Observations & Insight
VIX Hits Seven-Week High Even as Bets Jump on Post-Election Calm
Joanna Ossinger – Bloomberg
The Cboe Volatility Index climbed to its highest since early September on Monday, but traders continued to pile into bets on its eventual demise.
A sell-off in U.S. stocks amid the stimulus stalemate and resurgent coronavirus helped push the VIX up almost 5 points to 32.5 — a level not seen since Sept. 8. But the 10-day moving average of total put volume relative to total call volume for the gauge — a measure of demand for short volatility bets — extended its recent rise to the highest in 14 years, according to data compiled by Bloomberg.
Covid Fear Is Back and Driving Markets Again
John Authers – Bloomberg
Volatility is back. Monday saw the VIX index, which tracks how investors spend to hedge against volatility in options markets, jump above 30 for the first time since the brief but violent correction for FANG stocks in early September. That correction was very much internally generated, as a buildup of speculation through call options forced investors to buy tech stocks. This incident is somewhat different:
Stock Investors’ Bets Eye a Biden Victory, Robust Stimulus
Gunjan Banerji – WSJ
Despite the steep stock-market selloff Monday, investors appear to be positioning for a speedy outcome to the presidential contest and dwindling volatility through the end of the year.
U.S. stocks, particularly those in sectors most sensitive to higher economic growth, have ascended in October, while Treasury yields have jumped as bond prices have fallen. Bets on volatility falling through the end of the year in the derivatives market picked up, after months of investors positioning for rocky markets into January.
Investors Pare Bets on Postelection Currency Volatility
Julia-Ambra Verlaine – WSJ
Investors are reducing bets on extreme volatility in currency markets around the U.S. presidential election. With the days running out and former Vice President Joe Biden holding a steady lead in the polls, asset managers are unwinding positions in foreign exchange that paid out if markets went haywire around the vote. Volatility in currency pairs has declined after a September spike when investors scooped up options strategies to protect them against big swings in the dollar and stock markets. Many on Wall Street expect Democrats to end up with control of the White House and both houses of Congress, reducing the odds of a disputed or divided outcome while increasing the odds of further fiscal stimulus and greater government spending.
Bringing Real Options Trading to the Commercial Real Estate Market
John Smollen and Jesse Stein – Traders Magazine
Consider the value of a 15-story Class B office building with four elevators in the central part of any American city.
While its value may have always fluctuated, based on some tangible, measurable factors you could estimate closely its value in February 2020. Then came the pandemic. All the tenants are now working successfully from home. You don’t know how many will renew their leases or what office space in general will be worth post-pandemic. Now multiply that scenario tens of thousands of times across every class of commercial real estate and you begin to see the scope of the commercial real estate valuation problem.
Hedging costs surge as investors brace for uncertain election outcome
Brian Scheid – SPG Global
Investors are having to get more creative with their election hedging strategies. With the cost of put options on the S&P 500 as much as 50% more expensive than a month ago, those concerned over the potential for the election to disrupt markets are considering a number of different trades, said Michael Schwartz, chief options strategist with Oppenheimer & Co. “It’s all anyone wants to talk about,” Schwartz said of conversations he has had with his clients over the past two months. While Democratic presidential nominee Joe Biden has a clear lead in nationwide polls of voting intention, the margins are tight in the most important swing states needed to win the electoral college, making any outcome — from a second term for President Donald Trump to victory for Biden and a sweep of both houses of Congress for the Democrats — still in play. A delayed result or disputed outcome could lead to market volatility or even a big drop for assets sensitive to risk appetite, such as equities.
Exchanges and Clearing
Successful start for our new Options on Euro-Buxl Futures
Just four weeks on the market and our new Buxl options are already impressing with positive figures: more than 19,000 contracts traded in the first four weeks and a strong liquidity picture in the order book with seven market makers providing prices.
