Traders Wager on More Stock-Market Tumult

Apr 16, 2024

Observations & Insight

Catherine Clay, Global Head of Derivatives at Cboe Global Markets, Discusses Vision for Unified Derivatives Franchise

Catherine Clay, the global head of derivatives at Cboe Global Markets, recently shared insights into the strategic reorganization of the company’s derivatives operations in an interview with John Lothian News at FIA’s International Futures Industry Conference in Boca Raton, FL. This discussion was part of the JLN Industry Leader video series sponsored by Wedbush.

Watch the video »


Lead Stories

Traders Wager on More Stock-Market Tumult
Gunjan Banerji – The Wall Street Journal
Traders are betting the market’s swings will continue.
Wall Street’s “fear gauge,” the Cboe Volatility Index, is trading around some of its highest levels of the year, hovering around 19 on Tuesday.
The rising index indicates that pricing in options tied to the S&P 500 has increased during the recent volatility.

Jittery Investors Snap Up Options Across Markets
David Marino – Bloomberg
Volatility is perking up across markets as investors seek protection amid concern that the conflict in the Middle East could widen and as the selloff in the bond market deepened. The premium for one-month put options to protect against a pullback in US equities reached the highest since October. At the same time, currency-options volatility is climbing from multiyear lows. A key gauge jumped to levels last seen in January as strong US economic data leads traders to trim the degree of Federal Reserve interest-rate cuts expected this year, driving up Treasury yields as well.

Bitcoin’s spot price action does little to spook BTC options traders; Bitcoin futures and options signal investors’ confidence was not meaningfully impacted by BTC’s recent dip to $61,500.
Marcel Pechman – CoinTelegraph
The 13.3% drop in Bitcoin price between April 12 and April 13 forced many traders out, primarily those who had leveraged their positions. This significant movement triggered $387 million in forced liquidations of long positions and reduced the open interest by $5.4 billion. At first glance, the price action and its effect on the derivatives markets suggest a decreased risk appetite.

Demand for volatility bets soars to 6-year high as Wall Street’s ‘fear gauge’ hits 2024 peak
Joseph Adinolfi – MarketWatch
Trading in options tied to the Cboe Volatility Index, better known as the Vix or Wall Street’s “fear gauge,” has hit a six-year high, according to data shared by Cboe Global Markets.
Demand for hedges remained elevated on Monday, helping to send the Vix toward its highest settlement level since Oct. 30, according to Dow Jones Market Data. The index stood at 19.28 in recent trade.

Market Reaction to Iran Attack Tells Us Stocks Aren’t in a Bubble; The swings Friday and Monday put to bed for now concerns that a bubble has been forming
James Mackintosh – The Wall Street Journal
Investors are terrible at assessing geopolitical risks, let alone the prospects of war. But the market reaction to Iran’s attack on Israel tells us something about their current state: Investors may be putting superhigh valuations on stocks, but they’re still capable of making reasoned judgments. Even better, investors aren’t on a hair-trigger to dump their portfolios, so this adds to evidence that we’re probably not in a bubble, at least not yet.

Yen Traders Brace for 160 Level Even as Intervention Risks Rise; JPMorgan, Bank of America see scope for more yen weakness
Ruth Carson, Daisuke Sakai, and Saburo Funabiki – Bloomberg
A tumbling yen is spurring traders to game plan how much further Japan’s beleaguered currency can fall even with the specter of intervention looming.
JPMorgan Chase & Co.’s private banking unit and Bank of America Corp. see 160 as the next potential milestone for the currency that’s already sunk to a 34-year low against the dollar. T. Rowe Price is mulling the risk of the yen dropping to around 170 — a level last seen in the 1980s.


Denmark’s historic stock exchange building suffers huge fire; Significant damage to 400-year-old Borsen is blow for country’s cultural heritage
Richard Milne – Financial Times
The former home of the Copenhagen stock exchange, one of Europe’s oldest trading floors, has been ravaged by fire just short of its 400th anniversary. Borsen, which opened in the autumn of 1624 as a commodities trading place and was home to the Danish capital’s stock exchange until 1974, caught fire early on Tuesday and its iconic dragon-tailed spire collapsed within a few hours. “Terrible pictures from Borsen this morning; 400 years of Danish cultural heritage is in flames,” Jakob Engel-Schmidt, Denmark’s culture minister, wrote in a post on X.

