Observations & Insight
The Spread: Options Discovery Episode 5; Complete Interview: Bob Whaley; How price volatility impacts the value of options
In episode 5 of Options Discovery, Alex Teng discusses options volatility, beginning with the basics of what is volatility? He talks about how to calculate historical volatility with a set period of historical data using excel or a spreadsheet calculator. He also explains the relationship between historical volatility and implied volatility, and interviews Professor Bob Whaley, who is the director of financial markets research at Vanderbilt University. Whaley is also well known for his work developing some of the most widely used volatility indexes, such as the CBOE VIX and the VXN.
Complete Interview: Bob Whaley Discusses Options Volatility and Volatility Indexes With JLN’s Alex Teng
In this exclusive interview for JLN, Alex Teng sits down with Robert Whaley, a professor and the head of market research at Vanderbilt University, to discuss options volatility and Whaley’s work creating some of the most important volatility indexes in the industry.
Wall Street’s ‘fear gauge’ in limbo as big investors keep shunning stocks
Saqib Iqbal Ahmed – Reuters
Wall Street’s most closely watched gauge of market anxiety shows expectations of choppy trading ahead despite a recent snapback in U.S. stocks, though institutional investors’ low exposure to equities may help curb gyrations.
The Cboe Volatility Index (.VIX), an options-based indicator that reflects demand for protection against drops in the stock market, recently stood at 23, following a sharp rally in stocks that has taken the S&P 500 index (.SPX) up 12% from its mid-June low on expectations that the Federal Reserve may be less hawkish than anticipated in its fight against inflation.
Volatility Measure Hits Three-Year Low Despite Market Tumult
Eric Wallerstein – WSJ
Wall Street’s fear gauge has been relatively subdued for much of the year, even as stocks and bonds have slumped.
Some strategists credit changes in positioning and hedging strategies, rather than investor complacency, for the dissonance.
The Cboe Volatility Index, or VIX, a widely watched volatility measure based on options prices tied to the S&P 500, is hovering at slightly elevated levels. It hasn’t closed above 30, a key level that signifies increased fear, since June and settled Tuesday just below 24. The VVIX, an index measuring the volatility of the VIX itself, has fallen relatively steadily since January and recently hit a three-year low of 80.
Airline Fuel Hedges Set to Save Billions for Some With $100 Oil
Alex Longley and Devika Krishna Kumar – Bloomberg
Airlines with oil hedges are set to save billions of dollars on their fuel bills this year, the first such gains since the industry was ravaged by the coronavirus pandemic.
Both Southwest Airlines Co. and Air France-KLM said they stand to gain about $1 billion each from their hedging policies, a benefit that will at least partially cushion the companies against higher oil prices. British Airways parent IAG SA said its fuel hedging program was worth about 1.2 billion euros ($1.2 billion). Meanwhile, its fuel bill was up 45% from a year ago compared with a 150% increase in jet fuel prices.
These Charts Show July Stock Market Rally May Prove a False Dawn
Jan-Patrick Barnert, Michael Msika, and Sagarika Jaisinghani – Bloomberg
The list of obstacles to the stock market rally gets longer by the day.
Equities had a blast in July with those in Europe and the US rising the most since 2020, yet it’s a long way from a short-term bear market rally to a sustained move higher. And with Tuesday’s historic visit of US House Speaker Nancy Pelosi to Taiwan came another headline risk that could derail sentiment.
Paul Britton, CEO of $9.5 billion derivatives firm, says the market hasn’t seen the worst of it
Leslie Picker and Ritikah Shah – CNBC
The market has seen tremendous price swings this year – whether it comes to equities, fixed income, currencies, or commodities — but volatility expert Paul Britton doesn’t think it ends there.
Britton is the founder and CEO of the $9.5 billion derivatives firm, Capstone Investment Advisors. He sat down with CNBC’s Leslie Picker to explain why he thinks investors should expect an uptick in the amount of concerning headlines, contagion worries, and volatility in the second half of the year.
