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The Week that Was: October 18 to October 22

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 18 – October 22), earnings and politics appeared to be two of the primary drivers of strong equity market performance. The percentage of companies beating earnings per share (EPS) and revenue expectations are near record levels. The VIX Index™ fell toward the lowest levels since the beginning of the pandemic.

Negotiations about the size of a potential social and infrastructure spending package continued. Senator Manchin (D-WV) holds considerable sway and has been pushing for a maximum spend of $2 trillion versus the $3 trillion the Biden Administration proposed. With respect to funding, Wall Street cheered the prospect that corporate tax rates may not change, according to the latest rumors about the infrastructure bill.

Meanwhile, the U.S. 10-year Treasury Yield reached five-month highs as inflation concerns remain front of mind for many investors. Interest rate implied volatilities have moved up lately, despite declining equity volatility measures. One measure of bond volatility is up about 27% over the past month. By contrast, the VIX Index declined 17% during the same time frame. Looking at S&P 500 Index sector performance overall, cyclicals were slightly stronger than defensive stocks last week. Real Estate, Utilities and Health Care led, followed by Communications Services. Social Media/Technology names came under pressure after Snapchat lowered its guidance on earnings.

Quick Bites

Indices

  • U.S. Equity Indices continued their advance.
  • S&P 500 Index (SPX®): Increased 1.64% week-over-week.
  • Nasdaq 100 Index (NDX): Increased 1.37% week-over-week. 
  • Russell 2000 Index (RUT℠): Increased 1.0% last week.
  • Cboe Volatility Index (VIX™ Index): Measured between 17.93 and 14.84 last week and closed at 15.43, the second lowest weekly VIX Index close since February 2020.

Options

  • SPX options average daily volume (ADV) was about 1.42 million contracts per day, slightly below last week’s average of 1.5 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4545 strike with a 10/29 expiration) implies a +/- range of about 1.0%. The weekly ATM straddle settled on a 9.0% implied volatility.
  • VIX options ADV was about 530,000 contracts last week, which was above the previous week’s ADV of 460,000 contracts. The VIX options call-put ratio was 1.17:1.
  • RUT options ADV was 42,800 contracts, compared to an ADV of 59,500 contracts the previous week.

Across the Pond

  • The Euro STOXX 50 Index increased 0.7% on the week.
  • The MSCI EAFE Index (MXEA℠) increased 0.7% week-over-week and the MSCI Emerging Markets Index (MXEF℠) increased 0.8% week-over-week. 

Charting It Out

Observations on VIX futures term structure

  • The VIX Index closed down just less than one vol last week and measured below 15 (intraday) for the first time since early July.
  • October VIX futures expired on Wednesday, October 20, and cash settled at 15.35 — the lowest VIX Index settlement (VRO) since January 2020.
  • The Month-1/Month-2 VIX futures spread, which now uses the November and December contracts, settled at 1.95 wide.
  • The November/December VIX futures spread widened by 0.45 on the week. The November VIX futures fell by 0.85 whereas December declined 0.40.
VIX futures curve oct 22 2021

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield climbed all week before falling slightly on Friday. Intraday, the 10-year yield moved to 1.69%, then ended the week at 1.66%, higher by 8 basis points.
  • The S&P GSCI fell week-over-week for the first time since the week ending August 20, 2021 and finished the week down 1.67%. Crude Oil (WTI) traded above $84 (front -month) and gained 2% for the week. Silver and Gold were both higher as well. Copper fell nearly 5% and U.S. Natural Gas futures continued to fall.
  • Big Tech was mixed last week ahead of most of the companies reporting earnings.
  • Tesla led, jumping almost 8% week-over-week. Tesla announced record revenues and profits for third-quarter 2021 and traded above the $900 mark again, surpassing Facebook in terms of market cap last week.
  • Apple and Microsoft added 2.7% and 1.6%, respectively.
  • Facebook was unchanged on the week.
  • Amazon fell by 2.2% and Alphabet declined by 2.7%.  

Major Cryptos

Bitcoin

  • Bitcoin (BTC) traded up to $67,000 on Wednesday, reaching new all-time highs. By Friday afternoon prices declined to approximately $60,900. On a week-over-week basis, BTC fell 0.6%.
  • BTC traded down to approximately $8,200 on the Binance platform in a notable “flash crash.”

Ethereum

  • Ethereum (ETH) traded up to $4,350 on Thursday. At the end of the work week, ETH was trading near $3,950, up 3.5% on the week.
  • ETH market cap is $470 billion, making up 18.3% of the overall crypto market.

Crypto Industry

  • Walmart is piloting a program that will allow shoppers to buy Bitcoin at kiosks in some locations.
  • JP Morgan analysts recently pointed to the demand for Bitcoin and cryptocurrencies in general as a reflection of larger inflationary concerns. 

Coronavirus

  • The 7-day average COVID-19 infection rates in the U.S. decreased to approximately 75,000 on October 22, compared to approximately 86,200 a week prior. The number of new COVID-19 cases continues to decline.  
  • 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. Last week, Pfizer announced that its (lower dose) treatment was 90%-plus effective at preventing symptomatic COVID-19 for children between ages 5 and 11.  
  • Globally, the 7-day average caseload remained steady around 403,000.
  • Last week Russia recorded the highest fatality numbers since the beginning of the pandemic (1,000+ in a day). Less than 30% of Russians are vaccinated.
covid-19 cases

Source: The New York Times

Tidbits from the News

More than 17 million vinyl records were sold in the U.S. between January and June. For the first time since CDs were introduced, sales revenue for vinyl exceeded sales revenue for compact disks. Taylor Swift’s Evermore, Harry Styles’ Fine Line, and Billie Eilish’s When We Fall Asleep, Where Do We Go? have topped the list. Meanwhile, artists have been forced to delay release plans because of logjams at record pressing plants.

recorded music industry revenues by format

Source: RIAA and Chartr

The Week Ahead

  • Data to be released this week: Case-Shiller Home Price Index and Consumer Confidence Index on Tuesday; Durable Goods on Wednesday; Weekly Jobless Claims, Gross Domestic Product (GDP) Seasonally Adjusted Annual Rate (SAAR) on Thursday; Income and Spending, Core Inflation, Chicago Purchasing Managers Index (PMI) and University of Michigan Consumer Sentiment Index on Friday.

Originally Posted on October 25, 2021 – The Week that Was: October 18 to October 22

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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 VIX® Index and VIX® Index Products

  • The Cboe Volatility Index® (known as the VIX Index) is calculated and administered by Cboe Global Indices, LLC. The VIX Index is a financial benchmark designed to be a market estimate of expected volatility of the S&P 500® Index, and is calculated using the midpoint of quotes of certain S&P 500 Index options as further described in the methodology, rules and other information here
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  • Not Buy and Hold Investment: VIX Index Products are not suitable to buy and hold because: 
  • On their settlement date, VIX Index Products convert into a right to receive or an obligation to pay cash.
  • 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.
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  • 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.
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 Cboe Strategy Benchmark Indices

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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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Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Digital Assets

Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. Eligibility to trade in digital asset products may vary based on jurisdiction.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For more information read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or copy and paste this link into your browser:

http://www.optionsclearing.com/about/publications/character-risks.jsp

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.

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