| August 12, 2024 | | | |  | Jeff Bergstrom
Editor
John Lothian News | |
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| | | | Observations & Insight | | | 
Volatility Insight of the Week: The differential between the CHF/USD (CHVL) and EUR/USD (EUVL), seen on CME Group's Volatility Index (CVOL), has reached a new high amid shifting central bank policies and carry trade volatility. To learn more about CVOL, please visit here.
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 TradeStation's James Putra talks with JLN about options, crypto derivatives, AI and other trading tools at the OIC conference JohnLothianNews.com JLN spoke with James Putra, vice president and head of product at TradeStation, at the Options Industry Conference in Asheville, NC. The interview is part of the JLN Industry Leader video series sponsored by OCC. In the interview, Putra talked about the pressure on the spot crypto market and said that trying to squeeze it into traditional finance is not necessarily better for the individual customer, and brings high risk for that customer. Watch the video »  Dan Sullivan and Michael Rothstein - JLN Podcast Listen »  Agricultural Futures: Navigating the Fields - John Lothian News Watch Video »
| | | | | | Lead Stories | | | Traders Wary of Going Back to All-In on Stocks Weigh Up Options; Risk reversals, call spreads are cheaper way to bet on moves; Volatility remains elevated; hedging demand makes puts pricey
David Marino and Natalia Kniazhevich - Bloomberg
After one of the wildest weeks in recent market history - the S&P 500 Index posted both its biggest one-day slump and best rebound since 2022 - traders could be forgiven for not wanting to jump back in fully into stocks. Some are now are looking into options. Risk reversals and call spreads, strategies that involve buying a contract while selling another, are known for providing a cheaper way to bet on market direction. Now they're especially appealing for bullish views: In recent days, calls on the S&P 500 Index have been at their cheapest in years relative to puts, data compiled by Bloomberg show.
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Summers Calls for SEC, Exchanges to Probe Monday's VIX Surge; VIX index, key gauge of volatility, rang alarm bells with jump; Summers queries whether liquidity issues were involved
Chris Anstey - Bloomberg
Former Treasury Secretary Lawrence Summers urged the Securities and Exchange Commission and relevant exchanges to look into the historic surge in the most-watched gauge of US financial volatility on Monday. "My understanding is that because there are some illiquid instruments that go into the calculation of the VIX, the VIX had a somewhat artificial move on Monday," Summers said on Bloomberg Television's Wall Street Week with David Westin on Friday. "Since that is so widely watched an indicator, issues of liquidity, issues around how it settles, I think should be studied by the relevant parties in the industry and the regulator - the SEC."
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Wall Street's 'fear gauge' might be lying to you about last week's market turmoil
George Steer and Louis Ashworth - Financial TImes
So was Monday August 5th really an event on par with the Covid-19 crash, the heights of the Notorious GFC, or Black Monday?
Maybe not.
In a note titled "Did VIX Really Hit 65 on Monday?", published last week, Academy Securities strategist Peter Tchir unpicked some of the odd dynamics underpinning movement in the volatility measure often labelled Wall Street's Fear Gauge.
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Hedge funds retrench on risk, fearful of increased volatility
Carolina Mandl - Reuters
Portfolio managers at hedge funds have retrenched from some of their riskier positions after a volatile week for markets. A brutal selloff and recovery in global markets in the past week was triggered by the unwinding of billions of dollars worth of yen-funded trades and worries the U.S. economy was heading to a recession. The CBOE Volatility Index (.VIX) ended at its highest close in nearly four years on Aug. 5.
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Hedge Funds Smell Blood as Lenders Turn on Each Other; So-called 'creditor on creditor violence' has reached such a pitch that funds are wagering tens of billions of dollars on taking advantage of the mayhem.