Miami International Holdings Announces that Webull will Begin Offering Clients Access to SPIKES Options
Miami International Holdings, Inc. (MIH), owner of Miami International Securities Exchange, LLC (MIAX ), MIAX PEARL, LLC (MIAX Pearl ), MIAX Emerald, LLC (MIAX Emerald ), Minneapolis Grain Exchange, LLC (MGEX™), and Bermuda Stock Exchange (BSX™), announced today that Webull Financial LLC (Webull) is now offering SPIKES Options on its trading platform. SPIKES Options will be available to customers who are approved to trade options on Webull’s trading platform.
CME Clearing Expands Collateral Policy to Accept Short-Term U.S. Treasury ETFs
CME Group, the world’s leading derivatives marketplace, today announced that CME Clearing has further expanded the collateral it accepts and now will permit clearing members to deposit Short-Term U.S. Treasury Exchange Traded Funds (ETFs) to meet initial margin requirements.
CME Clearing accepts the widest range of collateral of any major clearing house. The addition of short-term ETFs gives clearing members and their clients greater flexibility and increased efficiency in managing their collateral costs. In particular, the ETFs pay a dividend, which is more operationally efficient and mitigates the need for clients to re-invest maturity proceeds for individual U.S. Treasury securities.
July 2022 figures at Eurex
Total traded derivatives contracts at Eurex grew by 16 percent in July, from 110.4 million to 128.3 million compared to the same month last year. Interest rate derivatives showed the strongest year-on-year growth, up 31 percent from 38.5 million traded contracts to 50.4 million, while index derivatives grew by 14 percent, from 53.9 million traded contracts to 61.4 million. Total contracts traded in equity derivatives fell by 8 percent to 16.4 million.
Moscow Exchange summed up trading results in July 2022
The total volume of trading on the markets of the Moscow Exchange in July 2022 increased by 3% and amounted to 75.7 trillion rubles (73.5 trillion rubles in June 2022). Here and below, the dynamics are shown compared to the previous month of 2022. The best dynamics in the volume of transactions was demonstrated by the derivatives market (growth by 20.7%), the precious metals market (growth by 17.0%), the bond market (growth by 16.6%), the currency spot market (growth by 10.4% ) and the money market (growth by 3.8%).
Robinhood to lay off 23% of its workforce, with CEO admitting ‘this is on me’
Emily Bary – MarketWatch
Robinhood Markets Inc. plans to cut its staff by 23%, citing the weakening economic environment and depressed trading activity.
Chief Executive Vlad Tenov publicly announced the layoffs in a Tuesday afternoon blog post, acknowledging that his prior plan to let go of 9% of the Robinhood workforce while engaging in “greater cost discipline,” which was announced in April, “did not go far enough.”
Regulation & Enforcement
Crypto Regulation: Push to Give CFTC More Sway Over Crypto Trading Gains Steam
Allyson Versprille – Bloomberg
A push in Washington to transform the US derivatives regulator into a top crypto watchdog is gaining steam with a Senate bill that would give the Commodity Futures Trading Commission sweeping new powers to oversee the asset class.
Trading Technologies to offer clients access to Nifty equity derivatives; The trading software provider will utilise the Connect, a joint initiative between Singapore Exchange and National Stock Exchange of India, to allow clients to take positions on India’s equity markets.
Wesley Bray – The Trade
Trading Technologies (TT) has begun offering clients access to Nifty equity derivatives through NSE IFSC-SGX Connect (the Connect), a new joint initiative between Singapore Exchange (SGX Group) and National Stock Exchange of India (NSE). Launched on 29 July, the Connect allows international and domestic market participants to take positions on India’s equity markets through futures based on the Nifty 50.
The stock market just flashed a technical signal suggesting more upside ahead, but investors shouldn’t chase the rally, Fairlead Strategies says
Matthew Fox – Business Insider
The breakout suggests that the S&P 500 could jump another 4% from current levels to 4,270.But investors shouldn’t chase the rally just yet as the Volatility Index shows signs of a rebound.
The stock market’s 9% surge in July extended into the first day of August, with the SP 500 confirming a minor technical breakout in Monday’s trading session, according to Fairlead Strategies’ Katie Stockton.
Staying Neutral For Now
Tim Ord – Investing.com
The bottom window is the correlation between the VVIX and S&P 500 5 period. The market can be near a reversal when this correlation gets over .00 (currently .30). Next window up is the VVIX/VIX ratio with a 3 day average. This indicator helps to define the trend, and it has turned lower today.