US options traders bet Wall Street stocks will build on record highs; A Speculative Frenzy Is Sweeping Wall Street and World Markets

Dec 21, 2020

Observations & Insight

A Smile on FTSE Russell’s Sean Smith’s Face is Not News, But This Smile is Special
By John J. Lothian – JLN

Sean Smith has a big smile on his face these days. Actually, that is not news, though it is harder to see behind a mask. Sean is normally always smiling. However, his smile is even bigger presently because of a new product announcement by Cboe Global Markets, one of the key partners for Smith’s employer, FTSE Russell.

The Cboe announced last week plans to launch Russell 2000 mini options. This new product incorporates many of the elements of Smith’s career into one small package with huge potential. I spoke with Smith, managing director of derivatives licensing for FTSE Russell, on Friday about the new mini Russell 2000 options.

The Cboe is going to start offering Mini Russell 2000 options in the first quarter of 2021, subject to regulatory review. The contracts are worth 1/10 of the size of the index and about the same notional value as the Russell 2000 ETF options.This latest mini offering is meant to hit the sweet spot of customer demand to help them invest, trade or manage their risk with greater precision.

To read the rest of this commentary, go here.


The Spread: That’s a Wrap

This week on The Spread, Cboe announces new products, Massachusetts regulators file a complaint against Robinhood, and JLN says goodbye to Mike Forrester.

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Lead Stories

US options traders bet Wall Street stocks will build on record highs
David Carnevali – Financial Times
Investors continue to bet that US stocks have room to rise, according to a key measure of positions in the derivatives market, even as the blue-chip S&P 500 index sets a series of record highs.
Purchases of call options, which confer the right to buy a stock at an agreed price, have surged since November’s US election and Covid-19 vaccine breakthroughs, according to exchange operator Cboe. The daily trading volumes of call contracts, which are effectively a bet on rising prices, have far outpaced put options, which give the buyer a right to sell shares at a set level.

A Speculative Frenzy Is Sweeping Wall Street and World Markets
Bloomberg News
Mania is laid bare in IPO surge, options boom and crypto fever; Some strategists warn risk-taking excess is a signal to sell
Animal spirits are famously running wild across Wall Street, but crunch the numbers and this bull market is even crazier than it seems. Global stocks are now worth around $100 trillion. American companies have raised a record $175 billion in public listings. Some $3 trillion of corporate bonds are trading with negative yields. All the while the virus spreads, the economic cycle stays on life-support and businesses get thrashed by fresh lockdowns.

Wall Street’s ‘fear index’ surges most since height of coronavirus selling in March as stock market skids on virus worries
Mark DeCambre – MarketWatch
A measure of implied volatility on Wall Street early Monday touched the highest level since November on reports of a new strain of coronavirus that has caused tightened social-media restrictions and lockdowns in parts of Europe.

New COVID-19 strain inflicts pain across markets, triggers volatility
Sujata Rao – Reuters
European shares fell 3% on Monday, the dollar strengthened and volatility surged across asset classes as a fast-spreading new coronavirus strain in Britain threatened to torpedo markets’ optimism over a vaccine-fuelled rebound in economic growth.

Oil tumbles as new virus strain revives demand fears
Bozorgmehr Sharafedin – Reuters
Oil prices tumbled on Monday as a fast-spreading new coronavirus strain that has shut down much of Britain and led to tighter restrictions in Europe sparked worries about a slower recovery in fuel demand.

Risky business: the changing face of risk during the pandemic
Annabel Smith – The Trade
The COVID-19 pandemic threw firms into disarray as we tumbled into a bear market in the first three weeks of March. With this development, a second pandemic of doubt and fear was taking place under the surface. Volatility meant that few people could predict the future and this unpredictability saw appetite for risk weaken as market participants began to view their investments through a more cautious lens. This in turn has meant investors from both the buy-side and sell-side are less likely to want to take on risk. The Cboe volatility index, otherwise known as VIX, hit a record high of 82.69 on 16 March.

China to ramp up derivative market development, sec regulator says
Reuters Staff
China will accelerate the rollout of futures and options for natural gas, refined oil and peanuts to help price discovery, a senior securities regulator said on Saturday. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, also told a forum in Shenzhen that the country’s planned expansion of its capital markets would require a more sophisticated financial derivative market.

Exchanges and Clearing

Cboe’s latest data deal lays the foundation for a wide range of new crypto market products
Frank Chaparro – The Block
Derivatives exchange operator Cboe Global Markets is preparing to launch crypto indexes after inking a partnership with trading software firm CoinRoutes.

Interview: It’s about time to access the benefits of listed FX
Barclays and DZ PRIVATBANK S.A. to provide Union Investment access to Eurex FX Listed FX volumes and open interest are continuing to grow at Eurex. With a strong December roll, the exchange traded more than 600,000 futures contracts in 2020 despite the COVID-19 crisis. Progress is also visible in market access. Most recently, Barclays and DZ PRIVATBANK S.A. provided Union Investment access to Eurex FX.

FCMs fret over S&P 500 options settlement changes
Costas Mourselas – (subscription)
Fifteen minutes is a long time in the US options markets. A seemingly innocuous change to daily settlement price times for popular index options on the S&P 500 listed at Cboe and CME Group has caused angst among dealers. They say the failure to simultaneously adjust settlement times for options on exchange-traded funds (ETFs) that track the benchmark has thrown a popular hedge trade out of whack, and complicated client margining.


Cosaic Debuts Options Analytics Charting, Sentiment Study
Max Bowie – Waters Technology
The new offering will provide flexibility for firms who want front-, middle-office staff, and clients to use the same analytics, but where vendor services would be prohibitive. ?Cosaic, the charting graphics and data integration provider formerly known as ChartIQ, unveiled a new display tool last month as part of version 8.1 of its ChartIQ visualization platform, ChartIQ Options Analytics, which officials say expands the vendor’s existing capabilities to meet a broader range of financial firms’ business needs.

Forecast 2021: Trading Technology Perspectives
Samuel Belden – TABB Forum
Simply put, without the major strides in tech upgrades undertaken in recent years, it would have been impossible for the capital markets to have functioned as seamlessly as they did in a “work-from-home” environment this year. In this edition of Forecast 2021, technology providers OptionsLive, LiquidityBook, Itiviti and Fixnetix deliver insights into current trends in the tech space and what they expect to see in the coming year.


Cboe Global Markets Announces Election of Ivan Fong and Alexander J. Matturri, Jr. to Board of Directors
Cboe Global Markets, Inc.
Cboe Global Markets, Inc. (Cboe: CBOE), a market operator and global trading solutions provider, today announced its Board of Directors elected Ivan Fong, Senior Vice President, General Counsel and Secretary of 3M Company, and Alexander J. Matturri, Jr. former Chief Executive Officer of S&P Dow Jones Indices LLC, as new members to its Board of Directors.


3 Reasons to Add Mini-SPX Options to Your Trading Arsenal
You’ve heard it before: Reduce your investment risks by diversifying your investments and not putting all your eggs in one basket. It’s sound advice that has led many to get broad market exposure through an index exchange-traded fund (ETF), mutual fund, or index futures contract. These products allow traders and investors to target instant diversification. Plus, they can be a way to play the overall market—or a segment of it—with one transaction.


2020 Annual Trends in Futures and Options Trading
27 January 2021 • 10:30 AM – 11:30 AM ET • Webinar
This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Moderator: Will Acworth, Senior Vice President of Publications, Data & Research, FIA

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