Treasury Volatility Bet Is Paying Off as Blue Wave Hopes Fade; Short VIX Bets Looking Smart as Stocks Defy Election Mess

Nov 4, 2020

Observations & Insight

$14,091/$300,000 (4.7%)
Jeff Gilfillan and Peter Maragos


Covering Your Downside – Shielding Against Market Downturns
By Matt Raebel – John Lothian News

The year 2020 has been a time of political and economic turbulence, resulting in significant volatility. For investors, it is a good time to look for strategies for mitigating downside risk exposure. An October 12 webinar from Cboe Global Markets offered to teach attendees how VIX products can be used for this purpose.

The webinar, titled, “Shielding Against Drawdowns Using VIX Tradeable Products,” was moderated by Cboe’s Matt Moran, head of index insights at the Cboe Options Institute. The speakers included Edward Szado, chair of the Department of Finance and associate professor at Providence College, and Joshua Lisser, senior vice president and head of the index strategies team at AllianceBernstein. The webinar was clearly not aimed at rookie options traders – attendees appeared to consist primarily of fund managers and experienced traders, and the language used by Szado, Lisser, and Moran reflected that.

Szado highlighted several of Cboe’s benchmark indices based on the VIX, Cboe’s signature volatility index based on the real-time, mid-quote prices of S&P 500 Index (SPX) call and put options. He said the VIX Premium Strategy Index (VPD), the Cboe Capped VIX Premium Strategy Indexes (VPN), the VIX Strangle Index (VSTG), and several others are useful tools for protecting against downside risk.

To read the rest of this commentary, go here.

Lead Stories

Treasury Volatility Bet Is Paying Off as Blue Wave Hopes Fade
Stephen Spratt and Edward Bolingbroke – Bloomberg
A large option wager that Treasuries will see less volatility than many had expected over the U.S. elections is paying off.
The bet was simple. A short position was built up in a so-called strangle on 10-year Treasuries — a pair of upside and downside options — which generated more than $31 million in premium.

Short VIX Bets Looking Smart as Stocks Defy Election Mess
Yakob Peterseil – Bloomberg
Traders who bet on calm breaking out in the aftermath of the presidential vote are looking prescient, as Wall Street largely shrugs off a contested election outcome with a divided Congress — a worst-case scenario.
As it became clear the U.S. election would be close on Wednesday morning, traders who paid historic premiums to insure against stock swings were initially the ones who looked like winners. Within hours, it was those who rushed to short volatility who appeared to come out on top.

Volatility Bets Looking Smart as Messy Election Whipsaws Market
Yakob Peterseil – Bloomberg
VIX stays elevated as presidential election too close to call; Slew of short-volatility wagers seen in options recently
Stock traders who paid historic premiums to insure against wild swings are looking smart as Wall Street sizes up a contested election outcome with a divided Congress — a worst-case scenario. As post-vote disputes look more likely, S&P 500 futures swung violently between gains and losses in early London trading. The Cboe Volatility Index stayed well above its historic average at around 35 while the volatility futures curve remained firmly elevated.

Markets are underestimating the possibility of a contested election, a top RBC strategist says
Emily Graffeo – Markets Insider
The stock market may be underestimating the possibility of a contested election scenario where the result is unclear for a while, said Amy Wu Silverman of RBC Capital Markets.
The RBC head of derivatives strategy told CNBC on Tuesday that based on the moves implied by options trading around the election, the market believes the result will be concluded quickly.

Hedge funds bet against lasting US election-induced market turmoil; Firms wager that Wall Street expectations for increased volatility in months ahead are overdone
Eric Platt, Robin Wigglesworth and Laurence Fletcher – FT
Some hedge funds are betting that fears over a delayed and disputed US presidential election result are overblown, and that stock market volatility will simmer down in the coming months.

October was a massive month for bitcoin options
The Block
Bitcoin options interests reach new heights in October, according to data compiled by The Block Research. The aggregated open interest of bitcoin options reached an all-time high of $2.4 billion by the end of October, a month-over-month increase of 54.7%. On October 29, the open interest of Bitcoin options hit a new daily all-time high of $2.6 billion.

No wild ride: FX swings fall as extreme dollar bets unwound
Saikat Chatterjee and Elizabeth Howcroft – Reuters
A surprisingly close U.S. election contest caused the dollar to swing around in cash markets on Wednesday but derivatives market “fear” gauges showed implied currency volatility declining from multi-year highs as big bets on a weaker dollar were unwound.
Unlike in March, when the coronavirus crisis unleashed mayhem in markets, reactions were relatively contained with a 1% jerk higher in the dollar abating as vote counting progressed and diluted President Donald Trump’s early lead.

