Observations & Insight
The Spread: Hedge Early, Hedge Often
This week on The Spread, Cboe sets its sights on the European derivatives market abroad while preparing for growth at home, and options traders clamor for more VIX data to make “unprecedented” hedges against market volatility.
Produced by Mike Forrester.
Wall Street Rushes to Price-In Virus Fallout Across Options Land
Gregor Stuart Hunter and Yakob Peterseil – Bloomberg
From stock volatility to currency options, the global risk-off tone spurred by the spreading coronavirus is showing up in derivative markets of all stripes.
Hedging just turned more expensive for investors in one of the biggest China equity ETFs, while the cost of insuring some of Europe’s riskiest debt jumped. With traders rushing to react to the hard-to-price news that the casualty count is rising, risk assets are a sea of red.
The stock market’s biggest problem this week isn’t the coronavirus or Mideast tensions, strategist warns
Shawn Langlois – MarketWatch
That’s longtime stock-market bull and National Securities chief market strategist Art Hogan offering up his bearish stance in a CNBC interview ahead of what looks to be a very busy week of trading.
Hogan said the S&P 500 could see a pullback of as much as 5% — and it won’t be because of the coronavirus or rising tensions with Iran.
“Stocks are relatively priced for perfection, and you tend to have a bit of an overreaction to bad news or in-line news when that happens,” he continued.
Market Decline Amid Coronavirus Fears Threatens Predictions for Calm Earnings Season
Gunjan Banerji – Wall Street Journal
Recent turbulence in markets threatens to upend bets on a relatively calm earnings season ahead. Fears about the coronavirus broke the sleepy stretch in markets, with stocks and crude oil tumbling Monday as the detection of infected patients in the U.S., Australia and France fanned worries about its economic impact. The drop is catching many off guard, especially before a busy week of corporate earnings.
Effect of CME Futures Options on BTC Price Depends on Halving
Joseph Young – Cointelegraph
CME Group launched new Bitcoin options on Jan. 14, which was revealed by the company’s global head of equity products Tim McCourt. The introduction of crypto options by a derivatives heavyweight in CME will further uplift the institutional infrastructure supporting the asset class. Over the long term, investors generally anticipate improvements in the infrastructure surrounding Bitcoin (BTC) to have a positive impact on the cryptocurrency market.
Volatility and Performance of Options-Related Indexes in the 2010s
Matt Moran – Indexology Blog
As we enter the 2020s with interest in worldwide geopolitical volatility, here are some key points about volatility and the performance of options-related indexes the 2010s. How Did Equity Volatility in the 2010s Compare to Volatility in Previous Decades? The average of the daily closing values of the VIX Index in the 2010s was 16.9 (24% below the 22.1 average for the previous decade). In recent years some observers have questioned whether there was too much complacency in the markets, and if the VIX Index was unusually low in light of trade wars and geopolitical uncertainties.
Exchanges and Clearing
Eurex Quarterly Equity News Q4/2019
The end of the decade turned out to be one of the better years for equity returns. Bullish sentiment and declining volatility usually translate into lower volumes in equity options. New overall records were therefore not established. Some country segments, notably Swiss, Dutch and French equity options showed considerable growth rates though. The Swiss segment grew by 7.6% percent compared to 2018 and UBS, Nestlé, ABB, Zurich and Credit Suisse are now in the top ten of largest single equity option contracts on Eurex. The Dutch segment grew by 15.1% percent while French equity options grew by 6.1% percent.
Regulation & Enforcement
OCC Receives SEC Approval of New Capital Management Policy
OCC (press release)
OCC, the world’s largest equity derivatives clearing organization, today announced that it received regulatory approval of its new capital management policy by the U.S. Securities and Exchange Commission (SEC). “We appreciate the work by the SEC Commissioners and staff to approve our new capital management policy,” said Scot Warren, Chief Operating Officer. “We also greatly benefited from the feedback we received from our clearing member firms and other market participants. This policy will ensure OCC maintains appropriate financial resources to continue providing critical services to our participating exchanges, clearing member firms, and their customers in the unlikely event of a material operational loss.”
Michael Avenatti searched ‘Nike put options’ and ‘insider trading’ before allegedly trying to extort the sportswear giant
Ben Winck – Markets Insider
Famous attorney Michael Avenatti may have been looking to profit from trading Nike stock options before his alleged extortion of the company for up to $25 million, a court filing dated January 24 revealed.
Avenatti represents Gary Franklin, who accused Nike of hiding illegal payments to basketball recruits. The lawyer searched “nike put options” and items related to “insider trading” on March 10 and after taking Franklin’s case. Avenatti also visited the Nasdaq’s website to monitor Nike’s stock price and find pricing for options tied to the sneaker giant’s stock.
OptionMetrics Launches IvyDB Signed Volume for Tracking of Daily Options Order Flows, Participant Activity, Buy/Sell Pressure on Options Markets
OptionMetrics, an options database and analytics provider for international institutional investors and academic researchers, today launched its new IvyDB Signed Volume dataset at Europe EQD 2020 in Barcelona. OptionMetrics IvyDB Signed Volume is an add-on to OptionMetrics’ popular IvyDB US. It delivers daily updates to option market order flows, participant activity, and buy/sell pressure on options markets to improve trading strategy and research. The database contains daily US options trading data on over 10,000 underlying stocks and indices since March 2018.
MIAX Welcomes Industry Veteran Mark Wetjen to Lead Expansion of Futures and Digital Securities Products
MIAX (press release)
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX Options, MIAX PEARL and MIAX Emerald options exchanges (the MIAX Exchange Group), today announced that Mark Wetjen has joined MIH as Executive Vice President, Futures and Innovative Products of MIH and Executive Regulatory Liaison Officer. He will also serve as the Chief Executive Officer of Miami International Futures Exchange, LLC, a wholly owned subsidiary of MIH. Wetjen will play a pivotal role in projects relating to the futures business as the MIAX Exchange Group expands from electronic trading of options into cash equities, futures and innovative products, including digital securities and crypto assets and derivatives.