Laura Benitez, Eliza Ronalds-Hannon, Nishant Kumar, and Reshmi Basu - Bloomberg
iHeartMedia Inc. is the owner of a sprawling network of US radio stations that pumps out music and chat everywhere from New York City to Fairbanks, Alaska. In recent weeks, however, it has been much more selective when addressing one crucial audience: its worried lenders. As the struggling broadcaster ponders a way to refinance billions of dollars of debt, it has started confidential talks with a privileged group of creditors led by fund giant Pacific Investment Management Co. Its other debtholders, meanwhile, have been left on tenterhooks, waiting anxiously by the phone to learn whether they'll be cut out of any restructuring deal. It's the opening scene to an increasingly familiar story.
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Leverage Goes Down When Markets Go Down; Also August volatility, Bank of America hours, Musk conflicts and some father/son insider trading.
Matt Levine - Bloomberg
Deleveraging
Here's one simple way to think about financial markets. There is stuff, and the stuff has prices, and the prices move around. There is some inherent volatility of the stuff.1 For the last year, for instance, the volatility of the S&P 500 stock index was mostly in the neighborhood of 10% to 14%.2 The volatility of the US dollar/Japanese yen exchange rate was maybe 6% to 10%. These numbers change over time. For most of 2022, the S&P's volatility was above 20%.
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Investors Slash Equity Exposure by the Most Since Covid Pandemic; Positioning is underweight after scaling peak in mid-July: DB; Stock exposure implies a sharp slowdown in US earnings growth
Sagarika Jaisinghani - Bloomberg
Investors slashed equity allocations at the sharpest pace since the onset of the Covid pandemic during last week's bout of market volatility, according to data from Deutsche Bank AG. Aggregate allocation to stocks is now in the 31st percentile and underweight, strategists including Parag Thatte wrote in a note dated Aug. 9. Just three weeks ago, exposure was at the top of the historical range in the 97th percentile.
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Carry-Trade Blowup Haunts Markets Rattled by Rapid Unwind; Yen surge sowed havoc as traders dumped assets to repay loans; Brief global crash shows risks fanned by Japan's low rates
Matthew Burgess, Maria Elena Vizcaino, and Vinicius Andrade - Bloomberg
By now, last Monday's global market meltdown looks more like a brief tremor, a fleeting panic unleashed by a small policy shift from the Bank of Japan and resurgent fears of a US recession.
But the way it unfolded so rapidly - and just as quickly faded out - is exposing how vulnerable markets are to a strategy that hedge funds exploited to bankroll hundreds of billions of dollars of bets in virtually every corner of the world.
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Investors Borrowed Like Crazy During the Rally. Now They're Paying the Price.; Behind the market tumult of the past month: the rapid unwind of several popular trades and the heavy use of leverage
Gregory Zuckerman, Jack Pitcher, Vicky Ge Huang and David UbertiFollow - The Wall Street Journal
They built over months: big bets on the Japanese yen. Complex cryptocurrency wagers. Investments in hot tech companies.
Common to all the trades were heavy doses of leverage, or borrowed money, which investors used to amplify expected gains. As markets rose through the first half of 2024, the investments generated windfall profits, inspiring copycat traders to get on board and pushing prices higher.
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ETFs' huge appetite extends to SMAs; Conversions of separately managed accounts are taking place in both the US and Europe, suggesting demand is growing
Steve Johnson - Financial Times
The ballooning exchange traded fund industry is threatening to take a bite out of separately managed accounts, having already eaten the lunch of the mutual fund sector.
Since the start of 2021 mutual funds have suffered outflows of more than $1tn in the US even as flashy upstart ETFs have pulled in $2tn, according to figures from Morningstar. ETFs have also gained market share in Europe and Asia, albeit at a slower pace. This has prompted a flurry of mutual fund-to-ETF conversions as asset managers have pivoted towards the ascendant fund structure.
Now some in the ETF industry are turning their gaze towards SMAs, hitherto another fast-growing segment of the $120tn global asset management industry.
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| | | | | | Exchanges | | | Cboe Global Markets Begins Publishing VIXTLT Index on August 12, 2024
Cboe Global Markets
Designed to provide VIX Index-like measure of U.S. Treasury market volatility; VIXTLT Index calculated using highly liquid, listed options on the iShares 20+ Year Treasury Bond ETF (TLT); Launch adds to Cboe's growing volatility index suite and derivatives-based index offerings; VIXTLT Index available in basis point measure
Cboe Global Markets, Inc.
