Volatility Gauge Tops 50 for the First Time Since Volmageddon; It’s Time to Really Fret, Says Manager Who Beat 98% of Peers

Mar 6, 2020

Lead Stories

Volatility Gauge Tops 50 for the First Time Since Volmageddon
Luke Kawa – Bloomberg
The Cboe Volatility Index has surpassed 50, a threshold last breached when the complex broke down in February 2018.
The VIX, as it is known, measures the 30-day implied volatility of the S&P 500 based on out of the money options prices. The so-called “fear gauge” at this level implies a more than 3% move in the benchmark U.S. stock gauge for each session over the coming month.

It’s Time to Really Fret, Says Manager Who Beat 98% of Peers
Anooja Debnath – Bloomberg
Markets aren’t prepared for how severe the fallout of the global spread of coronavirus could get and the turmoil has only just started, according to the manager of a peer-beating fund.
The stark warning comes from Allianz Global Investors’ portfolio manager Mike Riddell, who oversees $4.7 billion for the company. “The speed of the market repricing has obviously been dramatic, however markets have only gone from pricing in no risk of anything to a moderate risk,” Riddell said in a phone interview. “Where we think markets can still move is in volatility.”

Coronavirus mayhem reflects phenomenon of ‘shock-led’ markets
Robin Wigglesworth – Financial Times
The latest burst of market mayhem has been notable both for its severity and the tranquillity that preceded it.
Consider the Vix index, a gauge that uses derivatives prices to measure investors’ expectations of swings in the S&P 500 over the next 30 days. The index was rooted near a record low of 12 per cent to 13 per cent a month ago before nudging higher — yet still well below its long-term average — as the severity of the coronavirus outbreak became clearer.

Very dark signals are coming from bond markets
Michael Mackenzie – Financial Times
This week’s emergency dose of monetary medicine from the Federal Reserve is a clear health warning for equity and credit investors. As some quipped after the US central bank abruptly sliced borrowing costs on Tuesday, a rate cut does not inoculate portfolios from the threat of deeper economic and market turmoil.
The Fed deployed a similar playbook in 2008 and 2001 — years that were distinguished by frenetic bouts of market volatility. And there were many false dawns during those periods before asset prices stabilised and began recovering.

Safety Trade Falls Apart in Market Unhinged by Spread of Virus
Luke Kawa – Bloomberg
Low-volatility stocks are not living up to their names in turbulent times.
Massive market swings that have seen the S&P 500 Index gain or lose more than 3% in five of the last eight sessions are magnified in the stocks that are supposed to be the calmest. Through Wednesday, the 10-day realized volatility in the S&P 500 Low Volatility Index exceeds that of the equity benchmark itself.

Euro-dollar volatility jumps to 15-month high
Tommy Wilkes and Sujata Rao – Reuters
The a measure of one-month euro-dollar price swings on Friday hit its highest since November 2018 as coronavirus fears trigger increased volatility across global markets.
Deepening concerns about the health and economic impact of the virus have sent markets into a tailspin, and long dormant volatility in the $6.6 trillion-a-day FX market has been jolted into action.

JGBs post biggest gain in 4 years on speculative buying amid virus panic
Japanese government bond prices soared on Friday, with the benchmark futures posting their biggest gain in more than four years on rising concerns that the coronavirus epidemic could lead to a drawn-out economic downturn.
Expectations of policy easing in Japan and the rest of the world fuelled aggressive purchases by short-term speculators in the futures, though buying in cash bonds was more subdued.

What A Persistently Elevated VIX Means For The Market
Andrew Thrasher – Investing.com
The S&P 500 is coming off its worst week since 2008. With the drop in stocks, we’re naturally seeing the Volatility Index (VIX) stay at an elevated level. During short corrections in equities we typically see a quick drop lower in the VIX as traders begin to realize the brief dip would be short-lived and expectations of future volatility begin to get priced lower. But what about when volatility stayed elevated?

Bitcoin Options on Deribit now reporting $100M in trading volume regularly
Namrata Shukla – AMB Crypto
The beginning of 2020 has been like a nauseous ride on a roller coaster. With the fear of an imminent world war taking place one day to the Coronavirus pandemic taking over, we have survived a lot this year. We saw the world’s largest crypto-asset, Bitcoin, struggle to consolidate its gains after weeks of steady movement at a time when the stock market began to crumble. In fact, the world of cryptocurrencies saw the rise, fall, and correction of a lot of crypto-assets over the first three months of 2020.

Exchanges and Clearing

US Exchanges Outperform on Volatility
Shanny Basar – Trader’s Magazine
Exchanges have reported record volumes as fears over the coronavirus has increased volatility and their share prices could continue to outperformance if the risk-off trade continues. Kyle Voigt, an analyst at financial services boutique KBW, said in a report that US exchanges – Intercontinental Exchange, Nasdaq, CME Group and CBOE – have outperformed the S&P 500 index by 10.4% since 19 February. In addition, European exchanges have outperformed their relevant benchmarks by 5.5% over the same time period. “Last week, he highlighted ICE and CME as the two exchanges that screened the best, in terms of more room for additional outperformance should the risk-off trade continue,” the report added.


Launch of Options Calculator
Japan Exchange Group
Today, Osaka Exchange, Inc. launched “Options Calculator” on our website. Our Options Calculator allows any users, from beginner to advanced options trader, to calculate option prices and indicators online.

Rival Systems Launches CAT Reporting Service
Rival Systems (Rival), an award-winning provider of trading and risk management software, today announced the launch of their cloud-based Consolidated Audit Trail (CAT) Reporting Service. Rival’s reporting service meets the needs of firms trading equities and equity options with support for comma separated value log files as well as custom log formats. As a registered CAT Reporting Agent, Rival will offer CAT support for firms using any trading platform.

*****See Rival System’s press release here.~MR


The Market Has Lost Faith in Banks
Telis Demos – WSJ
American banks’ shares are performing twice as poorly as the market. So much for diversification.
As banks continued to rise throughout 2019, even as interest rates tumbled, the talk was of their success in diversifying their businesses. Falling interest rates certainly hurt, but banks seemed to always have something to offset it, ranging from a boost to trading desks, mortgage-refinancing volumes, buoyant credit cards or a shift from cash into securities.

Wild stock-market swings are ’emotionally and intellectually wearing’ on Wall Street
Mark DeCambre – MarketWatch
Over the past few sessions, volatility has reigned supreme on Wall Street.
Outsize moves in U.S. equity benchmarks have come at a daily clip lately. And you can blame coronavirus or Bernie Sanders or the Federal Reserve, but wild intraday swings and dramatic intersession moves may be here to stay, say strategists and market experts.

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