December 24, 2020
Market sentiment and insights through the lens of options on futuresSIGN UP ⋅   SHARE ⋅   ARCHIVE
Trading Trends
Prime Minister Boris Johnson and European President Ursula von der Leyen have announced a deal on Brexit. The news has powered the sterling on its continued rise to $1.3566. "The deal is done," Johnson tweeted.
Full Story: Reuters (12/24),  Financial Times (subscription required) (12/24) 
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Strategists at BlackRock, PIMCO and Goldman Sachs are among those predicting a return to bullishness for the commodity sector, which has languished for nearly a decade, as prices of copper, iron ore and soybeans climb to the highest point in six years. "We are optimistic on commodities overall, as recovering global economic growth and the possibility of higher inflation should be supportive for prices," says Evy Hambro, global head of thematic and sector investing at BlackRock.
Full Story: Bloomberg (tiered subscription model) (12/20) 
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Equity markets registered a spike in trading Friday because of a quadruple witching, in which options and futures on indexes and equities expire simultaneously. During the closing 30 minutes, about 16 billion shares were traded on the S&P 500, 53% higher than the average during the past three months.
Full Story: Bloomberg (tiered subscription model) (12/18),  MarketWatch (tiered subscription model) (12/18) 
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The pattern of options trading shows investors expect stocks to keep climbing, as purchases of call options exceed put options. This reflects "excess enthusiasm," says Chris Murphy of Susquehanna International Group.
Full Story: Financial Times (subscription required) (12/20) 
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CME Group Volatility Index (CVOL) In Focus
Derived from the world's most actively traded options on futures spanning six asset classes, the CME Group Volatility Index (CVOL™) delivers the first-ever cross-asset class family of implied volatility indexes.
CVOL GBP 12_24_20
Spotlight on Options
Sentiment among options traders shows faith in a rebound for the energy sector after a year of steep losses. "We were taking a look at Exxon, this is a name where we saw calls outpacing puts by [a ratio of] about 5 to 1, and the most active options were the January 2022 52.5-calls," said Michael Khouw of Optimize Advisors.
Full Story: CNBC (12/22) 
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Put options offer a hedge for currency traders that are wary of a dollar-yen decline. The trade limits losses without capping potential profits.
Full Story: Nasdaq (12/22) 
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CME Group Insights
Analysis: Second wave hurts US end-of-year recovery
CME Group Chief Economist Blu Putnam reviews the impact of the coronavirus' second wave on the US economic output in the final months of 2020. Travel, consumer spending and the return to office work have all been impacted the pandemic, and the second wave appears to have paused momentum in these areas.
Full Story: CME Group (12/23) 
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Stock market valuations have skyrocketed in 2020 even as the coronavirus pandemic slowed overall economic output, with low yields leaving bonds unable compete. It remains to be seen whether the current high valuations in some sectors are sustainable, writes CME Group Senior Economist Erik Norland.
Full Story: CME Group (12/18) 
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Hot Topics
Policy Update
The Federal Reserve says its latest stress test shows banks have sufficient capital to withstand the coronavirus pandemic and have been "a source of strength during the past year." The central bank will let banks resume stock buybacks during the first quarter, with limits, but will maintain a ban on dividends. "Today's stress test results confirm that large banks could continue to lend to households and businesses even during a sharply adverse future turn in the economy," says Randal Quarles, the Fed's vice chair for supervision. Goldman Sachs, Citigroup and Morgan Stanley have indicated they will resume share buybacks starting in Q1.
Full Story: The Wall Street Journal (tiered subscription model) (12/18),  Financial Times (subscription required) (12/19) 
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The European Securities and Markets Authority is urging the market to start replacing Eonia with the euro short-term rate for trading swaps, suggesting this could help speed up the development of forward-looking term rates. "A liquid €STR derivatives market, providing reliable and transparent price information, is a prerequisite for producing a forward-looking term structure," says ESMA Chairman Steven Maijoor.
Full Story: Risk (subscription required) (12/16) 
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Editor's Note
Volatility SmartBrief will not publish next week
In observance of the holiday season, Volatility SmartBrief will not publish December 31. Publication will resume Jan. 7.
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And now we welcome the new year, full of things that have never been.
Rainer Maria Rilke,
poet, writer
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