VIX clues show how stock investors underpriced the risk of the coronavirus pandemic; The Booming Short-Volatility Bet That Lost 46% in a Single Month

Apr 3, 2020

Lead Stories

VIX clues show how stock investors underpriced the risk of the coronavirus pandemic
Ing-Haw Cheng – MarketWatch
The speed of the fall in the stock market and increase in market volatility over the past month has been stunning.
From its mid-February highs, the S&P 500 is currently down about 25%, while the CBOE Volatility Index, a gauge of volatility in the stock market, spiked to reach an all-time high of 83. In trading on April 2 it finished at about 51.
Did the market underappreciate the risk of a full-blown coronavirus pandemic?

The Booming Short-Volatility Bet That Lost 46% in a Single Month
Yakob Peterseil – Bloomberg
A booming but opaque volatility trade beloved by hedge funds just erased two decades of performance in a single month.
Betting against price swings in the S&P 500 Index via an over-the-counter instrument known as a variance swap returned minus 46% in the month through March 20, according to Barclays Plc. While perennially popular, the trade has ballooned in recent years as banks unloaded their volatility exposure to hedge funds and other asset managers hungry for yield.

Georgia Senator Loeffler Did Quick Dump of Travel Company Stock
Greg Farrell and Billy House – Bloomberg
Sale preceded Trump’s restrictions on European travel; Another series of options bet on a stock rebound by year end
Senator Kelly Loeffler sold a total of $46,027 worth of stock in an online travel company in the day leading up to President Donald Trump’s announcement of a ban on most European travel to the U.S. Though the transactions were relatively small for Loeffler and her husband — whose net worth is estimated at more than $500 million — the sales represented an about-face.

In Stocks, Swings in Oil Have Become Biggest Threat to Stability
Sarah Ponczek – Bloomberg
Fluctuations in oil always have a role in setting prices for equities. But among all the various market-derived influences that exist in the world right now, they’re the biggest.
Changes in crude explain more than a fifth of the S&P 500’s volatility, according to an analysis by Evercore ISI. That’s the most of any macro influence the firm tracks, including correlation between stocks, investor sentiment, and the shape of the yield curve.

Bitcoin’s $7,000 breach was preceded by Options’ optimism
Aakash Athawasya – AMB Crypto
As far as the Bitcoin market is concerned, a pump or a dump is more often than not, unconfirmed. Several movements have no source, no ground-zero, but many have far-reaching consequences including massive million-dollar liquidations, an incessant attack on the store of value of the cryptocurrency, and the gloat train led by Nouriel Roubini and Peter Schiff.

Exchanges and Clearing

Cboe Global Markets Commends Federal Banking Agencies’ Action to Strengthen Market Liquidity in Response to COVID-19
Banking organizations authorized to begin early best efforts adoption of SA – CCR; Cboe supported passage of SA – CCR rulemaking in 2019 and led effort for this early adoption; SA – CR is a more risk – sensitive methodology that will unlock liquidity in options markets; Action illustrates importance of options markets to U.S. economy
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today issued a statement commending the action of the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency to authorize early adoption of the Standardized Approach to Counterparty Credit Risk (SA-CCR) by banking organizations, and thereby help strengthen current options market liquidity during this time of unprecedented market turbulence as a result of the novel coronavirus disease (COVID-19) pandemic.

Cboe Global Markets Reports March 2020 Trading Volume
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today reported March monthly trading volume. The data sheet “Cboe Global Markets Monthly Volume & RPC/Net Revenue Capture Report” contains an overview of March 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.

Miami International Holdings Reports March 2020 Trading Results, New Records for MIAX Exchange Group and MIAX Emerald Including 16% Increase in the MIAX Exchange Group’s Market Share
PRNewswire (press release)
Miami International Holdings, Inc. (MIH) today reported March 2020 trading results for its three fully electronic options exchanges – MIAX, MIAX PEARL and MIAX Emerald (together, the MIAX Exchange Group). With industry volume up over 60% compared to March 2019, the MIAX Exchange Group collectively executed over 68 million equity option contracts in March 2020 for a combined average daily volume (ADV) of 3,097,343 contracts. The contracts executed by the MIAX Exchange Group represent a total U.S. equity options market share of 11.53%, a new record for the MIAX Exchange Group and an over 16% increase from the 9.89% market share achieved in March 2019.

CME Group Reports All-Time High ADV for March and First-Quarter 2020
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its March and first-quarter 2020 market statistics, showing it reached a record average daily volume (ADV) of 32.1 million contracts during the month of March, up 68% from March 2019. First-quarter 2020 ADV reached a record 27 million contracts, an increase of 45% from first-quarter 2019. Open interest at the end of March was 123 million contracts. Market statistics are available online in greater detail at

Intercontinental Exchange Reports Record March and First Quarter Volumes
Business Wire (press release)
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today reported March and first quarter 2020 trading volume, related revenue statistics and provided an updated operating expense outlook. The trading volume and revenue related statistics can be viewed on the company’s investor relations website at in the Monthly Statistics Tracking spreadsheet.

SGX’s securities and derivatives markets will remain open
Singapore Exchange (SGX) would like to confirm that its securities and derivatives markets will remain open and accessible. This follows the affirmation by the Monetary Authority of Singapore (MAS) that financial services is one of the essential services exempted from the suspension of activities at workplace premises under the elevated safe distancing measures announced by the Ministry of Health (MOH) today.

Ports in the Storm: US Options Exchange Rankings
Alphacution blog
While so many seem to be pleasuring themselves with the Tiger King, some of us continue to geek out with the latest data. Now, with March so freshly in the review mirror, certain monthly and quarterly data updates are going to be among our first chances to benchmark the significance of what has just happened in capital markets.

Regulation & Enforcement

US regulator backs derivatives rule delay
Kadhim Shubber and Philip Stafford – Financial Times
The top US derivatives regulator has backed calls to delay new rules that require thousands of asset managers to set aside cash to cover their bespoke derivatives deals, as a result of the disruption from the coronavirus pandemic.
Heath Tarbert, chairman of the Commodity Futures Trading Commission, told the Financial Times that global authorities were discussing a further delay to standards that come into effect this year and next, and he would be open to a 12-month extension.


As Options Trading Hits Historic Highs, Nasdaq Strives to Solve for Bandwidth Obstacles
MarketInsite via Nasdaq
As market volatility continues, Options trading has reached historic highs. According to the Options Clearing Corporation (OCC), more than 48 million options traded on Friday, Feb. 28, setting a record for total trading volume in a single day. For perspective, 18.2M options contracts traded on February 28, 2019. OCC reports that March 2020 daily average hovered around 30 million contracts daily.


So…Now What? Did I Miss The Opportunity For Tail Risk Protection?
RCM Alternatives blog
We’ve been telling anyone who would listen to properly diversify into something that actually does well in a market crash (like, here, and here, and here). Something with dynamic investment strategies that react to paradigm shifts and get on board with them. Things that do well in volatility spikes, but also when the spikes don’t happen. Investments that are setup for the Black Swan, but fine with the market going back to all time highs as well. Antifragile alternative investments like the newly launched Mutiny program spreading risk across multiple volatility traders putting on various types of convexity trades designed to not just make money when markets go down, but at an increasing pace. What we’ll collectively call throughout this post = long volatility.

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