Observations & Insight
Multiple options expirations add to September market gyrations; Who are the smartest traders in the room?; Strike price pick no simple matter; The Spread – September 17, 2021
– Options markets take a bumpy ride ahead of simultaneous options and futures expirations;
– John’s Take looks at why it’s the smartest traders in the room who trade options;
– Two crucial concepts in strike price choices with Jermal Chandler in the Term of the Week.
****SC: Cboe Options Institute is hosting a webinar next week on the potential uses of mini Index options and futures, including their place in portfolio management. Speakers include Scott Phillips and Jacob Johnson — both from Lavaca Capital — and TD Ameritrade’s Joe (JJ) Kinahan, along with Cboe’s Matt Moran. It takes place Wednesday, September 29, at 12 p.m. ET. Registration information is here.
****JJL: The SEC has denied a request from Nasdaq, NYSE and Cboe Global Markets for a stay of implementing the August 6, 2021-issued “Joint Industry Plan; OrderApproving, as Modified, a National Market System Plan Regarding Consolidated Equity Market Data.” — SEC
Wall Street stocks sell off as Evergrande crisis intensifies
Hudson Lockett, Thomas Hale and Naomi Rovnick – Financial Times
Wall Street stocks dropped on Monday, echoing falls in Asia and Europe, as the liquidity crisis at Chinese property developer Evergrande cascaded across global markets.
The S&P 500 fell 2.1 per cent, while the tech-heavy Nasdaq Composite slipped 2.6 per cent. The Vix, which measures expected volatility on the S&P, hit 26.5 — around its highest level since May.
Wall Street Traders Were All Hedged Up for Volatility Like This
Cecile Gutscher and Elena Popina – Bloomberg
Traders loaded up on protective puts before Evergrande crisis
Equity skew reprises levels not seen since February 2018
S&P 500’s term structure is near the steepest in nine years
For months as the S&P 500 hit relentless records, Wall Street has been flummoxed by the willingness of options traders to pay up for market protection. Now all that hedging activity is looking smart as the crisis at China Evergrande Group reverberates around the world.
Dow skids 700 points as implosion of China’s Evergrande rattles U.S. stock investors
Joy Wiltermuth and Mark DeCambre – MarketWatch
U.S. stocks were sharply lower at midday Monday, trading near session lows, as investors parsed the potential impact of the collapse of a property developer in China and traders positioned ahead of a two-day meeting of Federal Reserve policy makers that begins Tuesday.
Market Panic Comes Just in Time for Goldman Sachs and Morgan Stanley
Brian Chappatta – Bloomberg
Morgan Stanley strategists led by Michael Wilson warned on Monday that a 20% drop in the S&P 500 Index was a growing risk. Two weeks ago, Goldman Sachs Group Inc. analysts said investors shouldn’t assume low volatility will last.
Left unsaid: These two U.S. banks stand to benefit more than any others should those forecasts come to fruition.
Nomura Quant Warns of $40 Billion Selling by Volatility Funds
Sam Potter – Bloomberg
The Monday stock swoon risks triggering forced deleveraging by volatility-linked funds, according to analysis by Nomura Securities.
As China’s real-estate crisis intensifies and infects global markets, the S&P 500 slumped as much as 1.7% at the New York open to test a key 50-day threshold.
Slumping Bitcoin, S&P 500 Are Moving Increasingly in Tandem
Eric Lam and Eddie van der Walt – Bloomberg
When Wall Street makes the case for crypto, it’s all about the benefits of diversification. But when markets go down, Bitcoin has an embarrassing habit of getting swept up in the selloff.
Bitcoin plunged as much as 11% on Monday as stock markets trembled in the wake of a potential default from China Evergrande Group. A correlation analysis shows that U.S. stocks and Bitcoin are moving more in lockstep, with the link between the two assets at the strongest level in a year.
Ripple Effect Pressuring Global Stock Markets
JJ Kinahan – Markets Insider
The orderly selloff we’ve been having just got a bit disorderly. The markets started the week feeling like it was a Manic Monday with stock futures sharply lower on extended concerns regarding China’s real estate sector.
Of particular interest is Hong Kong-listed Chinese developer Evergrande Group and whether Beijing will let the debt-laden firm fail. A default could mean potentially billions in losses for shareholders and bondholders around the world.
VIX ETFs soar as much as 11% as volatility levels hit four-month high
Jason Capul, SA News Editor
Volatility-based exchange traded funds feel tremors on Monday as the S&P VIX Index (VIX) spiked to its highest point in four months dating back to May 13.
The VIX has jumped above the 25 handle to 25.92 as the market tumbles to the downside out of the gate to start the trading week.
Below is a breakdown of four ETFs and ETNs that track volatility levels in both the short- and medium-term through the use of the futures market.
CME Group Launches First-Ever Sustainable Derivatives Clearing Service
Clearing firms and clients will now be able to demonstrate support of ESG objectives and green hedging activities through clearing
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the launch of the derivatives industry’s first-ever Sustainable Clearing service to help market participants track and report on how their hedging activities are advancing their sustainability goals. The service will be available from September 27, 2021. Sustainable derivatives encompass both the trading of products such as carbon offsets, battery metals and bioenergy as well as interest rate and foreign exchange.
Montréal Exchange Extends Trading Hours to Asia Pacific Time Zones; Canada’s Derivatives Exchange further expands global reach, syncing trading hours with Asia Pacific markets in support of growing investor demand
Montréal Exchange (MX), Canada’s derivatives exchange, today launched the next phase of its extended trading hours initiative, offering investors in the Asia Pacific region the opportunity to manage their exposure to Canadian markets and execute cross-market strategies in their local time, almost 24 hours a day.
The DAX reform and its impact on derivatives trading
The increase in the DAX to 40 constituents marks a significant evolution for the leading German index. But what will the impact be on derivatives trading? We spoke to Zubin Ramdarshan, Head of Equity & Index Product Design, Eurex.
Ether Options Market Shows Bias for Price Weakness Over 3 Months
As ether buckles, put options – offering downside protection – are drawing higher prices.
Lyllah Ledesma, Omkar Godbole – CoinDesk
Ether’s three-month put-call skew, which measures the cost of puts – or bearish bets – relative to calls, flipped positive on Monday for the first time in since July. A positive value implies relatively greater demand for puts, a sign that investors are seeking protection against falling prices.
The gauge rose to 2%, the highest level since July 21, according to data provided by crypto derivatives research firm Skew.
Americans Haven’t Hated the Housing Market This Much in 4 Decades
Ben Winck – Business Insider
Last year, everyone was excited to buy a house. This fall, they’re pissed.
Just 29% of Americans said in September that it was a good time to buy a home, according to data from the University of Michigan’s Surveys of Consumers. That’s the smallest share since 1982 and close to record lows. The majority was excited about homebuying just months ago: 62% said it was a good time at the start of the year and 65% said so in March 2020, when the pandemic first slammed the US.
M.B.A. Applications at Some of the Country’s Best Colleges Fell This Year
Patrick Thomas – The Wall Street Journal
Some of the best known M.B.A. programs in the U.S. registered precipitous drops or sluggish interest from prospective candidates this year, following a 2020 admissions cycle in which applications soared.
Northwestern’s Kellogg School of Management reported a 20% drop in applications to its M.B.A. program for the incoming fall of 2021 class. Columbia Business School reported a 6% decline, though the volume of applications was still higher than it was in 2019 when interest in many schools languished during a white-hot job market.