YOLO Army Gets Hit by Volatility as Speculative Stocks Whipsaw
Justina Lee and Denitsa Tsekova – Bloomberg
A hawkish turn from Jerome Powell just as fresh pandemic jitters break out is pummeling the most speculative investing strategies in this era of the bull market.
Think Cathie Wood’s ARK Innovation ETF, new market debuts, meme stocks — and futuristic tech companies with great promise but zero profits. All these investing bets have dropped at least 6% this week as the dual threat of higher rates and Covid restrictions undercuts appetite for risky names.
U.S. Stocks’ Wall of Worry Rises Far Beyond the Omicron Variant
Joanna Ossinger – Bloomberg
Investors are worrying about a lot more than just the omicron variant, if recent market moves are anything to go by.
While the newly discovered virus strain has been one of the main catalysts for the recent slump in U.S. stocks, action under the surface points to concerns about the Federal Reserve, inflation, valuations, year-end volatility and perhaps even some some profit-taking after a solid year of gains.
Thriving amid risk and uncertainty
There’s potential for more of the recent volatility on which FX options thrive, which is keeping implied volatility and subsequent option premiums elevated across the board.
That’s as markets await data on the new COVID variant, which will be key for the 2022 outlook, with typical year-end liquidity issues and impending central bank policy announcements from the United States, Britain and the euro zone heightening the volatility risk.
Stock Market Volatility Drives Dollar Flows, Not the Other Way
Kriti Gupta – Bloomberg
Call it the new, new normal in the trading relationship between the U.S. dollar and stocks. Equities volatility and the hedges that come with it are dictating flows in the U.S. currency, not the other way around.
“The dollar has become of one of the last hedges that are really working in this environment,” Russ Koesterich, Blackrock Global Allocation Fund Portfolio Manager, said in a Bloomberg TV interview. “It has become fairly negatively correlated with stock.”
A Stock Market Indicator That Predicted the 1987 Crash Is Flashing Red Again
Rob Curran – Yahoo! Money
Amid a historic stock market rally, millions of Americans have been buying and trading stocks. But at least one key market indicator suggests the party may not last.
A widely followed gauge of what Wall Street calls “investor complacency” has been flashing a warning sign since early November. The CBOE equity put-call ratio measures the number of bearish to bullish stock market bets on the options market. The lower the number, the more optimistic investors are.
On Nov. 8, the ratio hit 0.36, one of the lowest readings since 1999. While fears triggered by the new COVID-19 Omicron variant led to an uptick this week, on Wednesday it was 0.52, still low by historical standards.
Omicron Fears Slam Stocks Again. Why a Correction Could Be Near.
Jacob Sonenshine – Barron’s
To say that the Omicron variant is shaking the market would be an understatement. But add that stocks are more expensive than they’ve ever been—and a true correction now wouldn’t surprise anybody.
The S&P 500 has fallen about 4% from its all-time high hit in late November, just before scientists in South Africa reported the new Covid-19 strain. On Friday, the market had its worst day of the year. Tuesday was more ugliness—producers of vaccines and treatments predicted their remedies probably wouldn’t be as effective against…
In his final warning, this stock trading wizard — who made big money in bear markets and crashes — called this market a bubble like no other
Michael Sincere – MarketWatch
Mark D. Cook, a veteran options trader who was featured in author Jack Schwager’s best-selling “Stock Market Wizards” book, passed away in late October. I had planned to speak with him to discuss his bearish views on the U.S. stock market, which grew more ominous each week and shared in his twice-daily market advisory service.
Cook was an old-school S&P 500 futures trader. He made his first million dollars in the wake of the October 1987 stock-market crash by loading up on put options before the downturn, thanks to the strength of a signal from the NYSE TICK indicator he closely followed.
Exchanges and Clearing
OCC November 2021 Total Volume Up 40.2 Percent Compared to November 2020; Highest total volume month on record for U.S. listed options
OCC, the world’s largest equity derivatives clearing organization, announced today that November 2021 total cleared contract volume was 949,396,907 contracts, the highest volume month on record and up 40.2 percent compared to November 2020. Year-to-date average daily cleared contract volume through November 2021 was 39,469,816 contracts, up 34.7 percent compared to November 2020.
CME Group Reports November 2021 Monthly Market Statistics
Overall ADV increased 20% year-over-year; Interest Rate ADV rose 40%, driven by SOFR futures ADV growth of 251%; Daily trading volume surpassed 25 million contracts eight times during the month of November
CME Group, the world’s leading and most diverse derivatives marketplace, today reported its November 2021 market statistics, showing average daily volume (ADV) increased 20% to 23.1 million contracts during the month. Market statistics are available in greater detail at https://cmegroupinc.gcs-web.com/monthly-volume.
