Observations & Insight
Anthony George Gero and Tom Price
FIA President and CEO Walt Lukken personally invites you to join FIA for the virtual Futures and Options Expo this November 10-12. Expo-V brings you three days of programming, including keynote sessions with University of Maryland vaccinologist Dr. Kathy Neuzil, SEC Commissioner Hester Peirce, revered Silicon Valley journalist Kara Swisher and CFTC Chairman and Chief Executive Heath Tarbert as well as 1:1 interviews with exchange leaders from Cboe Global Markets, CME Group, Eurex, ICE and Nasdaq. Expo-V features a robust exhibit hall with more than 20 exhibitors and 10 fintech start-ups in the Innovators Pavilion. This is your opportunity to connect with the cleared derivatives community. Learn more at FIA.org/expo and register. ~JJL
VIX Spikes to Highest Since June With Economy Threat Growing
Katherine Greifeld and Claire Ballentine – Bloomberg
Volatility gripped financial markets with the coronavirus surging in the U.S. just days ahead of a crucial presidential election.
The Cboe Volatility Index, or VIX, surged to its highest level since mid-June as record virus cases, harsher lockdowns in Europe and a slowing U.S. labor-market recovery renewed fears of a deeper recession. Tensions had already been high with less than a week before the U.S. vote.
*****JB: Also see Market Insider’s story, The stock market’s fear gauge is hitting fresh highs days ahead of the election as COVID-19 cases surge and Reuter’s U.S. stock market ‘fear gauge’ VIX jumps to highest level since June.
Wall Street joins global stock sell-off triggered by rising Covid worries
Adam Samson and Camilla Hodgson – Financial Times
US stocks accelerated lower after a broad sell-off in Europe sparked by mounting expectations governments will be forced to enact new restrictions to stem the rapid spread of coronavirus.
The US benchmark S&P 500 fell 2.8 per cent in morning trading, and was on track for its worst weekly performance since the market ructions in March. The tech-heavy Nasdaq Composite was also down, by 3.2 per cent.
Edgy markets: FX volatility jumps before U.S. elections
Saikat Chatterjee – Reuters
Gauges measuring expected swings in foreign exchange markets rose on Wednesday, with one-week contracts that cover the U.S. election reaching their highest levels in nearly seven months.Contracts for euro and Japanese yen implied volatility versus the U.S. dollar expiring in a week climbed to their highest since early April. Similar gauges for the usually volatile pound also rose.
The stock market has put in a top and an ‘enormous’ bubble has already burst, says David Einhorn
William Watts – MarketWatch
The top is in for the U.S. stock market after an “enormous” bubble in technology stocks popped last month, Greenlight Capital founder David Einhorn warned in a letter dated Oct. 27 to investors reviewed by MarketWatch.
The S&P 500 index closed at a record 3,580.84 on Sept. 2, while the tech-heavy Nasdaq Composite posted an all-time closing high of 12,056.44. Stocks subsequently pulled back in September and a new round of COVID-19-related jitters were blamed for another downdraft that saw the S&P 500 erase its October gains early Wednesday, while the Dow Jones Industrial Average DJIA, -2.53% dropped more than 500 points.
Surge in SOFR Derivatives Bodes Well for Shift: Liquidity Watch
Alyce Andres – Bloomberg
A rush of additional trading in derivatives linked to the heir presumptive to Libor bodes well for the transition to a new standard reference rate for dollar funding markets.
Activity in interest-rate swaps linked to the Secured Overnight Financing Rate has surged this month, with volume reaching $84 billion as of Oct. 21, a near tripling of the figure for all of September, according to an analysis of CME Group figures by TD Securities. Trading has risen in the wake of the so-called big-bang switch for swaps, which saw SOFR replace the effective federal funds rate in calculations that value the instruments, and the launch of a new legal protocol to open the way for a wider adoption of alternative benchmarks.
Exchanges and Clearing
SONIA options to launch on ICE Futures Europe in December; ICE said open interest in its three month SONIA futures grew to record levels recently as it prepares to launch new SONIA options.
Annabel Smith – The Trade
US exchange group ICE has outlined plans to expand its range of SONIA-based derivatives with the launch of SONIA options via ICE Futures Europe in December.
MIAX Exchange Group – Options Markets – Delisting of Dunkin Brands Group, Inc. (DNKN)
Dunkin Brands Group, Inc. (DNKN) will be de-listed from the MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange effective on Wednesday, October 28, 2020. All GTC orders resting on the MIAX order books in DNKN will be canceled at the close of business on Tuesday, October 27, 2020.
CME Group Inc. Reports Third-Quarter 2020 Financial Results
CME Group Inc. today reported financial results for the third quarter of 2020. The company reported revenue of $1.1 billion and operating income of $525 million for the third quarter of 2020. Net income was $412 million and diluted earnings per share were $1.15. On an adjusted basis, net income was $495 million and diluted earnings per share were $1.38. Financial results presented on an adjusted basis for the third quarter of 2020 and 2019 exclude certain items, which are detailed in the reconciliation of non-GAAP results.
Mercury Digital Assets Launches Connectivity to Deribit for Crypto Derivatives Trading
BusinessWire (press release)
Mercury Digital Assets (“Mercury”), a technology provider for digital asset markets, today announced the launch of connectivity to Deribit, a leading cryptocurrency derivatives exchange. Mercury is integrating with the exchange to allow professional and institutional traders using the BEACON platform and API to trade bitcoin and ethereum options, futures, and perpetual swaps on Deribit’s exchange.
Hxro, FTX Target Retail Crypto Traders With Simplified Options Product
Zack Voell – Coindesk
A new trading product from Hxro (pronounced “hero”) and leading derivatives exchange FTX bets that retail cryptocurrency traders would play the options markets if only trading options were a simpler ordeal. In partnership with FTX, Hxro built its product TixWix to target a “global retail audience” of would-be crypto options traders by distilling complex market data in a format familiar to anyone who uses other prediction and betting platforms for sports, politics, etc., CEO Dan Gunsberg told CoinDesk.
Oil-Hedging Strategies Show Companies Remain Wary of Another Plunge
Avi Salzman – Barron’s
Oil-and-gas companies use hedging strategies to protect their profits from a possible slump in oil prices in the future. Their bets for 2021 are instructive because they point to what the industry anticipates—and wants to guard against.
So far this year, U.S. oil producers have hedged 41% of their expected 2021 production, at an average price floor of $42 per barrel, measured using West Texas Intermediate prices, according to Rystad Energy. Last year, they had hedged 2020 prices at an average price of $56 per barrel.
Investing Basics: Options Trading Guide
Anna-Louise Jackson, Benjamin Curry – Forbes
Options trading is how investors can speculate on the future direction of the overall stock market or individual securities, like stocks or bonds. Options contracts give you the choice—but not the obligation—to buy or sell an underlying asset at a specified price by a specified date.
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.
Traders Are Dumping Defensive Quant ETFs in Year of Stock Chaos
Claire Ballentine – Bloomberg
During one of the most volatile years for U.S. stocks in decades, the least-loved strategy in the $1 trillion world of smart-beta is one aiming to protect investors from the turmoil.
Exchange-traded funds that buy low-volatility stocks are bleeding cash. Not quickly, not in huge amounts, but relentlessly. With more than $1 billion pulled from ETFs using the strategy in October, they’re set for an eighth consecutive month of outflows.
(Podcast) AO 96: Hedging Event Risk
The Advisors Option – Options Insider Network