VIX Flashes Most Enticing Short Since 2012 in the Month of Fear; Hedge funds pull bullish bets on petroleum

Aug 4, 2020

Observations & Insight

Analysis: Fed’s Hold On Economy Challenged As Virus Eludes Policy Outlook
By Suzanne Cosgrove – John Lothian News

While the Federal Reserve is known for its laser focus on goals that include maximum employment, price stability, moderate interest rates and a stable financial system, those goals have proven slippery as the coronavirus persists and continues to tamp down progress, exposing some structural gaps in the process.

In a virtual roundtable for the financial press held Monday, Chicago Federal Reserve President Charles Evans was clear: “The path of the economy is going to depend on the course of the virus.”

He began his comments with a shout-out to essential workers who, Evans said, put their own health at risk. “Without their contributions, we would not be as far along as we are,” he said.

But so far, that’s not very far. The U.S. experienced a dismal second quarter, with gross domestic product declining by just short of 33 percent on an annualized basis. Some 18 million U.S. workers are unemployed and the unemployment rate is around 11 percent.

To read the rest of this report, go here.

Lead Stories

VIX Flashes Most Enticing Short Since 2012 in the Month of Fear
Yakob Peterseil – Bloomberg
Wall Street’s volatility speculators are staring down one of the most confounding trading landscapes in years, even as bullish conviction pushes U.S. stocks back toward records.
On the one hand, equities are in their historically most volatile month, U.S. election risk remains elevated and the pandemic fallout continues. All of which suggest gains for investors betting on rockier markets, and risks for those shorting.

Hedge funds pull bullish bets on petroleum
John Kemp – Reuters
Hedge funds turned less bullish on petroleum at the end of July amid anticipated rises in OPEC+ production and growing concerns about the impact of resurgent coronavirus infections on the global economic outlook.
Money managers sold the equivalent of 40 million barrels in the six most important petroleum futures and options contracts in the week ending July 28.

Natixis CEO’s Taste for Risk Proved His Undoing After Losses
Donal Griffin and Alexandre Rajbhandari – Bloomberg
Francois Riahi never quite managed to put out the fires in an abbreviated two-year tenure as Natixis SA chief executive officer.
Just six months into his stint, a trading meltdown in Asia landed the French lender with a $300 million loss. High-risk trades helped to end his career atop the French lender on Monday, when he was ousted following deepening losses from equity derivatives.

SocGen lines up new generation of leaders after $1.5 billion loss
Maya Nikolaeva – Reuters
French bank Societe Generale overhauled its top ranks on Tuesday, announcing the departure of two deputy chief executives after its worst quarterly performance since the global financial crisis. France’s third-largest bank surprised investors with a 1.26 billion euros (1.1 billion pounds) quarterly loss on Monday, its worst since rogue trader Jerome Kerviel left a gaping hole in its accounts in 2008.

OCC To Lower Costs for Users of U.S. Equity Derivatives Markets
Announces Fee Reduction, Projected Year-End Refund for Clearing Member Firms
Press Release via Business Wire
As part of its commitment to deliver operational excellence to the users of the U.S. equity derivatives markets, OCC, the world’s largest equity derivatives clearing organization, today announced a reduction in clearing fees, a projected year-end refund for clearing member firms, and its intention to seek regulatory approval from the U.S. Securities and Exchange Commission (SEC) to amend its Capital Management Policy with a persistent minimum amount of “skin-in-the-game.”

OCC July 2020 Total Volume Up 52.5 Percent from a Year Ago
Third-Highest Month on Record; Highest July Ever
OCC, the world’s largest equity derivatives clearing organization, announced today that July 2020 total cleared contract volume was 615,199,883 contracts – the third highest month on record and up 52.5 percent from July 2019. Year-to-date average daily cleared contract volume through July was 28,342,356 contracts, up 46.4 percent from July 2019.

Exchanges and Clearing

DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding
Sebastian Sinclair – Coindesk
Decentralized derivatives protocol Hedget has raised $500,000 in seed funding. According to a press release issued Monday, the round was led by FBG Capital and NGC Ventures, both Asia-based venture firms. Hedget is a new Ethereum layer two solution for decentralized options trading, allowing users to buy and sell derivatives using collateral to hedge risk when holding crypto. Users can also hedge on positions of debt taken up on lending protocols in the DeFi space.

CME Group Reports July 2020 Monthly Market Statistics
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today reported July 2020 market statistics, including average daily volume (ADV) of 13.6 million contracts during the month. Open interest at the end of July was 101 million contracts. Market statistics are available online in greater detail at

Cboe Global Markets Completes Acquisition of Leading Canadian ATS MATCHNow
Cboe (press release)
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced it has completed its acquisition of MATCHNow, the largest equities alternative trading system (ATS) in Canada. Toronto-based MATCHNow is a Canadian marketplace that offers execution for institutional, proprietary and retail orders by combining frequent call matches and continuous execution opportunities in a fully confidential trading book. Founded in 2007, MATCHNow has grown to account for nearly 65 percent of market share in total Canadian dark trading, or approximately 7 percent in total Canadian equities volume.

