Vix Hits Highest Level Since the Financial Crisis as Volatility Soars; Dow Gives Up Gains After Worst Day in 12 Years

Mar 10, 2020

Observations & Insight

I know we’re all nervous about the coronavirus, but try not to let it override your better judgment when it comes to avoiding phishing emails. There’s a nasty new phishing scam that involves an email with a Word document, which claims to have advice for avoiding infection from the World Health Organization (WHO). If you try to open the document, you find that it isn’t a Word document at all, but what’s called a “Visual Basic for Applications (VBA) script,” which accesses your computer and steals your data, which can include credit card information. Thankfully I didn’t have to learn this from experience, and now you won’t either!~MR

Lead Stories

Vix Hits Highest Level Since the Financial Crisis as Volatility Soars
Nicholas Jasinski – Barron’s
The market’s volatile stretch is continuing on Monday, as stocks tumble across the board on renewed coronavirus fears, and the Vix, the market’s fear gauge, soars.
The negative economic impact of the growing outbreak is undeniable, but still highly uncertain—a recipe for panic in the market. Add a price war in global oil markets, and the rout is on. Stocks tumbled across the board after the open on Monday, into a circuit breaker that kicked in to briefly halt trading down 7%.

Dow Gives Up Gains After Worst Day in 12 Years
Joe Wallace, Akane Otani and
Xie Yu – WSJ
Stocks swung between gains and losses Tuesday, throwing into doubt their recovery after a stunning selloff Monday hit major indexes with their biggest one-day declines since the financial crisis.
Tuesday’s session has so far been a volatile one. Stocks opened sharply higher, lifting the Dow Jones Industrial Average nearly 1,000 points within the first few minutes of the opening bell. But over the course of the next few hours, much of the rally fizzled out. Oil prices also backed off of the highs they hit earlier.

Cross-Asset Volatility Surges at Fastest Pace Since 2008 Crisis
Sam Potter – Bloomberg
The sell-off may be taking a rest but the volatility is still at work.
On Tuesday, S&P 500 futures hit their trading limits after rising too fast. A day earlier, stocks fell so quickly they also triggered curbs. The raging equity swings underscore how volatility is engulfing every region and asset class at a pace unseen since the dark days of the global crisis.

Huge Swings Send U.S. Futures to Volatility Limit for Second Day
Volatility continued to sweep through global stock markets, sending futures on U.S. equity indexes to exchange-enforced boundaries designed to limit extreme swings for a second consecutive day.
After spending most of the previous overnight session pinned to the lower band, the March S&P 500 contract surged Tuesday, at one point touching the so-called limit-up threshold established each day by the Chicago Mercantile Exchange to keep turbulence from spiraling.

****JB: They are talking about yesterday. Today, so far, seems more normal.

Exclusive: Trading in VIX options froze after open – CBOE
Aaron Saldanha – Reuters
Trading in options on Wall Street’s fear gauge was impossible in the first minutes of Monday’s session due to an absence of prices from the market makers on whom trading depends, a representative of index operator CBOE Global Markets Inc said. CBOE Senior Trade Desk Specialist Ryan Stone told Reuters that VIX options were tradable at 9:51 a.m. ET (1351 GMT) but a lack of liquidity led to a lag of about seven minutes until the first trade, around 9:58 a.m. ET.

Robinhood Brokerage App Goes Down for Second Time in a Week
Nikitha Sattiraju – Bloomberg
Online brokerage Robinhood Markets Inc. went down for the second time in a week on Monday. The company was having problems with equities, options and cryptocurrency trading after markets opened. Downdetector, a service that monitors website performance, reported issues with Robinhood starting at 9:34 a.m. New York time. Robinhood tweeted about an hour later that trading had been partially restored and that its team was working to get the service “fully back up and running.”

Mexican peso squeezed by speculators with derivative losses
Abraham Gonzalez – Reuters
The Mexican peso’s plunge to a historic low on Monday was exacerbated by speculators selling the currency to cover losses from peso investments made through derivatives, analysts said. The peso plummeted 14% on Monday, as measured by the interbank exchange rate, to an all-time low of 22.929 per dollar. Later it pared losses to trade about 5.5% down against the dollar. The wild swings follow relative stability over the past year for the peso, which in February hit an 18-month high against the dollar. It was one of the best performing emerging market currencies in 2020 until mid-February.

