VIX Call Selling Jumps as ‘Fear Gauge’ Soars Ahead of Expiration

Feb 14, 2024

Observations & Insight

Robert Grum announced on LinkedIn that his boutique brokerage operation on the Cboe, which launched during the COVID pandemic, has successfully completed its third year in operation. Alongside partners Adrian Velazquez and Joe Landy, SRT emerged as the top open outcry broker in SPY and QQQ for 2023, handling more than 25% of SPY open open outcry volume and over 35% of QQQ open outcry volume on the Cboe. While the SRT SPX group manages SPX, the group also covers all other Cboe pits, including ETFs, equities, and other index products such as RUT and VIX. In total, SRT executed over 25 million contracts in 2023 and anticipates further growth in 2024. ~JJL


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Lead Stories

VIX Call Selling Jumps as ‘Fear Gauge’ Soars Ahead of Expiration
David Marino and Elena Popina – Bloomberg
Traders sold short-term VIX call options Tuesday as the biggest S&P 500 slide in 14 months sent the fear gauge to the highest since early November. About 1.76 million contracts changed hands a day ahead of February futures expiration, the most since May 2019. More than 479,000 contracts traded in just the 16, 17, 20 and 22 calls expiring Wednesday, just about what trades on an average day for all calls. The S&P 500 slid the most in 14 months after a hotter than expected CPI print quashed hopes that the Federal Reserve will cut interest rates any time soon.

Wall Street Is Going to Great Lengths to Avoid Chinese Equities
Richard Henderson and Isabelle Lee – Bloomberg
Global money managers, desperate to avoid exposure to sliding Chinese markets, have fresh investing tools at their disposal as pessimism toward the world’s second-largest economy snowballs.
US financial-products provider Direxion launched a leveraged emerging market-focused exchange-traded fund last week that snubs equity allocations to the Asian nation altogether. It comes as the latest Bank of America Corp. survey shows that going short Chinese stocks — the second-most crowded trade for months now after being long the so-called Magnificent Seven tech companies — is becoming ever-more popular.

A Tiny Hedge Fund Is Becoming a Thorn in the Side of Energy Giant BP; London-based Bluebell Capital Partners has a history of aiming at big targets, and sometimes hitting them
Jenny Strasburg – The Wall Street Journal
Giuseppe Bivona and his partners run a tiny activist hedge fund from a small office here not far from Buckingham Palace. The single room has big windows, seven desks and little space for much else. From this unlikely perch, the fund, called Bluebell Capital Partners, aims to punch far above its weight by launching campaigns against some of the world’s biggest companies, most of them in Europe. Sometimes the punches land.

Opportunities in local and global volatility markets
Since 2020, market participants have had to deal with a complex volatility landscape. To make sense of how market conditions might evolve in 2024, and how investors can position effectively for this, Eurex spoke to Davide Silvestrini, Managing Director, Head of EMEA Equity Derivatives Strategy at JP Morgan. Looking ahead to 2024, how do market conditions compare to last year and what is your outlook for volatility in the year to come?


EU scales back ambitions for post-Brexit clearing land grab; Opposition from banks and asset managers and Franco-German tensions seen as undermining early plans
Nikou Asgari in London and Paola Tamma – Financial Times
EU plans to funnel derivatives trades through its own markets are unlikely to wrest a significant slice of the lucrative clearing business away from the City of London after a climbdown by the bloc’s lawmakers, according to analysts and people involved in the negotiations.

CME Group Inc. (NASDAQ: CME) today reported financial results for the fourth quarter and full year of 2023.
CME Group
The company reported revenue of $1.4 billion and operating income of $863 million for the fourth quarter of 2023. Net income was $815 million and diluted earnings per common share were $2.24. On an adjusted basis, net income was $865 million and diluted earnings per common share were $2.37. Financial results presented on an adjusted basis for the fourth quarter of 2023 and 2022 exclude certain items, which are detailed in the reconciliation of non-GAAP results.1

SGX Group reports market statistics for January 2024
SGX Group
Derivatives volume grows across multiple asset classes; Singapore’s first active ETF listed. Singapore Exchange (SGX Group) today released its market statistics for January 2024. Global investors continued to lean on SGX Group’s trusted platform to manage risk amid waning expectations that central banks would soon cut interest rates, alongside mixed views over the pace of growth in key Asian economies. Derivatives traded volume rose 27% year-on-year (y-o-y) in January to 24.6 million contracts, the highest since March 2022, with strong increases across equities, foreign exchange (FX) and commodities. Derivatives daily average volume (DDAV) climbed 9% month-to-month (m-o-m) to 1.1 million contracts, extending gains made in 2023.

