Vix ‘fear gauge’ soars on Middle East tensions and interest rate shift

Apr 17, 2024

Observations & Insight

The CME Group filed with the CFTC modifications with the following COMEX market maker programs last week: Hot-Rolled Coil Steel, Ferrous Scrap and the Aluminum Market Development Program and the Aluminum Options Liquidity Provider Program.

Kalshi self-certified the following binary option/swap contracts last week:
Will album have above/below/between count streams on Spotify on date?
Will artist be above/below/between rank before date?
Will the strategic petroleum reserve hold above/below/between count barrels before date?
Will India meet its climate goals?
Will Tesla announce a low-cost electric vehicle before date?
Will Tesla release the Robotaxi to the public before date?
Will the share of electric vehicles be above/below/between percent in month? ~JJL


Lead Stories

Vix ‘fear gauge’ soars on Middle East tensions and interest rate shift; Volatility index at highest since October as investors step up protection against downside risk to equities
George Steer – Financial Times
US investors are paying the biggest premiums since October to protect their portfolios against market gyrations as mounting tensions in the Middle East and reduced expectations of interest rate cuts fuel a surge in volatility.
The Vix index, Wall Street’s so-called fear gauge, hit 19.6 this week, its highest level since October 20, two weeks after the Hamas attack that triggered Israel’s war in Gaza.

Wall Street’s ‘fear gauge’ within a whisker of its long-term average for first time since October
Joseph Adinolfi – MarketWatch
A stock-market pullback that began earlier this month has deepened in recent days, pushing Wall Street’s “fear gauge” to its highest level since late October on Tuesday.

Short Squeeze Fears Grip Tin as LME Says It’s Watching Market; One trader has big long position in metal used in electronics; London Metal Exchange says it has tools to manage volatility
Alfred Cang – Bloomberg
Supply ruptures from Southeast Asia to Africa. The rise of artificial intelligence. A “big bull” with a dominant position. This potent cocktail has put an often-overlooked metal, tin, at risk of a short squeeze after a price spike this month.
Tin on the London Metal Exchange has surged in April, and its 25% advance in 2024 puts it well ahead of more closely-watched commodities like copper or crude oil.

Nornickel says new Western sanctions raise risk of metals market disruption
Reuters via
US and British sanctions imposed on Russian nickel, copper and aluminum will further increase price volatility and supply uncertainty, Russian metals-producing giant Norilsk Nickel said on Tuesday. In their latest round of Ukraine-related sanctions, Washington and London on Friday prohibited metal-trading exchanges from accepting new aluminum, copper and nickel produced by Russia and barred the import of the metals into the United States and Britain in order to disrupt Russian export revenue.

Hedge Funds Sell Off Winning Energy Stocks to Buy Soaring Oil; Goldman data show energy share allocations well below normal; Macro funds ‘are already pretty long crude,’ CIBC’s Babin says
Natalia Kniazhevich – Bloomberg
With energy stocks trading near all-time highs and oil climbing as well, hedge funds think they’ve found a trade to capitalize: Sell the shares and pour the profits into buying more crude.
Hedge funds have been selling US energy stocks for three straight weeks, according to prime brokerage data from Goldman Sachs Group Inc. The net allocation to energy also is well below historical levels, with energy now making up just 2.2% of overall US net exposure on Goldman’s prime brokerage book. And the sector’s long-short ratio has fallen to a five-year low.


Cboe Europe Derivatives Q1 Update
Iouri Saroukhanov – Cboe
Here at Cboe Europe Derivatives (CEDX), the first quarter flew by as we expanded our equity options franchise, achieved record index derivatives volumes and prepared for the launch of new Liquidity Provider Programmes across all our products at the start of April. Find out more below! Equity Options Expansion CEDX began offering equity options in November last year and broadened its universe of these products from 25 March. CEDX now offers more than 300 options on companies from 14 countries (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland and the UK). You can view the complete list of underlying stocks here.

ISDA Margin Survey Shows $1.4 Trillion in Margin Collected at Year-end 2023
The International Swaps and Derivatives Association, Inc. (ISDA) has published its latest margin survey, which shows that $1.4 trillion of initial margin (IM) and variation margin (VM) was collected by 32 leading derivatives market participants for their non-cleared derivatives exposures at the end of 2023, unchanged from the previous year. The $1.4 trillion total comprised $462.0 billion of IM and $944.5 billion of VM, compared to $325.7 billion of IM and $1.1 trillion of VM at the end of 2022. The 32 firms covered by the ISDA Margin Survey included all 20 of the firms subject to the first phase of regulatory IM requirements for non-cleared derivatives in September 2016 (phase-one entities), five of the six phase-two firms and seven of the eight phase-three entities.