MIAX Exchange Group – Options Markets – Intra-day Series Adds in ADT
MIAX Exchange Group
The attached series in ADT Inc. (ADT) were added to the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective for today, Monday, August 3, 2020.

MIAX Options – Increase to Maximum Price Setting
MIAX Exchange Group
Effective Tuesday, August 4, 2020, MIAX Options (the “Exchange”) will increase the maximum price setting for quotes and orders entered on the Exchange from $1,999.99 to $2,999.99. Please refer to MIAX Options Regulatory Circular 2020-38 for further information.

MIAX Exchange Group – Options Markets – Series Relisted in AMZN and TSLA
MIAX Exchange Group
The attached series in, Inc. (AMZN) and Tesla, Inc. (TSLA) will be listed again to the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Tuesday, August 4, 2020.

Regulation & Enforcement

RE: BTIG, LLC, Respondent CRD No. 122225
During the period between November 2016 and January 2019 (the “Relevant Period”), BTIG, LLC violated: (i) Section 17(a) under the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 17a-3(a)(6)(i) thereunder (“Rule 17a-3”) and NYSE An~a Rules 2.28 (Books and Records), 6.68-0 (Record of Orders), and 11.16 (Books and Records) by failing to create, maintain, and preserve accurate records of executions, nullifications, price adjustments, and order instructions pertaining to customer orders manually routed to the Exchange for execution; and (ii) NYSE Arca Options Rule 11.18 (Supervision) by failing to establish and maintain supervisory systems concerning manually routed orders that were reasonably designed to ensure compliance with Exchange Act and Exchange books and records rules. Consent to a censure and a $40,000 fine.


The S&P 500 is setting up for a decisive move higher
Lawrence G. McMillan – MarketWatch
The S&P 500 index had remained in a fairly tight range ever since breaking out over resistance at 3,185 in mid-July — until Monday. It looks like it’s finally trying for another upside breakout.
This recent trading range has had the effect of reducing realized volatility (more about that later). Now that resistance at 3,280 (the July highs) has been overcome, the S&P can set its sights on resistance at 3,330 (the top of the massive Feb. 24 gap down) and at 3,395, the all-time high.
There is support at 3,185 and below that at 3,155. A close below 3,130 would be a break of support and would call for a more bearish stance.

BANK OF AMERICA: 3 market trends suggest investors should take defensive strategies through August
Ben Winck – Business Insider
Though the stock market’s long-term trajectory remains bullish, technical trends point to risks mounting in August, according to Bank of America analysts. The August-to-October period is historically bearish, with the S&P 500 posting an average loss of -0.03%, the team said. Indicators including Cboe’s 25-day put-to-call ratio and advance-decline lines reveal complacency among investors and a narrowing breadth of rallying stocks. Here are the three indicators Bank of America sees as justifying defensive strategies this month.


Q2 2020 trends in futures and options trading
5 August 2020 • 10:00 AM – 11:00 AM ET • Webinar
Global futures and options trading grew by 32% to record-setting 21.9 billion contracts in the first half of 2020 compared to 2019, according to figures released by FIA. In the second quarter, the total number of traded contracts was 10.46 billion, down 8.4% from the record-breaking 11.41 billion contracts traded in Q1 2020, but up 21.8% from the second quarter of 2019. In fact, the second quarter volume was higher than any other quarter in the history of the industry aside from the first quarter of 2020.

Cboe Global Markets to Present at UBS Financial Services Virtual Conference Tuesday, August 11
PR Newswire (press release)
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, announced today that Chris Isaacson, Executive Vice President and Chief Operating Officer, and Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, will present at the UBS Financial Services Virtual Conference, on Tuesday, August 11 at 11:40 a.m. ET (Eastern Time). The webcast and replay of the virtual presentation can be accessed at in the Investor Relations section, under Events and Presentations. The archived webcast is expected to be available within an hour of the presentation.


Asset Class Scoreboard: July 2020
RCM Alternatives blog
It’s hard to believe we’re in the 2nd half of this horrid year, already; but here we are reporting the first month of Q3 (July), which itself was the first month of 2020 to see every asset class we track positive. A big turnaround from how the first half of the year started out, to be sure. Hedge funds and U.S. stocks have finally entered the green for the year while world stocks, U.S. real estate, and commodities trail in the red.

(Podcast) Option Block 923: Rock Buyouts, Dubious Kodak Paper and More
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