Ricardo Manrique and Philip Slocum
Observations & Insight
Elevated Risk Levels, Volatility Seen Continuing as 2021 Debuts
Suzanne Cosgrove and Matt Raebel – John Lothian News
The pandemic of 2020 and its associated economic fallout pushed the Cboe Volatility (VIX) Index to record highs, and it’s expected to stay elevated even as COVID-19 vaccines are rolled out and dispensed and global economies begin to recover in 2021, two analysts said in a presentation sponsored by the Cboe Options Institute.
“In 2020, the S&P 500 experienced its second highest annualized realized volatility and intra-year high to low price range of the past 80 years, only behind the Great Financial Crisis in 2008,” said Stacey Gilbert, derivatives portfolio manager at Glenmede Investment Management LP. She said that coming off a year of volatility and options trading volume as high as 2020’s would make it unlikely for things to return to “normal” anytime soon. Historically, she said, “it takes about 8½ months for volatility to return to normal.”
To read the rest of this story, go here.
JJL: Monday is Martin Luther King, Jr. Day in the U.S. and markets will be closed for observance of the holiday. JLN will be published Monday, but not JLN Options. I will be teaching a merit badge class for the PathWay to Adventure Council of the Boy Scouts of America. In my Communication merit badge class, 10 of the participants will be girls and 2 boys.
Why everyone is now an options trader
IN THE BUCKET shops of early 20th-century America, ordinary punters could bet on the direction of share prices with a tiny down-payment. The punters liked this, because it gave them a lot of notional exposure for a minuscule outlay. The bucket shops on the other side of the wagers loved it, too, because hour-to-hour fluctations in the price meant punters often got wiped out. No stock certificates ever changed hands. This was betting, pure and simple.
Strategists See Growing Bets on Emerging-Markets Via ETF Options
Joanna Ossinger – Bloomberg
Strategists have detected a growing appetite for bets on emerging markets using options on exchange-traded funds, as investors hunt for assets expected to benefit from a global economic recovery.
Bullish bets are evident on the iShares MSCI Emerging Markets ETF, according to Susquehanna Financial Group LLLP and Nomura Holdings Inc. Optimism is also apparent for China, Brazil and Mexico ETFs, Susquehanna’s derivatives strategist Chris Murphy wrote in a note.
Oil-linked LNG may be here to stay after spot market skyrockets
Jessica Jaganathan – Reuters
A blistering 1,000% rally in Asian spot liquefied natural gas (LNG) prices since July has undermined buyers’ enthusiasm for relying solely on the spot market, and means archaic oil-linked contracts are here to stay, industry sources told Reuters.
Asian spot LNG prices LNG-AS dropped to as low as around $1.85 per million British thermal units (mmBtu) in May last year as coronavirus-induced lockdowns hammered gas demand, but shot up to a record $32.50 per mmBtu this week after an Asia-wide cold snap pumped up gas demand and drained stocks.
JPMorgan to Goldman Sachs Are Betting on European Equities
Michael Msika – Bloomberg
Investor bets on a global economic bounce, which is fueling a recovery in stocks that have been left behind in the rally, signal good times for the European equity market in 2021.
Strategists from JPMorgan Chase & Co. to Goldman Sachs Group Inc. are bullish on the laggard market’s outlook. On average, the 24 strategists surveyed by Bloomberg are positive on European equities, seeing about 4% upside for the Stoxx Europe 600 this year, and 5% for the Euro Stoxx 50, compared with Wednesday’s close.
Goldman Sees Quants With $200 Billion Nearly Maxed Out on Stocks
Yakob Peterseil – Bloomberg
A $200 billion breed of systematic investor that helped fuel last year’s market mayhem is now a whisker away from “maximum allocation” to stocks in the latest sign of Wall Street euphoria. According to Goldman Sachs Group Inc., volatility-targeting quants who buy and sell subject to how much equity prices swing around are all but fully invested in the record-breaking rally. Now, any spike in volatility could spur these largely rules-based traders to hit the sell button and in turn intensify any market correction. “We see these funds as more of a market risk than a source of stability in the near term,” Goldman strategists including Rocky Fishman wrote in a note this week.