Regulation & Enforcement

Cboe Asks SEC To Approve Use of Multi-Share Classes
Bloomberg ETF IQTV Shows (Video)
Cboe Global Markets Inc. is joining the likes of Morgan Stanley and Fidelity in asking the Securities and Exchange Commission to approve widespread use of multi-share class fund structures. Rob Marrocco, Global Head of ETP Listings at Cboe Global Markets says if approved this would have numerous benefits, such as greater flexibility for asset managers. He speaks with Katie Greifeld, Scarlet Fu and Eric Balchunas on “ETF IQ.” (Source: Bloomberg)

FIA calls on international regulators to continue progress on margin transparency
FIA today filed a letter with international standard-setting bodies urging further progress on efforts to increase the resilience of global derivatives markets in times of stress. The letter was submitted in response to a consultation on initial margin requirements in centrally cleared derivatives markets that was issued by Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions. The standard-setting bodies called for comment on 10 policy proposals that aim to improve participants’ understanding of initial margin calculations and potential future margin requirements. The FIA response expressed strong support for the proposed requirements for increased transparency into the process used by central counterparties to set IM requirements, saying it will give clearing members and their clients more ability to prepare for margin calls and reduce liquidity risk in financial markets.

Hedge funds and commodities traders urged to hold more liquid assets; Financial Stability Board highlights need for capacity to meet margin calls in case of market shocks
Nikou Asgari – Financial Times
Financial policymakers have urged hedge funds, pension investors and commodities traders to keep more liquid assets on hand and develop stress tests to better withstand shocks from extreme market moves. The Financial Stability Board, which includes the world’s leading finance ministers, central bankers and regulators, said on Wednesday that after assessing a series of recent market panics, many funds and traders had made “inadequate” preparation for sudden price moves.

ISDA Survey: Japan’s Derivatives Market; Set for Expansion
Tokyo and Singapore will be the top locations for derivatives trading in the Asia-Pacific region over the next three to five years, according to market participants who responded to a survey to mark the start of the International Swaps and Derivatives Association’s (ISDA) 38th Annual General Meeting (AGM) in Tokyo on April 16-18. Asked to rank the importance of a selection of Asia-Pacific cities, respondents cited Singapore (with a ranking score of 4.23), Tokyo (4.08), Hong Kong (3.74), Shanghai (3.73) and Sydney (3.63).


Liquid Mercury Partners with GFO-X to Provide RFQ Platform for Trading Crypto Derivatives
Liquid Mercury, a leading crypto trading technology provider, announced today that it is providing a request for quote (RFQ) platform to GFO-X, the UK’s first regulated and centrally cleared trading venue dedicated to digital assets derivatives. Institutional traders will be able to source deep liquidity for trading listed options and futures contracts in large trade sizes that can be transacted as single-leg or complex, multi-leg strategies.

C8 Technologies launches new systemic FX hedge platform; Named C8 Hedge, the new platform provides guidance for managing foreign exchange exposures to facilitate improved returns.
Wesley Bray – The Trade
London-based fintech C8 Technologies is set to launch an FX hedging platform which employs systemic trading models to help businesses manage their currency exposures. Named C8 Hedge, the new platform provides guidance to corporate treasurers and investment professionals for managing their foreign exchange exposures across a range of currencies, using online tools.


A Fear Trade as Tensions Rise in the Middle East
Steven M. Sears – Barron’s
Fear equals opportunity. The greater the fear, the greater the opportunity.
This cold calculation reflects how markets behave when investors are scared by military conflict, terrorism, and similar events that lower the value of financial assets.
All investors should consider how they will handle the aftermath of Iran’s missile attack against Israel. The world’s great powers have urged Israel not to respond, but it is unclear if it will listen.

Ether Options Show Bias for Weakness Over 3 Months
CoinDesk via Markets Insider
Ether’s 90-day puts are more expensive than calls on Deribit for the first time since January, according to Amberdata.
The sentiment is relatively bullish in the bitcoin options market.
Crypto investors are now betting that Ethereum’s native token, ether {{ETH}}, will drop in value over the next three months.
That’s the message from the call-put skew, an options-market measure that reveals what traders are willing to pay to hedge or acquire an asymmetric payout from bullish or bearish price moves.

Earnings Season
Cboe (Video)


Cboe Global Markets Announces Recipients of the 2024 Cboe Empowers Scholarship Program; Expands Program to New York City
Cboe Global Markets, Inc. (Cboe: CBOE), the world’s leading derivatives and securities exchange network, announced the recipients of its 2024 Cboe Empowers Scholarship Program, which for the first time included students from New York City. This year, Cboe Empowers awarded full-ride scholarships to five recipients in Chicago, three recipients in Kansas City and two recipients in New York City.
Initially launched in 2021, the Cboe Empowers Scholarship Program awards a select number of full-ride scholarships to students from Chicago’s South or West sides, Kansas City (Missouri and Kansas), and New York City. This year’s recipients were honored with a celebration and bell-ringing ceremony attended by Cboe leadership and associates at each of the respective Cboe offices. The scholarship program is part of Cboe Empowers, the company’s community engagement program that supports under-resourced students across all stages of education, from elementary or primary school to career. In addition to scholarships, Cboe Empowers provides mentorship, guidance and educational and leadership opportunities to under-resourced students.

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