Volatility Markets Brace for Election Drama Like Never Before; Options Market Signals Lingering Caution Over U.S. Stock Surge

Aug 28, 2020

Observations & Insight

The FIA is calling for fintech startups to claim a spot at FIA’s annual fintech showcase – the Innovators Pavilion – at the Futures and Options Expo. There is no charge for startups to participate, but to be eligible, firms should be no more than five years old and should have a product or prototype ready to showcase at Expo-V 2020. Applications are due September 18, 2020. Startups selected for the Innovators Pavilion will be notified on a rolling basis. You can go here to apply.~SR

Lead Stories

Volatility Markets Brace for Election Drama Like Never Before
Katherine Greifeld and Liz McCormick – Bloomberg
VIX futures spreads, swaption vol higher than recent elections; Traders looking beyond just day-of protection as risks build
Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades. One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair — a classic haven trade — has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

Options Market Signals Lingering Caution Over U.S. Stock Surge
Joanna Ossinger – Bloomberg
The options market is flashing warning signs about the record-setting rally in U.S. stocks. A measure of how much bearish options cost versus bullish ones, known as skew, is down from recent highs but remains elevated, according to Evercore ISI’s Dennis DeBusschere. A gauge of sentiment from the American Association of Individual Investors is also in bearish territory, he wrote in a note.

Options bets that the stock market will continue to soar have exploded to dot-com bubble levels
Mark DeCambre – MarketWatch
Even as the stock market trades in record-setting territory despite the economy being in the throes of a viral pandemic, Wall Street bets for further gains are around their highest levels since the dot-com bubble, according to research from Bespoke Investment Group. Options bets that the S&P 500 will extend its run-up in months to come have roughly doubled, far exceeding trading in securities that would be used to bet that a decline in stock values was imminent. Call options give holders the right but not the obligation to buy a certain number of shares (100 per option contract) at a certain price (strike price) by a certain date (expiration date). Calls are viewed as bullish bets on an asset, as opposed to put options, and Bespoke indicates that appetite for calls, particularly among individual investors, has boomed.

Bakkt Futures Volume Up on Institutional Trading; Its President Slams Offshore Options
Muyao Shen – Coindesk
Growing institutional interest is helping to drive a recent spike in volume on Bakkt, according to its president, Adam White. But the U.S.-regulated crypto derivatives exchange is holding out hope its dormant options platform will eventually gain traction. Trading volumes for physically settled bitcoin futures on Bakkt rose to $134 million on Tuesday from a previous high of $132 million on July 28, according to crypto derivatives data firm Skew. Bakkt went live last September.

Exchanges and Clearing

Cboe plans to list new S&P 500 ESG Index Options; The new Cboe S&P 500 ESG Index Options aim to offer investment strategies better focused on environmental, social, and governance (ESG) factors.
Annabel Smith – The Trade
Exchange operator Cboe Global Markets has confirmed it will list new S&P 500 ESG Index Options in a bid to expand its S&P Dow Jones Indices product offering. The Cboe S&P 500 ESG Index Options, which will be available from September 2021, are designed to help market participants trade, hedge or gain exposure to US equities sustainability criteria.

OKEx’s Third Elite Trading Team Contest Concluded With a Historic $700M+ in Total Trading Volume
PR Newswire (press release)
OKEx, a world-leading cryptocurrency spot and derivatives exchange, announced the successful conclusion of its third Elite Trading Team Contest. The month-long contest with a total prize pool of 150,000 USDT attracted record-breaking interest, with 8,082 participants forming 231 teams, including 3Commas, CoinCodex, Bitsgap, Gunbotmany and other well-known global trading platforms. During the contest, the competing teams generated a historic $703,658,154 in notional trading volume, which is about seven times the total trading volume of OKEx’s previous Elite Trading Team Contest. The sotaytaichinh.vn team led by user Erik.Chu won the championship.

