Observations & Insight
STA’s Jim Toes Says He Sees Bright Future For Options Industry in JLN OIC 2022 Interview
Jim Toes is the president and CEO of the Security Traders Association (“STA”) and JLN spoke to Toes at the 2022 Options Conference about the STA and his own organization’s conference, the state of the options industry, and more.
Henry Schwartz Gives Pre-State of the Industry Interview to JLN at OIC 2022
Every year at the options conference, Cboe’s Henry Schwartz gives a “State of the Industry” update to the conference participants. This dates back to before his firm was acquired by Cboe.
JLN caught up with him right before he gave his presentation to the conference to talk about the data he was presenting and industry trends.
VIX Traders Shaken From Sleep With Discount to S&P Snapping Shut
SPY’s put-call volume ratio rises to highest level since March
Light equity positioning seen putting cap on hedging demand
Lu Wang – Bloomberg
A furious bout of options hedging is tightening up a much-watched gauge of market sentiment: the VIX’s discount to realized volatility in the S&P 500.
Viewed by some as a distillation of trader expectations for market turbulence, the gap, which has recently shown a relatively sanguine view on the future, is no longer doing so. After sitting below the S&P 500’s historical volatility for four weeks, the VIX has quickly popped back up to match it.
Tightening of financial conditions accelerates, recession fears grow as May CPI report becomes multi-day trading event
Vivien Lou Chen – MarketWatch
Financial markets convulsed on Monday as investors considered the prospects of U.S. inflation accelerating, not decelerating, after the release of May’s consumer-price index report.
Signs of the sentiment shift since Friday’s data release were evident in the fast-paced tightening of financial conditions, plus an outlook for more aggressive Federal Reserve rate hikes.
S&P 500 Set to Enter Bear Market as Inflation Fans Growth Fears
Kurt Schussler and Farah Elbahrawy – Bloomberg
US stock futures dropped, pointing to an extended selloff that is set to push the S&P 500 Index into a bear market, after Friday’s stronger-than-expected US inflation data sparked expectations of even more aggressive interest-rate hikes.
Contracts on the S&P 500 were down 2.1% as of 7:05 a.m. in New York, while Nasdaq 100 futures fell 2.7%. A sharp slump in stocks on Friday after the consumer prices data left the S&P 500 down nearly 19% from its January high, nearing the 20% level that denotes a bear market. The US two-year yield exceeded the 10-year for the first time since early April as investors dumped short-term debt.
**** Also see the Reuters story, Bear market beckons as U.S. stocks’ 2022 descent deepens and the WSJ story, Dow Drops Over 700 Points; S&P 500 Falls Into Bear-Market Territory.
US set for recession next year, economists predict
Colby Smith and Caitlin Gilbert – Financial Times
The US economy will tip into a recession next year, according to nearly 70 per cent of leading academic economists polled by the Financial Times.
The latest survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business, suggests mounting headwinds for the world’s largest economy after one of the most rapid rebounds in history, as the Federal Reserve ramps up efforts to contain the highest inflation in about 40 years.
Markets Have Nowhere to Hide From This Terrible Inflation Report
As a rule, it’s good in these newsletters to challenge the conventional wisdom a little, and try to show that there’s something people are missing. That’s not going to be possible this time. The US consumer price inflation data, published Friday morning, were widely regarded as terrible. That is because they were. Not only were the headline numbers awful, but the data grew worse the more you looked. You can hear me and Lisa Abramowicz struggle to find something good to say about it here.
Passive investing has increased US stock volatility, study finds
Steve Johnson – Financial Times
The rise of passive investing is distorting price signals and pushing up the volatility of the US stock market, according to academic research.
The analysis raises fresh questions about the widespread adoption of index-based investing, a trend that has allowed investors to save billions of dollars a year in the shape of lower fees — seemingly without hurting returns.
BlackRock isn’t buying the dip as volatility climbs in sinking stock market
Christine Idzelis – MarketWatch
BlackRock, the world’s largest asset manager, isn’t wading into the sinking stock market to buy the dip, as the S&P 500 trades in bear-market territory Monday and concerns over surging inflation and slowing U.S. growth intensify.
“We’re not buying the stock dip because valuations haven’t really improved,” BlackRock strategists said in a note Monday. “There’s a risk of Fed overtightening, and profit margin pressures are mounting.”
“Traditional” Hedge Funds Use Derivatives for Crypto
Shanny Basar – MarketsMedia
Half of “traditional” hedge funds gain exposure to digital assets through derivatives trading according to PwC’s 4th Annual Global Crypto Hedge Fund Report 2022.
The study, produced with the Alternative Investment Management Association and Elwood Asset Management (now part of CoinShares), differentiates between specialist crypto asset hedge funds who were created to primarily deal in digital assets, and “traditional” asset-based hedge funds.
Clearing industry braces for volatility ‘super-cycle’; Green transition may fuel higher cash demands and more risk events, FCMs warn
Costas Mourselas – Risk.net
Market participants should brace for elevated volatility across commodities, and higher margin requirements, as the transition to a greener economy exacerbates whipsawing price moves, according to two senior derivatives executives. “We know we’re heading into a kind of super-cycle of potential volatility,” said Alicia Crighton, managing director and co-head of global futures at Goldman Sachs. “I think we’re underestimating the impact of that as an industry,” she added.
Bridging the Opportunity Gap: Connecting Black and Latinx Students to Careers in Finance
This summer, the Greenwood Project will teach financial literacy, coding, career skills, and investment strategies to over 200 Black and Latinx youth, primarily from Chicago’s South and West Sides. Their goal is to empower Black and Latinx communities to overcome generational cycles of poverty by introducing students to wealth-building career pathways through the intensive study of finance. Greenwood Project is proud to announce partnerships with over 40 companies, universities, and non-profits for its 2022 program year. Its flagship partners include Citadel, DePaul University, Janus Henderson, Piper Sandler, Cboe, and William Blair.
****** The Greenwood Project is doing great work and the amazing thing is that Bevon Joseph and Greenwood are just getting started.~JJL
Hot Money Managers Like the ‘Tiger Cubs’ Got Walloped When the Market Mood Changed; Concentrated bets on tech darlings worked until they didn’t.
Hema Parmar – Bloomberg
Markets are going through what may be the biggest mood shift we’ve seen since the financial crisis. This year the S&P 500 has tumbled 16%. Meanwhile the tech-focused Nasdaq-100 has plunged almost 27%. And unlike the short, sharp market decline in the early days of the pandemic, this one isn’t a response to an economic shock. Investors seem to be seriously rethinking what they want to pay for assets. That means many strategies that worked—for years and years—are being upended. “Buying the dip is not being rewarded today,” says John Holton, assistant vice president of Wilshire Advisors, which helps wealthy individuals and institutions invest in hedge funds. “Now volatility is persistent and the equity market drawdown is more consistent.” It’s a tough time for all investors, but even some stars of the hedge fund world are having trouble adapting.