| | | | | | | February 25, 2025 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
Volatility Insight of the Week: Access global volatility benchmark indices, derived from the world's most actively traded options on futures across asset classes. Track how markets are responding to events as they occur here. | | | | | | Lead Stories | | | A market-making model for an options portfolio; Vladimir Lucic and Alex Tse fill a glaring gap in European-style derivatives modelling
Mauro Cesa - Risk.net
Options market-making models are among the financial industry's most closely guarded trade secrets. So much so that researchers looking for an example in the financial literature often end up recreating the confused John Travolta meme from Pulp Fiction. "I can't recall a portfolio-level market-making model [being] published," says Vladimir Lucic, a visiting professor at Imperial College London and head of quants at Marex Solutions. "There are some looking at single options, but not more realistic ones at portfolio level, where you look at the risk of the whole book and try to manage it."
/jlne.ws/4k7czqJ
The Impact of Dispersion on Market Expectations and Volatility
Henry Schwartz - Cboe
Dispersion measures how much the returns of individual stocks differ from each other over a given period. In periods of high dispersion, some stocks greatly outperform others. When dispersion is low, most stocks result in similar returns. Dispersion is the opposite of correlation. Realized correlation can be tracked using the actual returns of stocks or ETFs, while the expected future correlation can be estimated from the implied volatility of individual stocks compared to index volatility. The Cboe DSPXSM Index provides a real time and historical measure of implied dispersion of major stocks in the S&P 500Ã versus the index volatility itself.
Over the past six months, we can see how a number of sector ETFs have performed, led by XLY (consumer goods and services) and XLF (financials) with returns near 20%, while XLV (health care) and XLE (energy) have lagged. Returns for the S&P 500 Index line up near the center of the data, illustrating the diversification that passive investors expect.
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Wells Fargo Revs Up FX Options in Latest Swing at Trading Growth
Yizhu Wang - Bloomberg
Wells Fargo & Co. is adding a new front to a trading business that executives see as a key test for the firm's ability to go toe-to-toe with Wall Street giants. The firm is diving into foreign-exchange options, armed with new offerings and a bulked-up team of traders across three continents. It's the latest volley for its broader currencies business, which is pulling in over $1 billion in annual revenue, according to people familiar with the matter.
/jlne.ws/3XFwyTR
Wall Street Fear Gauge Points to Market Anxiety
George Glover - Barron's
Investors were feeling on edge Tuesday, with Nvidia's hotly anticipated earnings likely to determine how much longer the boom in artificial-intelligence stocks can last.
The Cboe Volatility Index, a widely followed fear gauge that tracks S&P 500 options and trades under the ticker VIX, climbed 2% to just over 19 in early trading, meaning it's close to its highest level of 2025.
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Wall Street Gamblers Get Crushed as Leveraged ETF Losses Hit 40%; Selling pressures rise after disappointing economic reports; Bets tied to cryptocurrencies have been particularly hard hit
Denitsa Tsekova and Isabelle Lee - Bloomberg
They were all the rage on the way up: high-risk, high-return exchange-traded funds, minted in bulk by Wall Street product managers in the euphoria of the post-election bull market.
Now these speculative products are dealing their owners a gut punch after a series of disappointing economic reports and anxiety over US trade policy have put a brake on risk tolerance across the markets.
/jlne.ws/4gVa089
| | | | | | Exchanges | | | CME Group Announces First Trades of Options on Bitcoin Friday Futures
CME Group
CME Group, the world's leading derivatives marketplace, today announced its new financially settled options on Bitcoin Friday futures are now available for trading. The first trade, a block, took place on Sunday, February 23, and was executed between Cumberland DRW and Galaxy and cleared by Marex.
/jlne.ws/3D6ujBL
Open Interest across ICE's Global Futures and Options Markets Reaches a Record 100 Million Contracts
ICE
Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of technology and data, today announced that its global futures and options markets reached record open interest (OI) of over 100 million contracts on February 20, 2025, up 11% year-over-year (y/y). "ICE was founded twenty-five years ago with a mission to better serve global markets by making markets more transparent and accessible," said Jeffrey C. Sprecher, ICE Chair & Chief Executive Officer. "We started this mission in energy and in the years since have built the largest energy exchange and clearinghouse in the world, which are part of a network of markets and infrastructure which offer deep liquidity across a range of asset classes. The open interest at ICE today reflects the critical role derivatives markets play in helping the market manage risk, and we thank our customers for their business and their trust in choosing ICE."
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CME Group and DTCC expand cross-margining arrangement; The move aims to help users access capital efficiencies available when trading US Treasury securities and CME Group interest rate futures that have offsetting risk exposures.
Wesley Bray - The Trade
CME Group and the Depository Trust and Clearing Corporation (DTCC) are set to expand their existing cross-margining arrangement to offer increased margin savings and capital efficiencies to end users. Expected to expand by December, subject to regulatory approval, this proposed enhancement will enable eligible end user clients at CME Group and the Government Securities Division (GSD) of DTCC's Fixed Income Clearing Corporation (FICC) to access capital efficiencies available when trading US Treasury securities and CME Group interest rate futures that have offsetting risk exposures.
/jlne.ws/4bhxB1G
| | | | | | Regulation & Enforcement | | | Hedge Funds Face Fresh Watchdog Scrutiny Over Huge Macro Wagers; Basis trade, carry trade could threaten financial stability; FSB creating new taskforce to unmask hidden leverage risks
Laura Noonan - Bloomberg
The world's top financial stability watchdog is setting up a dedicated taskforce to unmask areas where shadow banks could spark a broader crisis, the chair of the Financial Stability Board told Bloomberg News.
The carry trade, used by investors to place leveraged bets on interest rates, and the basis trade, a popular wager using financial gearing to exploit price discrepancies in government-bond markets, are "two excellent examples" of areas the FSB could focus on, said Klaas Knot, who is also governor of the Dutch National Bank.
/jlne.ws/41cRUc6
| | | | | | Technology | | | Launch of using CONNEQTOR in "Tokai Tokyo Discretionary Investment Management Service" provided by Tokai Tokyo Securities Co., Ltd.
JPX
Tokyo Stock Exchange, Inc. ("TSE") is pleased to announce that Tokai Tokyo Securities Co., Ltd. ("Tokai Tokyo Securities") will start using the RFQ (Request For Quote) platform CONNEQTOR, a service provided by TSE to improve the liquidity of the ETF market, for its "Tokai Tokyo Discretionary Investment Management Service" ("Discretionary Investment Management Service"), which Tokai Tokyo Securities started offering in January 2024.
/jlne.ws/3CT3b9q
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