VIX Option Volumes Jumps to Highest Since Feb18
Mandy Xu – Cboe
Cross-Asset Volatility: Implied volatilities jumped sharply across asset classes last week as US yields surged on the back of higher CPI inflation while Middle East tensions escalated. Rates vol led the way, with the MOVE Index up almost 19nms wk/wk to 113 bps vol – though still trading below the 50th percentile on a 1Y lookback. Equity vol gained as well, most pronounced in Europe, with V2X Index up 2.7 pts vs. VIX Index up 1.3 pts to 18.8% and 17.1%, respectively (VIX now in the 80th percentile high over the past year). Gold volatility continued its ascent as geopolitical risks flared, with GLD 1M implied volatility now trading at a 1-year high of 18.0% (+2.9 vol pts). Surprisingly, oil vol was relatively contained despite the Iran-Israel news, with WTI 1M implied volatility unch’d on the week at 29% (38th percentile low). See pg 2 for details.

Cboe Global Markets surpasses 1,000 ETFs worldwide
ETF Market Canada News – The Globe and Mail
Cboe Global Markets, Inc., the world’s leading securities and derivatives exchange network, recently announced that it has achieved a new milestone, surpassing more than 1,000 exchange-traded funds (ETFs) listed across its global network of listings exchanges.

LBMA Precious Metals Market Volumes for March 2024 and Their Significance
Rhona O’Connell, StoneX Financial Ltd – Nasdaq
Any views expressed here are of the writer and do not reflect a house view either from StoneX Financial Ltd., nor from NASDAQ. Daily March average compared with daily average for 2023
Source: LBMA Welcome to our monthly round-up of the LBMA OTC trading volumes in gold, silver, platinum and palladium, as recorded on a daily basis by the Association. These are split into spot, swap/forward, options and LoanLeaseDeposit (LLD) and give a flavor of the markets’ activity and how they were influenced by external forces and news items.

Regulation & Enforcement

Derivatives trading rules need to evolve to improve liquidity
Jennifer Keser, Head of Market Structure & Regulation, Europe & Asia – Tradeweb (opinion)
To address structural changes in the global marketplace, derivatives regulations across different jurisdictions must align. The $20 trillion over-the-counter (OTC) derivatives market plays an important role in the global economy, offering numerous and flexible ways for investors to hedge risks, gain exposure to interest rates, and improve market liquidity. It is also a case study in understanding the critical links between large-scale financial reform and underlying market structure and liquidity. In the wake of the 2008 financial crisis, OTC derivatives became the subject of significant reform by regulators, following a build-up of large counterparty exposures between market participants.

Indian regulators plan panel to weigh derivatives risk, sources say
Jayshree P Upadhyay – Reuters
India’s top financial regulators will form a committee to assess stability risks emerging from a surge in derivatives markets and suggest policy changes if required, two sources familiar with the matter said.
Options trading in India has soared in the last five years, fuelled mainly by retail investors. The notional value of index options traded more than doubled in 2023-24 to $907.09 trillion from $447.69 trillion a year ago, exchange operator NSE says.


Dollar Strengthening Bets Are Getting Pricier in Options Market; Premium to buy dollar call options jumps to five-month high
David Finnerty and Ruth Carson – Bloomberg
The cost of betting on further dollar gains in the options market rose to the highest since November as the US economy’s resilience drives demand for the currency.
The Bloomberg Dollar Spot Index climbed to a five-month high as Treasury yields jumped after stronger-than-expected retail-sales data prompted traders to pare bets on Federal Reserve interest-rate cuts this year. The greenback has already risen to a 34-year high versus the yen, and the strongest in five months versus the euro, pound and Australian and New Zealand dollars.

Earnings Season Tactics: Strategies for Finding Profitable Options Trades
Gavin McMaster – Barchart – The Globe and Mail
Earnings season is here and we’ve already seen some big name companies report earnings including Citigroup (C), JP Morgan Chase (JPM), Delta Airlines (DAL), Wells Fargo (WFC) and Blackrock (BLK).
This week we have Bank of America (BAC), Johnson & Johnson (JNJ), UnitedHealth Group (UNH) and Netflix (NFLX).
In today’s article, we will look at how to use Barchart’s Screener’s to find option trade ideas for this earnings seasons.

VIX Elevated
Cboe (Video)
Tim Biggam @delta_desk has your market updates in #Vol411 – implied volatility outlook, $VIX options activity, #VIX futures term structure and earnings.


Options Expiration: Definitions, a Checklist, & Risks
Ticker Tape Editors – The Ticker Tape
In an earlier era of options trading—two or three decades ago—for market makers in the options trading pits in Chicago and other financial centers, there was one day a month in which attendance was virtually mandatory: options expiration day. Volume was usually heavy, and the potential for volatility was ever-present. In short, trading options on expiration day was seen as a time of opportunity and risk.
Nowadays, however, with midweek and weekly options adding to the standard monthly and quarterly dates, options expiration happens every day of the week.

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