| December 05, 2023 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Lead Stories | | | Stock-hungry volatility funds, 'gamma-heavy' options dealers could buoy US equities
Saqib Iqbal Ahmed - Reuters
An epic rally in U.S. stocks has sent Wall Street's fear gauge to a post-pandemic low. Options strategists believe market gyrations may stay subdued for some time - potentially smoothing the way for further gains in equities.
The Cboe Volatility Index (.VIX), which measures investor demand for protection against stock swings, is hovering just above that low of 12.45 hit late last month, in contrast with a long-term average level of about 20.
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Why the VIX Keeps Investors on Edge
The Wall Street Journal (Video)
Since the financial crisis, the Cboe Volatility Index â also known as the VIX â has been considered an early warning signal for market distress. But how does it work? WSJ explains.
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'No Bears Left' Is Worrying Refrain Coming From Wall Street
Sagarika Jaisinghani and Thyagaraju Adinarayan - Bloomberg
The message coming from Wall Street is that investor optimism is running dangerously high.
Overstretched technicals and the belief that the Federal Reserve won't cut interest rates as quickly as markets expect are driving a sudden pessimistic turn from equity specialists at JPMorgan Chase & Co. and Morgan Stanley. As Goldman Sachs Group Inc. Managing Director Scott Rubner put it in a report, there are "no longer any bears left."
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Nigeria Unnerves Oil Traders With Sudden Pricing Change
Bill Lehane and Nduka Orjinmo - Bloomberg
Nigeria's state oil company is to alter how its crude cargoes are priced from next month, a step that traders said may make handling the nation's barrels more risky.
Nigerian National Petroleum Co. will start pricing its supplies against the monthly average of Dated Brent, the physical-crude benchmark, a company circular seen by Bloomberg News shows. Up until now, pricing has been based on Dated Brent's average settlement in the five days after loading.
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Farmer sentiment improves, producers credit stronger financial conditions
CME Group
Agricultural producers' sentiment increased for the second consecutive month, as the Purdue University/CME Group Ag Economy Barometer index rose 5 points to a reading of 115, a 12% increase compared to the previous year. The sentiment growth is largely attributed to farmers' improved perceptions of their farms' financial conditions and prospects. This month's Ag Economy Barometer survey was conducted from November 13-17, 2023.
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| | | | | | Exchanges | | | CME Group Achieves Highest-Ever November ADV of 28 Million Contracts; Interest rate ADV reached 16.8 million contracts, marking a significant peak; The marketplace's interest rate options soared 31% to 3.1 million contracts
Jared Kirui - Finance Magnates
CME Group has released its market statistics for November, highlighting a surge in trading volumes. The marketplace achieved an average daily volume (ADV) of 28.3 million contracts, marking a remarkable increase of 21% from the previous year.
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November 2023 figures at Eurex; Total Eurex volume grew by 18 percent in November year-on-year. Total repo volumes up 65 percent to EUR 402 billion plus a new record high in term-adjusted repo volume. Notional outstanding in OTC Clearing up 16 percent year-on-year in November.
Eurex
Eurex, Europe's leading derivatives exchange, reports an 18 percent year-on-year increase in traded contracts for November, from 141.8 million to 167.5 million contracts. Interest rate derivatives saw strongest growth up 63 percent, from 47.4 to 77.4 million contracts traded in November. Equity derivatives grew by 21 percent to 22.8 million contracts in November from 18.8 million contracts in the same month last year. By contrast, turnover in index derivatives decreased by 11 percent year-on-year in November, from 75.3 million to 67.1 million traded contracts.
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Intercontinental Exchange Reports November 2023 Statistics
Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE:ICE), a leading global provider of data, technology and market infrastructure, today reported November 2023 trading volume and related revenue statistics, which can be viewed on the company's investor relations website at https://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.
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BME launches new functionalities in the stock and derivatives markets
BME
BME introduces two new features in Equities, including Trading At Last, which is a new trading phase after the closing auction. MEFF, BME's derivatives marketplace, introduces the new Flag Retail functionality, which allows an order to be marked as belonging to a retail client. BME begins December with new services for its clients on the stock exchange and on its derivatives market, MEFF. On the one hand, it has incorporated two new functionalities for those securities traded in the auction at the close of the market session, while MEFF has launched a new system functionality to mark an order as belonging to a retail client.
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Mobilising collateral key to avoiding a liquidity crisis: Panellists at FIA Asia discuss the future of clearing in volatile markets
Kirsten Hyde - FIA
At FIA's Asia conference in Singapore on 29 November, a panel of experts discussed the future of clearing in volatile markets, with a focus on liquidity crises, collateral issues, and the prospects for tokenisation.
The panellists discussed the series of events over the last three years that have triggered large, sudden increases in margin requirements from derivatives clearinghouses, prompting concerns from both clearing members and their customers that some of these increases had acted in a procyclical manner, triggering or amplifying liquidity stress in the financial system.
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| | | | | | Regulation & Enforcement | | | Israel investigates possible trading knowledge ahead of Oct 7 Hamas attack
Steven Scheer - Reuters
Israeli authorities are investigating claims by U.S. researchers that some investors may have known in advance of a Hamas plan to attack Israel on Oct. 7 and used that information to profit from Israeli securities. Research by law professors Robert Jackson Jr from New York University and Joshua Mitts of Columbia University found significant short-selling of shares leading up to the attacks, which triggered a war nearly two months old.