Mini VIX Futures Daily Volume Surpasses 100,000 Contracts for First Time
Cboe (press release)
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced that daily trading in the firm’s newly launched Mini Cboe Volatility Index (Mini VIX) futures surpassed the 100,000-contract mark for the first time, when daily volume reached 117,814 contracts on Thursday, August 27.

CME Globex Notices: August 24, 2020
CME Group
Critical System Updates:
Update – iLink 3 MSGW Session Migration UPDATE, Update on Order Routing and Front-End Audit Trail Requirements for iLink 3, CME Globex Market Segment Gateway Enhancements – August 30, Options on Micro E-mini Equity Index Futures – August 30, Harmonization of Enable/Disable Implied Behavior for ICS – September 20, New – CME Group Risk Management Tools Enhancement – September 20 NEW

MIAX Exchange Group – Options Markets – Corporate Action Alert: Apple Inc. (AAPL) and Tesla, Inc. (TSLA)
Apple Inc. (AAPL) and Tesla, Inc. (TSLA) have announced stock splits. Associated strike price adjustments will become effective on Monday, August 31, 2020. AAPL and TSLA 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 AAPL and TSLA will be canceled at the close of business on Friday, August 28, 2020. Additional details about the Apple Inc. (AAPL) and Tesla, Inc. (TSLA) stock splits are provided in the attached OCC Memo.


How to Invest in Technology
Frank Kaberna – TastyTrade
Equity market bulls have none other than technology stocks to thank for this year’s upside with the sector outperforming its counterparts by an average of 45%. Depending on the index you quote, however, tech stocks either led to exceptional gains or barely brought the index back to unchanged on the year. Knowing how much of an index’s exposure is invested in technology is more important than ever as the sector continues to captivate the everyday trader, but it’s not as straightforward as you might think. For instance, AAPL and MSFT make up 12% of the S&P 500 and half of its technology sector weighting, and these same two names account for 24% of the Nasdaq.


Tesla Bulls Bet Big Ahead of Stock Split
Gunjan Banerji – WSJ
A dizzying rally in Tesla Inc.’s shares has unleashed a burst of options activity tied to the stock jumping even higher. Tesla recently said it would enact a 5-for-1 stock split, making its wildly popular stock even more accessible to individual investors. Trading on a split-adjusted basis will go into effect Monday. So far, though, access to Tesla stock doesn’t appear to be a problem. Since Aug. 11 when the company unveiled plans for the split, shares have jumped 63%, building on an already impressive surge this year and bringing its market value to more than $400 billion. Tesla shares have more than quintupled this year and closed at $2238.75 Thursday, a record.

America’s Empty Hotels Might Just Be Hedge Funds’ Next Big Short
Adam Tempkin – Bloomberg
Hedge funds and other short sellers are beginning to set their sights on a U.S. credit-derivatives index with outsized exposure to hotel debt as the pandemic sinks the hospitality industry into distress.
The firms are starting to build up wagers against the synthetic index, known as CMBX 9, shifting attention from a high-profile bet against America’s challenged malls. The shift, which market participants say is beginning to show up in some trading flows, comes as delinquencies on hospitality property loans surge and even begin to exceed those in retail.


Gender Pay Gap Persists for Public Company General Counsel (1)
Stephanie Russell-Kraft – Bloomberg Law
There are far more women in the ranks of top general counsel than five years ago, but they still earn less than men holding the same jobs, a new report shows. Total median compensation in 2019 for male general counsel reached $2.8 million, while median pay for women was $2.5 million, a joint report by corporate data company Equilar and recruiting firm BarkerGilmore shows. The report includes publicly available data from the 500 largest U.S.-headquartered companies by revenue that trade on the Nasdaq, NYSE or NYSE American. From those companies, 169 general counsel publicly reported their compensation.

(Podcast) TWIFO 214: Fed vs. Inflation, Plus Vol Breakdown in Metals, Equities and Ags
This Week in Futures Options – Options Insider Network

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