MIAX Exchange Group – Options Markets – Corporate Action Alert: NextEra Energy, Inc. (NEE)
NextEra Energy, Inc. (NEE) has announced a 4 for 1 stock split. Associated strike price adjustments will become effective on Tuesday, October 27, 2020. NEE options will continue to trade without interruption on the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange. All GTC orders resting on the MIAX order books in NEE will be canceled at the close of business on Monday, October 26, 2020.
Regulation & Enforcement
Libor Transition Seen on Track Even as Virus Adds Complications
Benjamin Purvis – Bloomberg
Concern appears to be ebbing that the coronavirus pandemic could significantly delay the transition of dollar markets away from the beleaguered Libor benchmark.
The process for moving away from the London interbank offered rate is on track to take place by around the end of 2021, according to a Barclays Plc survey. A previous poll by the bank had indicated concerns that the Covid-19 outbreak might derail the transition.
Proposed Rule Change To Amend the FINRA Codes of Arbitration Procedure To Increase Arbitrator Chairperson Honoraria and Certain Arbitration Fees
Please refer to the following for details regarding the proposed rule change to the FINRA Code of Arbitration Procedure for Customer Disputes and the Code of Arbitration Procedure for Industry Disputes to increase arbitrator chairperson honoraria and increase certain filing and hearing session fees.
Demystifying the CAT: Why Compliance is More Than a Tick Box Exercise
Philip Flood – TABB Forum
Perhaps the biggest and most complex milestone for CAT to date is Interfirm Linkage. And it’s right on our doorstep. Whilst those CAT savvy industry members amongst you will be aware that this phase was already implemented in production for Equities and Options on 10 August, the impending 26 October compliance go-live deadline now validates that reports representing any Equities orders routed between industry members must be properly linked.
Short-sellers have made a killing on these 5 stocks so far this year
Shawn Langlois – MarketWatch
The beatdown of all those who have bet against Elon Musk and Tesla’s stock has been well-chronicled. In fact, that ill-fated wager owns the crown of “worst short call” of the past five years, beating out other notable short-slayers like Apple and Amazon.
Alphabet Is Reporting Earnings Thursday. Here’s How to Play It With Options.
Steven M. Sears – Barron’s
It is generally accepted fact among options strategists that there are 50/50 odds on betting on corporate earnings. An investor can be equally wrong or right that a stock will rise or fall when it releases earnings.
It is also a generally accepted fact that the odds can be better monetized—and even tilted to favor long-term investors—with a strategy that often favors aggressive investors with meaningful resources.
Q3 2020 trends in futures and options trading
28 October 2020 • 10:00 AM – 11:00 AM ET • Webinar
How has the pace of global futures and options trading changed during Q3 2020? Which sectors are continuing at a record pace, and which have started to ease back?
Join us on 28 October for a webinar that will present data on volume and open interest across the global listed derivatives markets, with break-downs by asset class and region as well as comparisons to historical trends.
Diversity in financial markets
29 October 2020 • 11:30 AM – 12:30 PM ET
FIA and the Chicago Federal Reserve are teaming up with an expert group of panelists to explore past and present experiences, and the future outlook for a diverse and inclusive derivatives industry. The panelists will explore why diversity is important, how to achieve it and what metrics could be used to determine progress. During this interactive webinar, panelists will also share their experiences and answer audience questions on impactful changes and how to move your organization, and thus the industry, forward.
Here’s how much the stock market usually rallies in the 8 calendar days before a presidential election
William Watts – MarketWatch
Stock-market bulls have some heavy campaigning to do. The home stretch of the U.S. presidential race is usually a positive one for U.S. stocks, but bulls will have to dig themselves out of a hole following Monday’s tumble in order to score a win in the eight-day runup to Election Day.
Sam Stovall, chief investment strategist history, highlighted the chart above in a Monday note, observing that the S&P 500 has risen an average of 2.5% in the final eight calendar days before a presidential election running back to 1944. Moreover, the index is up 17 out of 19 times, or 89%.
(Podcast) Option Block 946: The Golden Boys of Options
Nancy Crotty – Options Insider Network