The recent all-time high of the Cboe Volatility Index is convincing some investors that markets have yet to bottom out from coronavirus shocks. "While the S&P 500 rallied 20%+ from its low during the week, VIX remained stubbornly elevated along with stock implied correlations," wrote said Julian Emanuel of BTIG.
Investors looking to profit from gyrations in the markets have been attracted to products that often gain in value when volatility increases. Such trades, which increased in popularity after the financial crisis, haven't seen their appeal enhanced as volatility has spiked dramatically this year.
Some Wall Street traders are forgoing working from home and trading from their largely empty corporate offices, where they are better equipped to capitalize on the current volatility-driven frenzy. Many traders working from the office see this time as a seminal moment in their careers.
The Cboe Volatility Index indicates an expectation of ongoing market volatility, the high levels since the index was established in 1993. "We need to reduce the uncertainty level," says Robert Whaley director of the Financial Markets Research Center at Vanderbilt University.
Finding storage space for traded commodities, particularly oil, has become one of the biggest challenges in the marketplace amid the transportation disruptions brought by the coronavirus pandemic. The cost of warehouse storage has surged, and some traders are resorting to chartering ships to hold goods like fuel oil out at sea until it can be delivered.
West Texas Intermediate oil slid 6.6% on Monday to settle at $20.09, the lowest since February 2002, after trading as low as $19.27 during the session, while Brent crude also hit an 18-year low of $22.76 per barrel. As the coronavirus outbreak continues to weigh on oil demand and with OPEC producers poised to increase production, oil could plunge to $10 per barrel, Raymond James analyst John Freeman said.
High-speed traders are benefiting from the market's high volatility, with some expecting their first quarter post-trading income to be more than double the amount from Q1 last year. Bright Trading's Dennis Dick said one of the firm's most successful strategies has been "selling the rips and buying the dips."
Cryptocurrencies and other digital assets appear close to wholesale adoption by traditional traders, with 97% of companies saying they will reconsider their stance of nonuse during the next two years, according to a study from Acuiti, Bitstamp and CME Group. "We also found a growing split between demand from traditional trading firms to broaden their coverage of digital assets and the willingness or ability of sell-side firms to provide access," Acuiti Managing Director Will Mitting says.
Options exchanges and trading firms got a reprieve from a potential strain on markets when the Federal Reserve moved up the effective date for a new methodology for measuring counterparty credit risk related to derivatives such as options contracts. The effective date for the change was moved up by a few days to help firms deal with increased volatility.
Options activity is showing little faith in a new peak for bitcoin in 2020, in spite of a recent bull run for the cryptocurrency. Currently, bitcoin is trading at less than half of its all-time high mark.
President Donald Trump and Russian President Vladimir Putin talked over the phone on Monday about plunging oil prices and said they would instruct their top energy officials to hold further discussions on how to address oil market volatility. Both Trump and Putin concurred that global energy markets need to be brought into balance, White House spokesman Judd Deere said.
The Commodity Futures Trading Commission, acting on a request from FIA, has granted a temporary exemption that allows foreign affiliates of futures commission merchants to accept orders from US participants for execution on US contract markets. "The pandemic has caused compliance with certain CFTC requirements to be particularly challenging or impossible because of displacement of personnel from normal business sites due to social distancing and other measures," CFTC staff said.
Commodity Futures Trading Commission Chairman Heath Tarbert told the Financial Stability Oversight Council that the US derivatives markets have acted as "shock absorbers" to the disruptions caused by the coronavirus outbreak. "Unlike during the 2008 financial crisis, derivatives have internalized the impact of market swings," he said.
The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency are giving banks a two-year relief from new accounting standards and the potentially higher capital requirements they might face. The regulators are also allowing banks the option of adopting new rules on measuring counterparty risk a quarter early.
US policymakers have rejected the idea of closing exchanges as a measure to calm market volatility. "You could actually be causing more chaos by trying to close the U.S. markets down," said CME Group Chairman and CEO Terry Duffy. "I think it's a horrible idea."