Exchanges and Clearing
Introduction of equity options on US shares admitted to Xetra trading; Eurex Circular 004/21 Introduction of equity options on US shares admitted to Xetra trading
The Management Board of Eurex Deutschland took the following decision with effect from 25 January 2021:
Expansion of the 6.25 Basis Point Strike Price Listing Schedule of the Options on Three-Month Eurodollar and Three-Month SOFR Futures Contracts
Effective Sunday, January 24, 2021 for trade date Monday, January 25, 2021, Chicago Mercantile Exchange Inc. (“CME” or “Exchange”) will expand the 6.25 basis point strike price listing schedule for the Options on Three-Month Eurodollar Futures (Rulebook Chapter 452A) and Options on Three-Month SOFR Futures contracts (Rulebook Chapter 460A) (the “Contracts”) for trading on the CME trading floor, the CME Globex trading platform (“CME Globex”) and for submission of clearing via CME ClearPort as noted in the tables below.
Cboe Global Markets Statement on Political Action Committee Donations
Cboe Global Markets, Inc., a market operator and global trading solutions provider, today issued the following statement: The Cboe Global Markets Political Action Committee (PAC) is temporarily pausing all donations following the assault on the U.S. Capitol last week. Cboe believes respecting the outcome of free and fair elections is the hallmark of modern democracy and we deeply believe in the democratic principles inherent in our electoral process. We are reviewing our PAC contribution strategy to ensure it aligns with our values, which include honoring the democratic process and supporting progress on important issues in a bipartisan and collaborative manner.
Regulation & Enforcement
US Market Structure Regulation To Continue In 2021
Shanny Basar – Traders Magazine
Regulation on US market structure is likely to continue this year as the Democrats control Congress and Gary Gensler has been reportedly appointed as head of the Securities and Exchange Commission. Kevin McPartland, head of market structure and technology research at consultancy Greenwich Associates, said in a webinar today that there will be more regulatory action as a Democratic administration takes over next week. Reuters has reported that Gary Gensler, former head of the Commodity Futures Trading Commission, will be appointed as head of the SEC. McPartland said: “He was a prolific implementor of the Dodd-Frank Act when he was head of the CFTC so regulation will be something to watch.”
Options Appoints Former NYSE Euronext Executive as VP of Software Development
Options Technology (press release)
Options, the leading provider of cloud-enabled managed services to the global capital markets, has today announced former NYSE Euronext executive, Kieran Northime as VP of Software Development. Kieran joins Options with three decades of experience across infrastructure, market data and software development, following roles with Wombat Financial Software, Lehman Brothers, Misys (now Finastra), and at NYSE Euronext, where he was VP of Technology, Exchange Solutions. Prior to Options, Kieran most recently founded bespoke systems solution company, Black Eye Technology. He has experience working with a wide range of companies including top tier financial institutions, software consultancy firms, leading software and hardware vendors as well as start-ups, having worked globally across the US, France, Switzerland, Korea, Thailand, Singapore, Indonesia, Japan, Australia, the UK and Ireland.
“Understanding and using VSTOXX Futures”
Warren Buffett famously suggested that successful investors should “Be fearful when others are greedy. Be greedy when others are fearful.” That leaves investors asking, “how can we know whether others are fearful or greedy?” In his article, Tariq Dennison of GFM Asset Management, takes a closer look at one of the “fear barometers” – the VSTOXX volatility index, and explains how this benchmark is calculated and how the Eurex-listed VSTOXX Futures contracts can be used to trade short-term volatility or harvest yield.
2020 Annual Trends in Futures and Options Trading
Description: This webinar will highlight the main trends in trading activity in 2020 in the global exchange-traded derivatives markets, with category and regional breakdowns as well as exchange and contract rankings.
Presenter: Will Acworth, Senior Vice President of Publications, Data & Research, FIA
Time: Jan 27, 2021 10:30 AM in Eastern Time (US and Canada)
Investors urged to exercise caution after bitcoin price swings
Madison Darbyshire – Financial Times
Finance experts have urged retail investors to take care when buying into bitcoin after the UK regulator this week warned savers of the risks of putting money into volatile cryptocurrencies.
The Financial Conduct Authority cautioned that the market for cryptoassets offered little protection for consumers and firms offering them often overstated the rewards and downplayed the risks.
(Podcast) TWIFO 232: Metals Sink and Small Caps Sprint While Ags Soar
This Week In Futures Options – Options Insider Network