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Carbon-Credit Derivatives Get More Scrutiny From US Regulator; CFTC wants to standardize the developing asset class; Carbon-credits susceptible to fraud, manipulation, critics say
Lydia Beyoud - Bloomberg
A key US regulator is planning to put in place guardrails for the fast-growing market for voluntary carbon-credit derivatives. The Commodity Futures Trading Commission on Monday floated fresh guidance for exchanges that want to list futures or other derivatives products based on carbon credits. Critics say the market lacks transparency and could be manipulated by fraudsters.
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Nondisclosure Agreements Get Trickier Under New SEC Scrutiny; The SEC is trying to ensure nondisclosure language isn't used to deter whistleblowers. Prodded by some stiff fines, companies are reviewing their confidentiality agreements.
Mengqi Sun - The Wall Street Journal
Companies have long used employee nondisclosure agreements to protect proprietary information. Now, regulators are trying to ensure that clauses in those agreements don't also serve to inhibit whistleblowers from reporting potential corporate wrongdoing. In recent months, the U.S. Securities and Exchange Commission has taken a number of actions against companies whose various employment contracts have language that might hold employees back from reporting misconduct to regulators. A watershed moment came in September, when the SEC fined hedge fund D.E. Shaw $10 million.
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| | | | | | Strategy | | | Record Monthly Closing Highs for 10 Cboe Strategy Indices
Matt Moran - Cboe
This Index Insights Monthly Scorecard provides an update on the performance of dozens of indices that track the levels of volatility or the performance of hypothetical strategies that invest in options or futures.
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What the Stock Market Taught Us This Year: Don't Fall for These Investing Traps
Mellody Hobson and John W. Rogers Jr. - The Wall Street Journal
The uncertainty around near-term interest rates has dominated the story of the stock market in 2023. Perhaps not since the 1970sâwhen runaway inflation and sky-high interest rates were the crisis du jourâhas monetary policy affected investment outcomes in such a pronounced way.
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Eye-Popping Yields Mask Paltry Returns From These Funds; A retail trading boom has spawned ETFs paying fat dividends, but caveat emptor
Spencer Jakab - The Wall Street Journal
For conservative income investors, some new funds look too good to be true. That's because they are.
Touting annual distribution rates of 50% or more, they generate cash by selling options contracts on some of the most speculative parts of the stock market. The good news is that the exchange-traded funds don't carry the risk of instant ruin that sellers of the derivatives can face. The bad news is that what sounds edgy and lucrative are new flavors of an old and often disappointing strategy.
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Steeper Contango
Cboe (Video)
In #Vol411, Tim Biggam @Delta_Desk lets us know that we're seeing a put/call ratio that's favoring $VIX calls at about a 2 to 1 basis, the term structure of #VIX futures is back into a little bit of a steeper contango and more.
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| | | | | | Education | | | Navigating the World of Short-Term Index Options
Tony Zhang - Nasdaq
In a world where news and market-moving events are streamed in real time, traders are often in pursuit of opportunities that align with shorter time horizons and risk appetite. Shorter-dated options, especially those that range from zero (0DTE) to five days to expiration, are instruments that amplify both the potential for high returns and the level of risk. These unique options, when traded as European-style index options over their ETF counterparts, can offer advantages such as cash settlement and favorable tax considerations. Additionally, the introduction of the micro-sized Nasdaq-100 index options (XND) allow retail investors to harness the same benefits with more flexibility on size.
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Gamma Scalping: A Primer
TD Ameritrade: The Ticker Tape
It's no easy task to profit from short-term trading on small market movements. However, there is a strategy that option traders can use to attempt to increase their chances of trading profitably if they keep a close eye on volatility. It involves buying calls or puts, then hedging the position, and finally using a couple of tools that measure changes in options pricing to try to close profitable trades.
It's known as gamma scalping, an advanced trading approach that requires experience and a studied viewpoint of how volatility could affect an underlying stock. It often involves complicated work that takes precision, experience and requires close attention to account management.
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The Bid/Ask Spread and Liquidity
tastylive (Video)
If you want to trade like a tastylive trader, you have to learn how to talk like a tastylive trader. Sit down with Tom and Tony as they dish out and discuss popular trading topics that give you an edge when opening, closing and managing your trades.
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| | | | | | Events | | | Women in Listed Derivatives (WILD) is offering a virtual event titled "Show Up, Stand Out, Break Through" on Tuesday, January 9 from 12:00 PM - 01:00 PM Central Time. Bonfire is a leadership development program "designed to help women build the skills, utilize the tools, and own the confidence they need to Claim Their Voice, Use Their Power and Matter More," the invitation says. Odessa Jenkins, a successful tech/SAAS business executive, CEO of Bonfire Women, and founder of the Women's National Football Conference (WNFC), is leading the event. You can find more information and register here. ~SR
| | | | | | Miscellaneous | | | What REALLY drives stock market returns
Robin Wigglesworth - Financial Times
First, a cry of anguish. Even by the standards of economic academia, this synopsis is a world-class word salad.
"The paper reviews the evidence on the macroeconomic announcement premium and its implications on equilibrium asset pricing models. Empirically, a large fraction of the equity market risk premium is realized on a small number of trading days with significant macroeconomic announcements. We review the literature that demonstrates that the existence of the macroeconomic announcement premium implies that investors' preferences must satisfy generalized risk sensitivity. We show how this conclusion generalizes to environments with heterogeneous investors and demonstrate how incorporating generalized risk sensitivity affects economic analysis in dynamic setups with uncertainty."
This is a shame, because the actual findings are fascinating. Since 1961, the ca 44 days a year where there has been major economic news account for over 71 per cent of aggregate equity market returns.
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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