Investors bet U.S. stock swings will calm down after Election Day
April Joyner – Reuters
Investors were pulling back on expectations for big swings in U.S. stocks on Tuesday, looking for market uncertainty to recede after Election Day. The Cboe Volatility Index, Wall Street’s “fear gauge,” declined as the S&P 500 climbed nearly 2% in part on anticipation of a clear presidential election outcome. At 35.55, the VIX remained well above its long-term average near 20 and was implying more than 2% moves for the S&P 500. Moreover, options on the SPDR S&P 500 Trust, an exchange-traded fund that tracks the benchmark U.S. stock index, were pricing in a 3.5% move by the end of the week, according to Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

Exchanges and Clearing

Cboe Global Markets Reports October 2020 Trading Volume
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, today reported October monthly trading volume. The data sheet “Cboe Global Markets Monthly Volume & RPC/Net Revenue Capture Report” contains an overview of October and year-to-date trading statistics and market share by business segment, volume in select index products, and RPC, which is reported on a one-month lag, across business lines. In addition, a supplemental data sheet that provides electronic trading statistics for Cboe Options Exchange is available on the website.

MIAX Exchange Group – Options Markets – Corporate Action Alert: Federated Hermes Inc. (FHI)
MIAX Options
Federated Hermes Inc. (FHI) has announced a Special Cash Dividend. Associated strike price adjustments will become effective on Thursday, November 5, 2020. FHI options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in FHI will be canceled at the close of business on Wednesday, November 4, 2020. Additional details about the Federated Hermes Inc. (FHI) dividend are provided in the attached OCC Memo.

Position Limits and Large Trader Reporting Requirements in Connection with the Initial Listing of the Pork Cutout Futures and Options on Pork Cutout Futures Contracts
CME Group
In connection with the listing of the Chicago Mercantile Exchange Inc. (“CME”) Pork Cutout Futures and Options on Pork Cutout Futures contracts (the “contracts”) on trade date Monday, November 9, 2020 (see SER-8651 published September 29, 2020), please note below and in Exhibit C of CME Submission No. 20- 339 the corresponding spot-month position limits (Rule 559), single month position limits (Rule 559), aggregation allocations (Rule 559.D) and reportable levels (Rule 561) for the contracts.

Clearing Member Firms; Back Office Managers
CME Group
Please be advised that CME will add four new columns to the end of the OTC FX Trade Register CSV report in New Release on November 11, 2020. CME will confirm the production date in a forthcoming advisory. These new columns will further align the FX Trade Register with the IRS Trade Register, as well as provide additional trade level information. This change will impact end of day and intraday Trade Registers. Please note these columns are optional, and the FIXML (.xml) Trade Register is not impacted.

Regulation & Enforcement

A proposal to amend The Nasdaq Options Market Rules at Options 4, Section 3, Criteria for Underlying Securities, Options 4, Section 5, Series of Options Contracts Open for Trading, and Options 4, Section 6, which is currently reserved, to relocate certain rule text and make other minor technical amendments.


Options Announce Registered Vendor Extension to Cboe Europe
Options, the leading provider of cloud-enabled managed services to the global capital markets, today announced it has extended its Registered Vendor status to Cboe’s European equities market. Options already holds Registered Vendor status for Cboe’s US equities markets.

*****MR: Great name for a company in this industry – if a bit confusing, perhaps. “What’s the name of your company?” “Options!” “What do you do?” “We provide trading data to capital markets!” “…Oh. That’s not what I thought you were going to say.”

Itiviti’s Linda Middleditch wins European Women in Finance Award for Excellence in FinTech
London, November 4, 2020, Itiviti, a leading technology and service provider to financial institutions worldwide, today announced that Linda Middleditch, Chief of Product Strategy and Engineering, has won the Markets Choice Awards – European Women in Finance Awards in the category for Excellence in FinTech.


There is still time to register for FIA’s virtual Futures and Options Expo, taking place this 10-12 November. Expo-V brings you three days of programming including keynote sessions with Dr. Kathy Neuzil, SEC Commissioner Hester Peirce, revered Silicon Valley journalist Kara Swisher and CFTC Chairman and Chief Executive Heath Tarbert as well as 1:1 interviews with exchange leaders from Cboe Global Markets, CME Group, Eurex, ICE and Nasdaq. Industry experts will also explore lessons learned from the pandemic, trends shaping what’s next for cleared derivatives and opportunities to diversify the industry. Expo-V features a robust exhibit hall with more than 20 exhibitors and 9 fintech start ups in the Innovators Pavilion. This is your opportunity to connect with the cleared derivatives community. Learn more at and REGISTER!

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Options Newsletters

Inflation Readings Jolt Options Market

Inflation Readings Jolt Options Market

Observations & Insight ****SC: Laura Morrison, Cboe senior VP and global head of listings, on Thursday hosts options trader and educator Jon Najarian, Innovator ETF CEO Bruce Bond, and Innovator VP of research Graham Day for an online chat on the outlook for the...

Avalanche of Options Trades Fuels Market Pullback

Avalanche of Options Trades Fuels Market Pullback

Lead Stories Avalanche of Options Trades Fuels Market Pullback; One measure of trading activity has reached its second-highest level on record Gunjan Banerji and Anna Hirtenstein - WSJ Heavy options activity is amplifying this week's frantic investor retreat from bets...

Pin It on Pinterest

Share This Story