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The Week that Was: October 11 – 15

Cboe

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Cboe
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A concise weekly overview of the U.S. equities and derivatives markets  

Last week (October 11 – October 15), Big Banks kicked off earnings season on a positive note. The S&P 500 Index is now higher on the year by 19%. Core Consumer Price Index (CPI) data, which excludes food and energy, rose 4% year-over-year in September. Additionally, the Producer Price Index (PPI) for last month was slightly below the consensus estimate, possibly indicating that supply chain bottlenecks are starting to subside.

The Federal Open Market Committee (FOMC) meeting minutes pointed to plans to slow monthly asset purchases, most likely later this year. The committee also highlighted the potential to keep short term interest rates very low for the next few years. However, despite the FOMC’s outlook, the market (Fed Fund futures) is pricing in a probable hike late next year.

Commodities continued to climb with Crude Oil chalking up eight straight weekly gains. Copper also had its largest weekly jump in nearly five years. In terms of S&P 500 Index sector performance, the Materials and Consumer Discretionary sectors led and Technology and Industrials were up more than 2%. Health Care and Consumer Staples were the laggards, gaining approximately 0.85% each.

Finally, weekly jobless claims fell to the lowest levels since the pandemic disrupted the global economy. The COVID-19 Delta variant spread has slowed and the White House announced plans to ease travel restrictions, which bolstered travel-sensitive companies. On the flip side of the ledger, the University of Michigan Consumer Sentiment Index reading fell near multi-year lows, but expectations called for a modest move higher.

Quick Bites

Indices

  • U.S. Equity Indices climbed higher last week.
  • S&P 500 Index (SPX®): Increased 1.8% week-over-week.
  • Nasdaq 100 Index (NDX): Increased 2.2% week-over-week. 
  • Russell 2000 Index (RUT℠): Increased 1.48% last week.
  • Cboe Volatility Index (VIX™ Index): Measured between 20.81 and 15.72 last week and closed at 16.30, lower by 2.5 vols week-over-week.

Options

  • SPX options average daily volume (ADV) was about 1.5 million contracts per day, slightly below last week’s average of 1.62 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4470 strike with a 10/22 expiration) implies a +/- range of about 1.1%. The weekly ATM straddle settled on a 10.1% implied volatility.
  • VIX options ADV was about 460,000 contracts last week, which was above the previous week’s ADV of 420,000 contracts. The VIX options call-put ratio was 1.2:1.
  • RUT options ADV was 59,500 contracts, compared to an ADV of 57,400 contracts the previous week.

Across the Pond

  • The Euro STOXX 50 Index increased 3.1% on the week.
  • The MSCI EAFE Index (MXEA℠) increased 2.4% week-over-week and the MSCI Emerging Markets Index (MXEF℠) increased 2.2% week-over-week.  

Charting It Out

Observations on VIX futures term structure

  • The VIX Index closed lower by 2.5 vols week-over-week. Over the past two weeks the VIX Index has declined nearly 5 vols.
  • The front end of the VIX futures term structure continues to steepen. The spread between October and November VIX futures settled at 2.80 wide. A week prior that spread was 1.85 wide. October VIX futures fell 2.60 and the November VIX futures contract declined 1.65.
  • The standard October VIX futures and options will expire on Wednesday, October 20.

VIX Futures Term Structure

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield declined from approximately 1.61% early in the week to lows of 1.51% intraday Thursday, before ultimately ending the week around 1.58%, lower by 2 basis points.
  • The S&P GSCI continued its ascent, gaining another 2.6%. Crude Oil (WTI), which is now priced above $82 per barrel, added 3.6% last week. However, Copper and Lumber led the charge, gaining 10.6% and 7.0% respectively. 
  • Natural Gas (Henry Hub) declined from highs and closed the week down 2.4%. Soybeans, Cotton, Cocoa and Orange Juice also fell.
  • The U.S. Dollar Index consolidated as interest rates chop between 1.5% and 1.6%. The recently released Federal Open Market Committee (FOMC) meeting minutes indicate a likely willingness to begin the tapering of monthly asset purchases in November.
  • The FOMC will meet on November 2 and 3 but will not hold a press conference or provide an updated Summary of Economic Projections until the December 14-15 meeting.
  • In a repeat of the previous week, Big Tech leaders were higher across the board, with the exception of Facebook.
  • Facebook is set to report its quarterly earnings on October 25. There are questions about the company’s ability to maintain and grow advertising revenues.
  • Tesla gained 7.3% last week. Amazon added 3.7% and Microsoft added 3.2%. Apple climbed by 1.4% and Alphabet shares were up 1.1%. 

Major Cryptos

Bitcoin

  • Bitcoin (BTC) prices were approximately $54,500 on Friday, October 8. BTC trended higher throughout the week and traded up to $61,300 on Friday, October 15. That’s the highest price since mid-April. All-time highs are near $65,000.
  • BTC’s market cap is now $1.2 trillion, constituting 38% of the overall crypto market. BTC has meaningfully outperformed other cryptos in October.
  • Last week, BTC prices exceeded $60,000 for the first time in six months. BTC continues to outperform, and the market seems optimistic about the prospect of a BTC-based ETF gaining SEC approval.

Ethereum

  • On Friday, October 15, Ethereum (ETH) was trading around $3,850.
  • ETH traded as low as $3,350 on Sunday but climbed to $3,800 by the end of the work week, up 6.3% on the week. ETH is now about 11% below all-time highs.
  • ETH market cap is $456 billion, making up about 15% of the overall crypto market.

