‘Volmageddon’ Is History as SEC Greenlights Leveraged VIX ETFs

Oct 5, 2021

Observations & Insight

Options Exchange Markets Share — September 2021

Lead Stories

‘Volmageddon’ Is History as SEC Greenlights Leveraged VIX ETFs
Sam Potter – Bloomberg
Two infamous stock volatility strategies on Wall Street look set for a comeback — with protective buffers this time round.
The U.S. Securities and Exchange Commission has approved rule changes that pave the way for a pair of ETFs from Volatility Shares LLC to list and trade. The two products will offer leveraged bets on the Cboe Volatility Index, or VIX.
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Bulls Nursing Wounds After Rout Eye Options Market For Solace
Elena Popina – Bloomberg
Stocks are selling off, dragging the S&P 500 down more than 5% from its all-time high set early last month, but the options market may be signaling that the rout is nearing an end.
To wit: Selling one S&P 500 put contract that’s 10% out of the money now buys fewer equivalent call options than it did three months ago. The observation by RBC Capital Markets is no guarantee that the worst of the rout is over. But it could be a sign that some options traders think so.
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Options Market Is Signaling Stocks Selloff Is Approaching an End
Elena Popina – Bloomberg News
Stocks are selling off, dragging the S&P 500 down more than 5% from its all-time high set early last month, but the options market may be signaling that the rout is nearing an end.
To wit: Selling one S&P 500 put contract that’s 10% out of the money now buys fewer equivalent call options than it did three months ago. The observation by RBC Capital Markets is no guarantee that the worst of the rout is over. But it could be a sign that some options traders think so.
/bit.ly/3uGn7DI

Equities Storm Looking Overblown as Volatility Gauge Stays Calm
Joanna Ossinger – Bloomberg
Wall Street’s fear gauge is relatively sleepy after Monday’s stock rout, prompting some strategists to play down fears that stagflation and the debt-ceiling battle will set off a steep correction.
The Cboe Volatility Index, or VIX, closed at 22.96 on Monday, close to its lifetime average of 19.5. More notably, its term structure shows expectations of increased volatility further out in the future rather than close in, signaling relative calm.
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October’s Historic Volatility on Display With Stocks Whipsawed
Vildana Hajric and Emily Graffeo – Bloomberg
With September living up to its reputation as the worst month for stocks, investors entered October hoping for a rebound. Instead, they’re getting a reminder of just how volatile the tenth month of the year can also be.
October is up 59% of the time, on average, with returns of around 0.44%, according to Bank of America Corp. But when September is down, the following month can see equities struggling again. In such case, October shows an average decline of 0.41%.
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YOLO Crowd Losing Some of Its Appetite for Buying Dips
Elena Popina – Bloomberg
Retail traders, the market’s most-avid dip buyers earlier this year, are showing some evidence that the famous “you only live once” appetite for risk is losing steam.
Individuals investors were hard at work in previous selloffs in the past year, but are largely sitting this one out as previous drivers of euphoria — like stimulus money and the Federal Reserve’s backstop — are fizzling out.
After the S&P 500 spent two straight weeks in the red in late September, small-lot options traders — those buying 10 contracts or less at a time — spent just 43% of their total volume on bullish contracts, the lowest share so far this year.
/yhoo.it/3iyUzY7

Hedge funds flock to oil as energy shortages worsen
John Kemp – Reuters
Rising oil prices and the spreading global shortage of coal, gas and electricity have drawn fresh buying interest from hedge funds and other money managers in oil-related derivatives contracts.
Portfolio managers purchased the equivalent of 42 million barrels in the six most important petroleum futures and options contracts in the week to Sept. 28, according to records published by regulators and exchanges.
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U.S. Companies Pick Up Adoption of Libor Alternative SOFR
Julia-Ambra Verlaine and Mark Maurer – WSJ
Major U.S. companies are dumping the London interbank offered rate ahead of a year-end deadline for abandoning the troubled short-term interest-rate benchmark.
Sports-vehicle maker Polaris Inc . recently selected Wall Street’s preferred alternative, the Secured Overnight Financing Rate, as its new benchmark rate to provide inventory financing to vehicle dealers as part of a business it runs with Wells Fargo & Co.
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Exchanges