Cboe Options to introduce default clearing by symbol for electronic Market-Maker Option trades
Maria Nikolova – FX News Group
Effective trade date March 11, 2024, all Cboe-affiliated U.S. Options Exchanges will support default clearing by underlying symbol for electronic Market-Maker Option trades.
A new EFID/OCC ID Clearing Association tool will be available in the Cboe Customer Web Portal to enable OCC clearing configuration.

Regulation & Enforcement

Hedge funds push for transparency in credit determinations; Proposals include more disclosure around meetings and detailed rulings of credit events
Ben St. Clair –
A group of investors is seeking changes to the influential committees that decide whether they receive payouts of credit default swaps (CDSs).
The move is a response to a consultation announced by the International Swaps and Derivatives Association on December 14 on potential changes to the regional industry bodies that rule on credit events, known as credit derivatives determinations committees (DCs).


Rising Vix likely portends more losses ahead for stocks, history shows
Joseph Adinolfi – MarketWatch
If history is any guide, investors should brace for the selloff in stocks to continue over the coming weeks.
Here is why: The Cboe Volatility Index, otherwise known as the Vix or Wall Street’s “fear gauge,” snapped a streak of 63 sessions below 15 on Tuesday as the S&P 500 recorded its biggest daily pullback in more than a year.

S&P 500 has ‘room to rally’ before Fed rate cut, according to this stock ‘playbook’; The VIX, known as the stock market’s ‘fear gauge,’ was easing Wednesday, after jumping on an inflation reading Tuesday that was hotter than Wall Street anticipated
Christine Idzelis – MarketWatch
U.S. stocks may have some room to keep up their bullish run before the Federal Reserve’s first interest-rate cut — despite a jump in volatility after Tuesday’s hotter-than-anticipated inflation data, according to DataTrek Research.

Charts Show Nikkei Record High Within Reach on Options, Turnover; Nikkei 225 put-to-call has dropped as gauge rose 13% this year
Winnie Hsu – Bloomberg
Japan’s blue-chip equity gauge has enough momentum to reach an all-time high, if technical market patterns are any guide.
The Nikkei 225 Stock Average is less than 4% from surpassing its record close of 38,915.87 hit in 1989. The benchmark pared its advance on Wednesday after jumping about 3% the previous day in its biggest jump since November 2022.

Bullish Case for NatGas
Tastylive (Video)
In this Options Trading Concepts Live video, the hosts discuss various topics, including earnings reports, the move in bitcoin, and natural gas prices. They analyze the current inventory levels of natural gas and the short positioning data, suggesting that a shift in weather could lead to shorts covering their positions and a potential rally in natural gas prices. They also discuss the wide spread between crude oil prices and natural gas prices. Additionally, they cover potential trades in various stocks, including XLU, FedEx, and Cisco. The hosts also mention the upcoming earnings reports for Lyft and Bitcoin-related companies. The video ends with a discussion on the possibilities of increased market volatility and the hosts’ outlook for the rest of the week.

Post-CPI Trading
Cboe (Video)
In #Vol411, @JoeTigay gives us post-CPI market updates from yesterday, letting us know that the $VIX Index was at 18 level at its peak and more.

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The Spread

Wall Street Faces Tougher Margin Rule as Zero-Day Options Boom

Observations & Insight NOTE: JLN Options will not be published tomorrow (Wednesday) in observance of the Juneteenth holiday. We will be back on Thursday. ~JB ++++ Regulatory Uncertainty Clouds Options Market Innovation David Dooman, head of...

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