Cboe Global Markets, Inc. (Cboe: CBOE), the world's leading derivatives and securities exchange network, today announced it has begun publishing intraday values for the new Cboe 20+ Year Treasury Bond ETF Volatility Basis Point Index ("VIXTLT Index"). Leveraging Cboe's proprietary VIXÃ Index methodology, the VIXTLT Index provides market participants with the ability to track future (30-day) expected volatility in the U.S. Treasury market in real-time.
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Nasdaq Announces End of Month Open Short Interest Positions in Nasdaq Stocks as of Settlement Date July 31, 2024
Nasdaq
At the end of the settlement date of July 31, 2024, short interest in 3,043 Nasdaq Global MarketSM securities totaled 11,985,723,964 shares compared with 12,309,469,231 shares in 3,044 Global Market issues reported for the prior settlement date of July 15, 2024. The end of July short interest represent 2.90 days average daily Nasdaq Global Market share volume for the reporting period, compared with 2.95 days for the prior reporting period.
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| | | | | | Regulation & Enforcement | | | Why India's Giant Options Market Is a Worry for Regulators
Chiranjivi Chakraborty - Bloomberg
India has gone from being a small player in the equity derivatives market to the world's largest, all within just five years. Most of the new demand is coming from inexperienced retail investors with an appetite for risk. Annual turnover in the market is now greater than the entire output of Asia's third-biggest economy. Dabbling in these options can land investors with big losses when bets go wrong. Regulators are increasingly concerned about the potential danger to financial stability, and government officials have promised action to reduce the chances of a market blowup.
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Chair of Indian regulator invested in funds linked to Adani, alleges Hindenburg Research; Madhabi Buch and her husband deny claims she is biased and say their finances are an 'open book'
Chris Kay - Financial Times
The chair of India's capital markets regulator held stakes in an offshore fund structure used by Vinod Adani, holding the agency back in investigating fraud charges against the powerful eponymous conglomerate run by his billionaire brother, according to fresh allegations levelled by US short seller Hindenburg Research. Madhabi Buch, head of the Securities and Exchange Board of India, and her husband had "hidden" holdings in Bermuda and Mauritius entities also drawn upon by the older brother of Adani Group founder Gautam Adani, Hindenburg Research said in a post late on Saturday, citing leaked documents in its possession.
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Hindenburg Accusation of Adani Conflict Denied by Sebi Chief; Regulator denies 'baseless' claims and 'insinuations'; The short-seller cites offshore fund investment made in 2015
Menaka Doshi - Bloomberg
Hindenburg Research accused the head of India's market regulator of having conflicts of interest that prevented a thorough examination of manipulation and fraud claims at the Adani Group, an allegation she denied. In a report published Saturday, Hindenburg said Madhabi Puri Buch and her husband, Dhaval Buch, invested in offshore entities that were allegedly part of a fund structure in which Vinod Adani - the brother of billionaire Gautam Adani - also had investments.
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SEBI statement on the Hindenburg Research's Report dated August 10, 2024
SEBI
SEBI takes note of the report published by Hindenburg Research on August 10, 2024. Investors should remain calm and exercise due diligence before reacting to such reports. Investors may also like to take note of the disclaimer in the report that states that readers should assume that Hindenburg Research may have short positions in the securities covered in the report.
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| | | | | | Strategy | | | Morgan Stanley just added these 3 safe stocks to their 'buy' list with the market expected to stay choppy
Filip De Mott - Markets Insider
Morgan Stanley expanded its list of recommended equities with three high-quality stocks, as the bank veer further into defensive positioning.
These names could help shield against ongoing macro uncertainty, which Morgan Stanley does not expect will resolve anytime soon.
Instead, analysts expect the S&P 500 to trade between 5,000 and 5,400 through upcoming months.
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