Crypto Industry

  • MSCI estimates that there is roughly $7.1 trillion in market cap tethered to stocks of companies holding cryptocurrencies.
  • The leading cryptocurrencies have been on a tear in October, led by BTC. The top crypto has gained approximately 40% month-to-date. ETH and Ripple have performed well but lagged. Bitcoin’s market leadership is in part driven by comments from SEC Chair Gensler and the potential for an approved BTC-based ETF in the U.S. The market seemingly anticipates a futures-based ETF, which has led to dislocation (significant premium) between the spot market for BTC and the near-term futures.

Growth in Cryptocurrencies

Growth in Cryptocurrencies

Source: The Daily Shot

Coronavirus

  • The 7-day average COVID-19 infection rates in the U.S. decreased to approximately 86,200 on October 15, compared to approximately 99,700 a week prior. New COVID-19 cases have fallen by nearly 45% since early September. 
  • 58% of the U.S. population is fully vaccinated against COVID-19 and 66% have received at least one dose of a COVID-19 vaccine. For just those 12 years and older the numbers are 67% and 77% respectively. On October 14, the FDA recommended Moderna boosters for those 65 years or older and high-risk adults. 
  • The World Health Organization (WHO) is creating a team to investigate the origins of COVID-19. 

COVID-19 Cases in the U.S.

COVID-19 Cases in the U.S.

Source: The New York Times

Tidbits from the News

Inflationary pressures have spread globally since Spring 2020. According to the chart below, 5-year expectations for inflation have shifted higher since late September. In the U.S., the Consumer Price Index (CPI) jumped 4% year-over-year. Higher prices for food and rent accounted for half of the gains. Rent is approximately 30% of the CPI calculation, so it will be closely watched going forward.

5-Year Global Inflation Expectations

5-Year Global Inflation Expectations

Source: LPL Research and Bloomberg

  • A record number of Americans quit their jobs in August, led by the Leisure industry, which is typically a reflection of a strong U.S. economy. Historically, people are willing to stay in their jobs during difficult economic times. There’s also currently a record 10 million job openings in the U.S. The Retail and Leisure/Hospitality industries continue to struggle with labor shortages.

Number of Americans Leaving Their Jobs

Number of Americans Leaving Their Jobs

Source: St. Louis Federal Reserve and Chartr

The Week Ahead

  • Data to be released this week: Industrial Production and Home Builders Index on Monday; Housing Starts on Tuesday; Beige Book on Wednesday; Weekly Jobless Claims, Philly Fed and Leading Economic Indicators on Thursday; Manufacturing and Services Purchasing Managers Index (PMI) on Friday.

Originally Posted on October 18, 2021 – The Week that Was: October 11 to October 15

General

  • The information provided is for general education and information purposes only. No statement provided should be construed as a recommendation to buy or sell a security, future, financial instrument, investment fund, or other investment product (collectively, a “financial product”), or to provide investment advice.
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 Options

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  • Transacting in VIX Index Products involves the risk of loss, which can be substantial and can exceed the amount of money deposited for a VIX Index Product position (except when buying options on VIX Index Products, in which case the potential loss is limited to the purchase price of the options).
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  • Not Buy and Hold Investment: VIX Index Products are not suitable to buy and hold because: 
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  • The VIX Index generally tends to revert to or near its long-term average, rather than increase or decrease over the long term. 
  • Volatility: The VIX Index is subject to greater percentage swings in a short period of time than is typical for stocks or stock indices, including the S&P 500 Index.
  • Expected Relationships: Expected relationships with other financial indicators or financial products may not hold. In particular:
  • Although the VIX Index generally tends to be negatively correlated with the S&P 500 Index – such that one tends to move upward when the other moves downward and vice versa – that relationship is not always maintained.
  • The prices for the nearest expiration of a VIX Index Product generally tend to move in relationship with movements in the VIX Index. However, this relationship may be undercut, depending on, for example, the amount of time to expiration for the VIX Index Product and on supply and demand in the market for that product.
  • Mini VIX futures contracts trade separately from regular-sized VIX futures, so the prices and quotations for Mini VIX futures and regular-sized VIX futures may differ because of, for example, possible differences in the liquidity of those markets.
  • Final settlement Value: The method for calculating the final settlement value of a VIX Index Product is different from the method for calculating the VIX Index at times other than settlement, so there can be a divergence between the final settlement value of a VIX Index Product and the VIX Index value immediately before or after settlement. (See the SOQ Auction Information section here for additional information.) 

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 Cboe Strategy Benchmark Indices

  • Cboe Strategy Benchmark Indices are calculated and administered by Cboe Global Indices, LLC as described in the methodologies, rules and other information available here using information believed to be reliable, including market data from exchanges owned and operated by other Cboe Companies.
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Index and Benchmark Values Prior to Launch Date

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Taxes

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 General

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Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of Cboe or any of its subsidiaries or affiliates. You agree that under no circumstances will Cboe or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

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Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Cboe and is being posted with permission from Cboe. The views expressed in this material are solely those of the author and/or Cboe and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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Complex or Leveraged Exchange-Traded Products are complicated instruments that should only be used by sophisticated investors who fully understand the terms, investment strategy, and risks associated with the products.  Learn more about the risks here: https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4155

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