What Rout? RBC Still Sees Bullish Behavior in U.S. Options; Finance’s ‘fear index’ spurred by coronavirus worries

Feb 26, 2020

Observations & Insight

The OCC set a new record for cleared volume of options contracts yesterday – 42.2 million. This surpasses the previous record of 41.9 million cleared contracts on August 8, 2011. Check out the OCC’s volume data on the right hand side of the company’s homepage.~MR

Lead Stories

What Rout? RBC Still Sees Bullish Behavior in U.S. Options
Joanna Ossinger – Bloomberg
The S&P 500 may have lost more than 7% in the past four days, but RBC Capital Markets says options markets aren’t panicking yet.
“We are actually seeing some bullish sentiment, with traders getting longer or monetizing hedges they’ve had on,” Amy Wu Silverman, an equity-derivatives strategist at RBCCM, wrote in an email Tuesday. “The options market does not suggest all out panic.”

Finance’s ‘fear index’ spurred by coronavirus worries
Oscar Williams-Grut – Yahoo Finance UK
A closely watched measure of ‘fear’ in financial markets has risen sharply in the last few days, as investors panic about the potential economic impact of novel coronavirus. The VIX index in Chicago has risen over 50% since Friday. The index, compiled by the Chicago Board Options Exchange (CBOE), is colloquially known as the ‘fear index’ because it acts as a proxy for investor expectations of falling prices. The index measures expectations of future volatility for the S&P 500 stock market in the US. The VIX is based on the price of options contracts, which investors use as insurance against potential future losses.

FX Traders Hunting for Certainty Pile Into Bets on Volatility
Vassilis Karamanis, Jack Pitcher and Susanne Barton – Bloomberg
When in doubt, buy volatility.
The old adage is holding strong, even as traders struggle to identify which currencies might offer the best shelter in times of upheaval. Bets that there will be price swings may look appealing, in particular as implied volatility in foreign-exchange hasn’t reacted with quite the same violence this week as similar measures for stock and bond markets.

****JB: Also see the Reuters’ article, Investors piled into volatility bets before market tumble.

Bombshell 74-Page Report Shows JP Morgan is Closely Exploring Bitcoin Options
Nick Chong – NewsBTC
Over the past few years, we’ve seen Bitcoin change from a spot trading-only market to one dominated by derivatives — evidenced by the investor activity seen on BitMEX, Deribit, the CME, Bakkt, and other crypto derivatives platforms. Indeed, the lifetime aggregate volume on BitMEX’s XBT swap future recently surmounted $2 trillion, and the CME has been registering hundreds of millions of dollars worth of Bitcoin futures trades each and every day. The growth in derivatives hasn’t gone unnoticed, with JP Morgan, recently releasing an extensive crypto-themed report in which it revealed it is keeping a close eye on Bitcoin derivatives.

*****You can read the JPMorgan report here.~MR

New CCP 12 report on “Progress and initiatives in OTC Derivatives” published
The Global Association of Central Counterparties – of which Eurex Clearing is a member, has published its second report exploring the current and future ecosystem of OTC derivatives. It complements public sector analysis of the OTC derivatives market in terms of its current state, the trends observed from the data, the impacts of regulation, and the inherent efficiencies and security of the cleared ecosystem.

*****Click here to read the report.~MR

Dow ends another 879 points lower, posting worst two day point drop on record
Joy Wiltermuth – MarketWatch
U.S. stocks closed with the Dow Jones Industrial Average registering its worst two day loss on record Tuesday, after the Centers for Disease Control and Prevention warned Americans to prepare for a coronavirus outbreak and investors attempted to assess the impact of the epidemic in China on global trade and travel.

Inside Volatility Trading: February 26, 2020
Kevin Davitt – Cboe
In the late 1960s John Fogerty (Creedence Clearwater Revival) wrote Proud Mary which could well describe the broad market of late. Big wheel keep on turnin’ Proud Mary keep on burnin’ Rollin’, rollin’, rollin’ on the river As we roll toward the end of February and into March, equity markets have been on a tear. The S&P 500 Index keeps on turnin’, burnin’, and rollin’. March tends to act as a bridge between winter and spring. In the northern hemisphere we can see snowstorms and 70 degree temperatures in a matter of days. There’s a tendency for the month to begin cold and foreboding, but often end with much milder weather. Hence the idiom, March comes in like a lion and out like a lamb. Prior to the pullback between February 20 and 21, US equity markets had been climbing quite steadily.

