Volatility ETFs Aren’t Flashing Signs of Market Fear

Aug 5, 2022

Observations & Insight

The FIA is seeking fintech startups for its annual fintech showcase, the Innovators Pavilion, at the Futures and Options Expo in Chicago November 14-15. All selected fintech startups will participate in a pitch competition and one will be named the FIA Innovator of the Year. Expo attendees, including senior executives from exchanges, clearinghouses, banks, brokers and trading firms, will also vote for the People’s Choice Award winner. FIA is seeking startups in four areas: new products and services for derivatives traders and clearing firms; new solutions for improving operational and capital efficiency; new ways to deliver products and services to customers; and new tools for surveillance and regulatory compliance.
The Expo will take place this year at the Sheraton Grand Riverwalk Chicago. The application deadline for the Innovators Pavilion is August 26. You can go here for more information. ~SR


Index Industry Association CEO Rick Redding in a Vimeo video discussed the present state of the index industry with Cboe Global Markets’ Catherine Clay

Lead Stories

Volatility ETFs Aren’t Flashing Signs of Market Fear
Max Chen – ETF Trends
While observers have been warning of an imminent economic recession that could drag down the markets, the CBOE Volatility Index, or VIX, and related exchange traded funds remain relative lax, reflecting ongoing complacency in equities.
Year-to-date, the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) increased 18.5% and the ProShares VIX Short-Term Futures ETF (VIXY) fell 4.7%. Meanwhile, the CBOE Volatility Index is now hovering around the 21.5 level, recently dipping below its long-term support at the 200-day simple moving average.

Nightshare ETFs Trying to Make Investors Money Overnight Stumble
Enrique Roces – Bloomberg
Two new exchange-traded funds trying to capitalize on overnight equity gains, or so-called “night effect,” are taking a hit.
The NightShares 500 ETF (ticker NSPY) and the smaller-cap NightShares 2000 ETF (ticker NIWM), have trailed their broader benchmark indexes by over 11 and 13 percentage points, respectively, since their release on June 28. NSPY tracks the S&P 500 Index, while NIWM tracks the Russell 2000. The ETFs use futures and swaps to allow investors to buy stocks at the market close and sell them at the next trading day’s open.

Wall Street Sentiment Survey Might Have Called the Stock Market’s Turn
Eric Wallerstein – WSJ
Investors have scoured reams of data for evidence that 2022’s market rout is over. A six-decade-old survey might have made that call in June.
Investors Intelligence’s ratio of bullish advisers to bearish ones, known as the bull/bear ratio, fell to 0.60 during the week of June 21. That was the survey’s most-pessimistic reading since the week of March 9, 2009, when it fell to 0.56, according to Yardeni Research. That date also marked the lowest closing level of the financial crisis, with stocks falling 57% from their October 2007 peak before skyrocketing.

Market rally delivers hard lessons for fund managers
Katie Martin – Financial Times
Oh, poor fund managers. Why the long faces?
July was great! The S&P 500 put in its best performance since late 2020, with a 9 per cent rally. It was one of the best months in the market of all time. Sure, the withdrawal of largesse by the world’s most important central banks introduces a new wave of volatility to asset prices, but this must be the rebound we’ve all been waiting for, right?

Taiwan Moves to Curb Currency Volatility Amid Political Tensions; Central bank made small intervention in FX market this week; No signs of panic selling in stocks: central bank official
Chien-Hua Wan and Argin Chang – Bloomberg
Taiwan’s central bank signaled its intention to keep its currency and financial markets stable as China ratchets up its military and economic actions against the island. The monetary authority made a small intervention in foreign exchange markets this week, Eugene Tsai, director general of the Department of Foreign Exchange, told reporters in Taipei Friday.


CME Accepts US Treasury ETFs as Collateral
CME Press Release via Traders Magazine
CME Group, the world’s leading derivatives marketplace, today announced that CME Clearing has further expanded the collateral it accepts and now will permit clearing members to deposit Short-Term U.S. Treasury Exchange Traded Funds (ETFs) to meet initial margin requirements.
CME Clearing accepts the widest range of collateral of any major clearing house. The addition of short-term ETFs gives clearing members and their clients greater flexibility and increased efficiency in managing their collateral costs. In particular, the ETFs pay a dividend, which is more operationally efficient and mitigates the need for clients to re-invest maturity proceeds for individual U.S. Treasury securities.

CME Unveils Plans for Bitcoin and Ether Futures Tied to Euro; Futures products sized at five Bitcoin, 50 Ether per contracts
Euro-denominated crypto the second highest traded fiat: CME
Immanual John Milton – Bloomberg
One of the world’s largest derivatives exchange owners is forging ahead into the cryptocurrency market with two new futures offerings. CME Group Inc. will introduce Bitcoin and Ether Euro futures on Aug. 29, the company announced Thursday in a press release. They arrive as the crypto market falters. Bitcoin is down about 50% so far this year, while the second largest crypto Ether is down 56%.

CME Group Announces Q4 2022 Launch of European Overnight Index Futures
CME Group
CME Group, the world’s leading derivatives marketplace, today announced it will launch European Overnight Index futures based on RepoFunds Rate (RFR) benchmarks and the Euro Short-Term Rate (EURSTR) in Q4 2022, pending regulatory review.


When Lambo? Lamborghini Dealers Are OK Despite Crypto Winter
Hannah Miller – Bloomberg
Many crypto buyers have been consumed by a single, persistent question as they’ve watched the prices of coins rise and fall over the past few years: When Lambo?
Lambo is shorthand for Lamborghini, the luxury vehicle that’s the ultimate symbol of success when it comes to getting rich off of digital currencies, and the focus of thousands of “wen Lambo?” memes. Along with high-end watches and other traditional displays of wealth, the supercars have for years been a fixture at Bitcoin conferences and on the Instagram feeds of crypto influencers.

Opinion: Bear market blues: How to keep a sense of financial control in uncertain times.
Michael J. Garry – MarketWatch
Between pandemic lockdowns, health scares, contentious politics and significant inflation with rising prices, many U.S. investors might feel they’re losing control of their situations. Add to that a bear market for stocks, with a possible recession looming.
To remain resilient, we can focus on caring for our physical, mental and financial wellness — and that of our families. We can act now to prepare for tough times over the short-term and protect long-term financial options. We can find a manageable balance between enjoying our money now and saving for what we need later.

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