Exchanges and Clearing

Non-custodial crypto exchange Synthetix is preparing to offer derivatives trading on Ethereum
Yogita Khatri – The Block
Non-custodial crypto exchange Synthetix, which is built on the Ethereum blockchain, is planning to add several new features to its platform, including derivatives trading.
Announcing the news on Tuesday, Synthetix said it is planning to launch trading in binary options, as well as futures in Q3 of this year. Binary options are a type of derivative product in which a trader either receives a payout or loses their investment.

CME Group Energy Futures and Options Reach All-Time Daily Volume Record of 6.8 Million Contracts
PR Newswire (press release)
CME Group, the world’s leading and most diverse derivatives marketplace, announced an all-time daily volume record for energy futures and options of 6.8M contracts on March 9, surpassing the previous record of 6.2M set on September 16, 2019. In addition, CME Group WTI Light Sweet Crude Oil futures and options also reached a record 4.8M contracts, surpassing the previous record of 4.3M contracts traded on September 16, 2019.

Synthetix to Launch Crypto Derivatives, Binary Options
Arnab Shome – Finance Magnates
Synthetix, a non-custodial crypto exchange, announced on Tuesday the upcoming launch of an array of new products including synthetic crypto derivatives and binary options. As detailed by the company, its futures products will offer leverage between 10x to 20x.

CME Group Inc. Announces First-Quarter 2019 Earnings Release, Conference Call
PR Newswire (press release)
CME Group Inc. will announce earnings for the first quarter of 2019 before the markets open on Wednesday, May 1, 2019. Slides and written highlights for the quarter will be posted on its website at 6:30 a.m. Central Time, the same time it provides its earnings press release. The company will hold an investor conference call that day at 7:30 a.m. Central Time, at which time company executives will take analysts’ questions.


People moves: Morgan Stanley names FX co-heads, Dray expands BNPP role, Singh switches post at Bank of America, and more
Natasha Rega-Jones –
Morgan Stanley has overhauled its foreign exchange trading business, naming Samer Oweida and Craig Abruzzo as co-heads of the division. The moves come against the backdrop of a reported $170 million trading loss on options positions at the US bank last year. At least four traders were fired or suspended while investigating what a Bloomberg article described as a “mismarking of securities”. revealed in February that the US bank was behind a string of unusual price quotes in the broker markets in mid-2019, prior to the announcement of the losses.


Market Volatility Is Up. Here’s How It Works, Why It Matters
Joanna Ossinger and Cecile Vannucci – Bloomberg
Mom and pop investors fear it. Traders by and large love it, and normally miss it when it’s gone. Volatility was absent from the financial markets for an unusually long time before rushing back. It’s now on everyone’s radar screen, and likely to stay that way in the months ahead. Volatility not only affects investments; investing in volatility has become something of a cottage industry.

****JB: This is a bit basic for most of our readers but there is always someone new and learning and this may help a bit. It has some good references at the bottom with more sources to learn from.

Options Premium and Pricing
OIC (Webinar)
Date: Wednesday, March 11, 2020 Time: 03:30 PM Central Daylight Time Duration: 1 hour
So just how are options priced? The Options Industry Council is ready to help make it less confusing. Join OIC for a webinar on March 11, Options Premium and Pricing, to learn about:
Moneyness – in-the-money, at-the-money and out-of-the-money
Intrinsic value vs. extrinsic value
Options pricing models
How demand and supply affect pricing
Register now for this free event. When you register, you also get access to a replay to watch any time!


2nd Annual Machine Learning in Quantitative Finance
Utilize Machine Learning tools within quantitative finance whilst meeting investors’ and regulators’ expectations
This workshop will look into ways to create synthetic data from lending club loan record datasets alongside comparing characteristics and statistical properties of real and synthetic datasets. There will also be discussions into building machine learning models for predicting interest rates using real and synthetic datasets and evaluating the performance and discuss the advantages and disadvantages of using synthetic datasets as a proxy for real datasets Workshop Moderator: Sri Krishnamurthy Company: QuantUniversity


Stock Selloff Looks a Bit Like the Financial Crisis. What They Have in Common — and What They Don’t.
Reshma Kapadia – Barron’s
Investors have been grasping for some sort of framework by which to compare the market rout stoked by the coronavirus outbreak. On Monday, the 11th anniversary of the bull market, they got it: 2008.
While it may not be a perfect comparison, strategists are now pointing to the deep downturn during 2008 for clues as to where the markets today will go—and warning value stocks may not be the place for a tactical shift. Instead, many prefer companies with strong balance sheets.

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