Crypto.com forges deal to buy two of IG Group’s US trading assets; Digital asset exchange makes push into highly regulated US derivatives market
Joshua Oliver – FT
Crypto.com, the fast-expanding Singapore-based cryptocurrency exchange, has forged a deal with IG Group to snap up two assets that would give it a foothold in the tightly regulated US derivatives market. The company, which grabbed attention last month when it paid $700m to rename Los Angeles’ main basketball arena, on Wednesday agreed to a $216m deal to buy IG’s stake in a US futures exchange and a binary trading group owned by the FTSE 250 company.
CME Group Achieves Four SOFR Records in November
CHICAGO, Dec. 2, 2021 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, today announced that its SOFR futures contracts reached a new open interest record, surpassing 1.6 million contracts on November 30, a 137% increase in open interest year to date and more than 60% growth since mid-September. November’s SOFR average daily volume increased to 304,314 contracts per day, up over 250% year on year.
An excellent finish to 2021: FOW honors Eurex three times over
It is always a good sign when one’s work is acknowledged by clients and the press. Eurex has had this honor already several times this year and now here come the next three awards: a panel of internationally recognized judges at FOW not only named us “Global Exchange of the Year” but also “Exchange of the year – Europe” and “Most Innovative Contract of the Year”.
We are proud, honored and especially excited that the jury recognized that we launched the first regulated market in Bitcoin-related derivatives in Europe with our Bitcoin ETN Futures contracts.
Moves to Make Before the Federal Reserve Meets
Steven M. Sears – Barron’s
Fear is back in fashion.
It’s hard to be definitive about anything in such an erratic environment, but the latest Covid variant, coupled with the realization that the Federal Reserve’s easy-money policies may end sooner than expected, has roughed up stocks and elevated fear premiums in the options market.
S&P 500 Sees Most Volatile Session Since March on Virus Worries
Matt Turner – Bloomberg
The S&P 500 Index slumped for a second straight day on Wednesday, in a sharp reversal from earlier gains as concerns about the omicron variant and the Federal Reserve’s hawkish tilt overshadowed positive economic reports.
The benchmark gauge closed down by 1.2% after earlier rising as much as 1.9%. It was the worst two-day rout since October 2020, with 10 of the 11 major industry groups declining, led by losses in the consumer staples and consumer discretionary sectors. Only the utilities sector advanced. The Nasdaq 100 index fell 1.6%, while the blue-chip Dow Jones Industrial Average slumped 1.3%.
The stock market is extremely oversold and a rebound is likely, according to a technical analyst. These are the key technical levels to monitor.
Matthew Fox – Markets Insider
The stock market’s 4% decline over the past week doesn’t sound bad given that the S&P 500 is up 22% year-to-date, and yet investors are still on edge, anticipating that this decline might be the start of a larger correction ahead.
Volatility has ripped higher amid fears of the new Omicron variant and hawkish comments from Fed Chairman Jerome Powell, with Wall Street’s fear gauge soaring as much as 72% since Friday. But now the stock market is hitting extreme oversold levels, suggesting that a rebound is imminent.
This simple Bitcoin options strategy lets traders profit while also hedging their bets
Marcel Pechman – Cointelegraph
Not sure which way BTC price might go? Here’s how pro traders use the “iron condor” options strategy to place carefully hedged bets.
For traders who are undecided on Bitcoin’s (BTC) move, the “long condor with call options,” or the “iron condor” options strategy, yields optimal results with very low risk. This strategy offers protection down to $53,500, which would be a 7% downside move from the current $57,600, and returns a positive outcome up to $67,500.
These stock-market signals will tell you when it’s safe to buy again
Lawrence G. McMillan – MarketWatch
The S&P 500 index (SPX) has plunged over the past week—ostensibly on fears of the new omicron COVID variant—but really that was just the catalyst that exposed weak internals of this market: breadth, put-call ratios and new lows.
We will go over each of those individually, but this market is already showing signs of becoming extremely oversold, even though the S&P is not down that much from its highs.
Hedge funds wage pandemic battle for top traders
Laurence Fletcher – Financial Times
As investors race to size up the threat from the Omicron coronavirus variant, one corner of the hedge fund industry needs no reminding that the pandemic moves markets.
Helped by diversified portfolios and an ability to slash or raise their level of risk quickly, multi-manager funds including Millennium Management and Citadel have been among the industry’s winners in the wild markets of the past two years.
Ignore Short-Run Volatility and Reap Dow One Million
In his Dec. 1 letter, Russell Wild writes that my op-ed “Get Ready for Dow One Million” (Nov. 3), published when the index exceeded 36,000, somehow jinxed the stock market because the Dow has since declined. I know that Mr. Wild is half-kidding, but I don’t want to pass up this teachable moment. The lesson is this: Stocks don’t go straight up!
I never said they did. I merely pointed out that if shares rise at their historical rate, the Dow will reach 1,573,865 in 50 years. There will be ups and downs—some severe—along the way. That volatility is what scares people so much that they demand high returns from stocks, which is a good thing. Dow One Million is the reward you get for conquering your fear and paying as little attention as possible to short-term market moves.