Tech Stocks In Correction Territory, Including Apple And Facebook, But Investors Nibbling
JJ Kinahan – MarketWatch
For those who didn’t get enough drama Monday and Tuesday as the Dow Jones Industrial Average ($DJI) cratered nearly 2,000 points, things might be more interesting today. That’s because major indices are on the cusp of testing some key levels that many investors think of as psychological “safety nets,” though no particular price level is guaranteed to stop the bleeding. For the S&P 500 Index (SPX), the area to consider watching today and the rest of the week is right around 3050, which sits just above the 200-day moving average.

Reddit’s Profane, Greedy Traders Are Shaking Up the Stock Market
Luke Kawa – Bloomberg
Chatter on message boards is reshaping the options market and sparking wild rallies. In a dingy corner of the internet is a message board, soaked in profanity, bro-speak, and greed, where posters with handles such as OverthrowYourMasters and yolo_tron campaign for their favorite stocks, putting up screenshots from their online brokerage accounts of their moonshot victories—or showing off their massive losses like badges of honor. Some of them think they’ve found the key to fast wins on the stock market. Wall Street doubts they’re right, but it’s getting nervous about what it sees there.

Regulation & Enforcement

How to use options to play for a bounce after a brutal sell-off
Tyler Bailey – CNBC
The Dow is surging back on Wednesday after plummeting about 2,000 points to start the week. Just a day after explaining how to insure your portfolio against a brutal sell-off like this, Optimize Advisors President Michael Khouw has some keys to playing this bounce without getting burned. “In situations like this, where much remains unknown, you don’t want to run out and catch a falling knife. So, we’re not advocating, necessarily, going out and buying stocks with whatever excess cash you have, or using any leverage to do so,” Khouw said Tuesday on CNBC’s “Fast Money.”


Matrix Executions Releases Next-Generation Routing Algo Rack
BusinessWire (press release)
Matrix Executions, LLC (“Matrix”), a broker-dealer specializing in trading workflow automation, announced today the update and expansion of its best-of-breed rack of order routing algos. With the focus on options, Matrix’s offering is now available on all major order management systems (OMS), and via Matrix’s two execution management systems (EMS), Matrix Pro and Matrix Elite.

Itiviti recognized for Best Trading and Execution Platform at Asian Private Banker Technology
Itiviti press release
Hong Kong, February 25, 2020 – Itiviti, a leading technology and service provider to financial institutions worldwide, today announced that its multi-asset trading and execution solution has won Best Trading and Execution Platform at the 5[th] Asian Private Banker Technology Awards. The Technology Awards are judged by members of Asian Private Banker’s team.


Wells Fargo Says Favorite Coronavirus Hedge Is Still Cheap
Joanna Ossinger – Bloomberg
Bearish bets on an exchange-traded fund of developed-market stocks outside the U.S. and Canada are proving their worth as a coronavirus hedge, according to Wells Fargo & Co.


Billionaire Leon Cooperman says the coronavirus selloff is a ‘healthy’ correction for the market ‘even though I’ve lost a ton of money’
Gwen Everett – Markets Insider
The Dow Jones Industrial Average registered its worst two-day point drop ever at the start of this week as markets sold off on coronavirus risk. Leon Cooperman says that’s a good thing.
“The correction is healthy for the market,” Cooperman, the billionaire investor behind Omega Advisors, said in an interview with CNBC Wednesday. “Even though I’ve lost a ton of money.”

Trump is reportedly ‘furious’ that US stocks have tanked on coronavirus fears — and he’s accusing the ‘fake news’ media of throwing fuel on the fire
Joseph Zeballos-Roig – Markets Insider
President Donald Trump lashed out at the news media on Wednesday morning and accused it of trying to panic financial markets even as high-level American public-health officials warned that the spread of the novel coronavirus within the US was “inevitable.”
“Low Ratings Fake News MSDNC (Comcast) & @CNN are doing everything possible to make the Caronavirus look as bad as possible, including panicking markets, if possible,” Trump said on Twitter, misspelling the name of the virus that’s spread to roughly 40 countries and blasting two cable-news outlets that have drawn his ire in the past.

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