly volatile ticket prices as the European aircraft manufacturer moves to conserve cash amid one of the deepest downturns in the history of global aviation. The company is reviewing plans to launch its full-scale futures and options market, called Skytra, that had been due to launch before the end of the year, said two people involved in the discussions.

Bitcoin Derivatives Volume Suggest Institutional Players Are Here, But It’s Not Signaling What You Think
Christopher Brookins – Forbes
The long-time rallying cry for digital asset participants since 2018 is that “you better get in now, because institutional investors are coming.” Prior to 2020, that narrative had largely failed to materialize. However, a post-COVID-19 world has seen several economic and financial dislocations, including dramatic monetary expansion by the Federal Reserve, skyrocketing unemployment, corporate bailouts, and a surging fiscal deficit. All of the above amidst the backdrop of bitcoin’s supply issuance rate being reduced for the third time.

Exchanges and Clearing

Data News #2020 – 6 Nasdaq Futures, Inc. Notice of Termination of Operations Monday, June 15, 2020
As announced in Futures Trader Alert #2020 – 33, Nasdaq Futures, Inc. will terminate operations at the close of business on Monday, June 15, 2020. Options on futures will be delisted Friday, June 12, 2020.
Nasdaq Futures, Inc. (NFX) has removed all remaining open interest from the platform. Remaining futures and options on futures products will be de-listed from the system leading up through Monday, June 15, 2020. For a schedule of events leading up to the termination please reference Futures Trader Alert #2020 – 33.

China sets launch dates for six new types of commodities options
Tom Daly – Reuters
China’s securities regulator on Friday announced the launch dates for six new types of commodities options – including thermal coal, zinc and aluminium – to be traded on exchanges in the country.

NYSE President: Closing The Floor “Cost Investors Millions of Dollars a Day”
Shaina Mishkin – Barron’s
The New York Stock Exchange’s decision to close its physical floor but continue trading electronically was historic—and not without costs for investors, NYSE President Stacey Cunningham said Wednesday during Barron’s first-ever virtual conference series, Barron’s Investing in Tech.
“It cost investors millions of dollars a day while we were closed,” Cunningham said. “Certainly, we can live in a world like that, given the conditions, but as soon as we could safely, responsibly reopen, we chose to go back to provide that full level of service.”

Cboe Global Markets Announces Date of Second-Quarter 2020 Earnings Release and Conference Call
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today said it will announce its financial results for the second quarter of 2020 before the market opens on Friday, July 31, 2020. A conference call with remarks by the company’s senior management will begin at 7:30 a.m. Central Time (CT), 8:30 a.m. Eastern Time (ET).


Peak6 Investments and the Baking Soda Index
Paul Rowady – Alphacution blog
The performance – or, health – of complex systems is difficult to measure. Typically, you need deviations from norms across numerous sensors – the analytics – converging to signal whether a complex system is functioning properly or not. Add the inevitability of change, and the task becomes exponentially more challenging as continuity of measurement over time decays… And then, there’s the stuff that’s difficult to measure, if it’s measured at all. The intangibles. The slippage factors that don’t come into play until they do. Like, a global pandemic – or when a frustrated segment of the population spills out into the streets in cities – big and small – across the landscape…


Here’s why one strategist has slashed his S&P 500 target — and it isn’t just because of the Fed and COVID-19
Steve Goldstein – MarketWatch
The S&P 500 dropped 5.9% on Thursday, the largest one-day decline since March 16. The small-cap Russell 2000 entered correction territory in just three days — the quickest descent since Dec. 2008. The dollar, just a day after the Federal Reserve said it is likely to keep interest rates at zero for at least two years, had its best day since March 19. CNN’s popular fear/greed gauge turned to neutral from greedy.
Was it the Fed’s lack of action? Signs that states including Arizona and Texas have seen a pickup in new infections? The increased odds that Democrats will make a clean sweep of not just the presidency but both chambers of Congress, and the possibility of higher corporate tax rates that would bring?

‘Volatility Is Everywhere:’ The Market Tactic That’s Driving Stocks Haywire
Gunjan Banerji – WSJ
Markets were once dominated by bulls who thought stocks would go up and bears who thought they would go down. These days, another animal is on the rise. It doesn’t much care what stocks do, as long as they do something. These investors are focused on volatility, the amount of movement in prices over time. In recent years, volatility has gone from a specialty of derivatives traders to a vehicle for trading in its own right. Investors big and small are wagering hundreds of billions of dollars on volatility, including by betting directly on the moves of measures like the S&P 500, shares of individual companies or oil prices.


“A Little Help From My Friends” tastyBeats // June 8-12
Mike Butler – TastyTrade
All I can really say is WOW in regards to the market activity on June 11th – a 175 point selloff in the S&P was not expected, but the same could be said about the massive rally to the upside in such a short amount of time. We’ve had some great takeaways this week on Market Mindset that are applicable to managing positions and big moves, and I’ll be spending an hour on Friday the 12th going over active positions in my portfolio and scanning the market for new ones, so don’t miss it! If you’re new to options trading and want to jump-start your tastytrade experience, check out our new help center for a solid core of educational content, and tastytrade tips and tricks – all for free!


Playing the Market Has a Whole New Meaning
Jason Zweig – WSJ
Las Vegas has reopened, and not just in Nevada.
Wall Street also resembles a casino—even more than it normally does. Many stocks, especially of smaller companies in financial distress, have been bouncing around like dice on a craps table.

Mark Cuban compared the day-trading boom to the dot-com bubble. Here’s how he saved his $1.4 billion Yahoo windfall from the crash.
Theron Mohamed – Markets Insider
Mark Cuban recently said the current boom in day trading reminds him of the dot-com bubble.
“This certainly feels just like it,” Cuban said in a Real Vision interview published on Tuesday. Novice traders, some of whom are making leveraged bets on risky stocks, are “doing the same thing they did in the late ’90s,” he added.

Activist Investors May Be Using Market Volatility to Hide Trades
Carleton English – Barron’s
Wall Street is widely familiar with “know your client” regulations for banks, but “know your shareholder” efforts are increasing among companies fearing that they could soon come under activist attack.

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