OCC September 2021 Total Volume Up 21.8 Percent Compared to September 2020
Year-to-date cleared contract volume through end of September up 35 percent year-over-year
OCC
OCC, the world’s largest equity derivatives clearing organization, announced today that September 2021 total cleared contract volume was 816,942,764 contracts, up 21.8 percent compared to September 2020 and the highest September on record. Year-to-date average daily cleared contract volume through September 2021 was 38,846,212 contracts, up 34.6 percent compared to September 2020.
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Intercontinental Exchange Reports September & Third Quarter 2021 Statistics
Third Quarter ADV up 18% y/y; OI up 9% y/y
Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology and market infrastructure, today reported September and third quarter 2021 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at https://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
/bit.ly/2ZYc79z

Is the Stock Market Open at 3 a.m.? This Startup Says It Should Be
Alexander Osipovich – WSJ
A startup trading platform is seeking approval from the Securities and Exchange Commission to launch the first U.S. stock exchange that would operate around the clock, including on weekends and holidays.
The startup, 24 Exchange, said it filed key parts of its application for a national stock-exchange license with the SEC on Monday, including a rulebook and user manual detailing its proposed approach to trading hours.
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Regulation & Enforcement

SEC Chair Gensler to talk payment for order flow, crypto during House hearing
Chris Matthews – MarketWatch
Securities and Exchange Commission Chairman Gary Gensler will face questions from members of the House Financial Services Committee on a range of topics from market structure to cryptocurrency regulation during a hearing beginning at noon Eastern on Tuesday.
“We are blessed with the largest, most sophisticated, and most innovative capital markets in the world,” Gensler will say, according to prepared remarks. “We can’t take our remarkable capital markets for granted, though. New financial technologies continue to change the face of finance for investors and businesses. More retail investors than ever are accessing our markets. Other countries are developing deep, competitive capital markets as well.”
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Statement On Complex Exchange-Traded Products, SEC Commissioner Allison Herren Lee, SEC Commissioner Caroline A. Crenshaw, Oct. 4, 2021
Mondovisione
Last Friday the Commission voted to approve a pair of proposed rule changes by Cboe BZX Exchange, Inc. to list and trade shares of new exchange-traded products: the 2x Long VIX Futures ETF and the -1x Short VIX Futures ETF.[1] While we supported the approval of these rule changes, we want to emphasize the importance of taking steps to update the regulatory framework for these and other similar products.
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Education

Take Advantage Of Covered Call Strategy On Market Slide
Contributor: Daniel Laboe, Zacks – Nasdaq
It’s time to start thinking about covered calls with the recent market selloff spiking in implied volatility (IV) on options across the equity market, presenting us with a Theta-catching opportunity. Covered calls will allow you to capture returns on stocks you already own or buy new shares of enterprises you’ve waiting to acquire at a discount.
What’s A Covered Call?
Implementing a covered call strategy involves selling out-of-the-money call options on a stock that you own or want to purchase and collecting the premium that each call option yields you. This means that you are effectively sell-short the options contract.
/bit.ly/3FiVSnI

Miscellaneous

The American Billionaires Too Poor To Make The 2021 Forbes 400 List
Jennifer Wang – Forbes
A billion dollars — or even a couple billion — doesn’t hack it anymore. With a record $2.9 billion cutoff to qualify for this year’s Forbes 400 list of richest Americans, 353 U.S. billionaires have fortunes too small to qualify, including famous faces like Facebook’s Sheryl Sandberg, Uber’s Travis Kalanick and Revlon’s Ron Perelman. Of the 122 Americans who became billionaires in the past year, only 27 made the ranking of America’s 400 richest — but many more may be on their way up.
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