Cboe Global Markets

The Week that Was: October 4 to October 8

Kevin Davitt
▬
October 11, 2021

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

Last week (October 4 – October 8), monthly jobs data was released with 194,000 new jobs reported falling well below expectations of 500,000 or more. The unemployment rate fell to 4.8%, which was better than expected, however, the labor participation number declined. The Bureau of Labor Statistics revised the July and August job gains and released higher numbers. The weakest portion of the September report was driven by fewer government jobs. The domestic economy is still about 5 million jobs shy of pre-pandemic highs.

Interest rates continued to climb with the 10-year U.S. Treasury yield reaching 1.62% late in the week. The Energy sector led the S&P 500 Index as Crude Oil moved beyond $80 per barrel for the first time since late 2014. Financials and Industrials performed well, while Information Technology, Communication Services and Real Estate lagged, given escalating borrowing rates.

Earnings season will kick off next week with reports from Wall Street’s big banks. The Delta-variant issues have been easing in recent weeks, which could bolster consumer spending activity. However, global supply chain disruptions persist, with an estimated 150+ cargo and container ships outside of the ports of Los Angeles and Long Beach. A significant percentage of imported goods funnel through those two ports and many retailers are concerned that goods will not be on shelves or in warehouses by the start of the holiday season in November.

Quick Bites

Indices

  • U.S. Equity Indices ended the week mixed.
  • S&P 500 Index (SPX®): Increased 0.8% week-over-week.
  • Nasdaq 100 Index (NDX): Increased 0.2% week-over-week. 
  • Russell 2000 Index (RUT℠): Decreased 0.43% last week.
  • Cboe Volatility Index™ (VIX™ Index): Measured between 24.58 and 18.20 last week and closed at 18.77, lower by 2.4 vols week-over-week.

Options

  • SPX options average daily volume (ADV) was about 1.62 million contracts per day. The 3-month running (daily) ADV is 1.4 million, meaning SPX options have been running above average since mid-August. The one-week at-the-money (ATM) SPX options straddle (4390 strike with a 10/15 expiration) implies a +/- range of about 1.6%. The weekly ATM straddle settled on a 14.5% implied volatility.
  • VIX options ADV was about 420,000 contracts last week, which was above the previous week’s ADV of 320,000 contracts. The VIX options call-put ratio was 1.1:1.
  • RUT options ADV was 57,400 contracts, compared to an ADV of 62,100 contracts the previous week.

Across the Pond

  • The Euro STOXX 50 Index increased fractionally on the week.
  • The MSCI EAFE Index (MXEA℠) increased 0.2% week-over-week and the MSCI Emerging Markets Index (MXEF℠) increased 0.65% week-over-week.   

Charting It Out

Observations on VIX futures term structure

  • The VIX Index closed down 2.4 vols week-over-week and the front end of the VIX futures term structure steepened.
  • The spread between the October and November VIX futures settled at 1.85 wide. A week prior that spread was 1.45 wide.
  • October VIX futures fell 1.70 and the November VIX futures contract lost 1.30.
  • The standard October VIX futures and options will expire on Wednesday, October 20. 

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield moved up to four-month highs last week and bonds sold off throughout the week. The 10-year yield moved from around 1.47% on October 1 to approximately 1.60% on October 8 – higher by 13 basis points.
  • The S&P GSCI increased yet again, gaining 2.7% on the week and is now at the highest levels since late 2014. Energy markets continue to trend higher. Crude Oil (WTI) gained 4.8% and Henry Hub Natural Gas was unchanged after another frenzied week. Gasoline gained 5.3%. 
  • Corn and Wheat declined last week. Hogs and Orange Juice were the laggards.
  • The U.S. Dollar Index was rangebound most of the week. It fell slightly following Friday’s disappointing September jobs data. The revisions for July and August data, which were higher than the previously released data, acted as a countervailing force.
  • The technology-heavy Nasdaq 100 Index suffered its worst weekly performance since February. Growth stocks have underperformed as interest rates climb.
  • Big Tech leaders were nearly higher across the board, with Facebook as the exception following a barrage of issues. To compound matters, the Facebook suite of applications (including Instagram and WhatsApp) were offline for a handful of hours on Monday, October 4. Shares fell 3.7% on the week.
  • Alphabet was higher by 2.3% and Microsoft gained 1.9%. Tesla shares were up 1.4% as the company delivered a record number of automobiles in Q3. Apple and Amazon were both fractionally higher last week.

Major Cryptos

Bitcoin

  • Bitcoin (BTC) prices were approximately $43,000 on Friday, October 1, then moved higher for most of the week, trading up to $55,700 on Wednesday, October 6. 
  • Bitcoin was trading at approximately $54,500 as of Friday afternoon, higher by 15% week-over-week.
  • Bitcoin’s market cap once again exceeded $1 trillion and it constitutes 31% of the overall crypto market. 

Ethereum

  • Ethereum (ETH) was trading around $3.,300 on October 1, trending higher throughout the week and moving up to $3,650 on Thursday. At the end of the work week ETH was near $3,620, up 11.4% on the week. ETH is about 18% below all-time highs.
  • ETH market cap is $423 billion, which makes up 13% of the overall crypto market.

Crypto Industry

  • The U.S. Department of Justice pulled from members of its intellectual property and computer crime divisions to create a crypto enforcement group.
  • The Securities Exchange Commission (SEC) approved an actively managed ETF that tracks companies that hold a majority of their assets in Bitcoin or generate most of their revenues from cryptocurrency mining or lending or producing mining equipment.
  • Roughly 25 crypto-related ETFs have been stuck in limbo with the SEC. Chairman Gary Gensler has expressed support for Bitcoin futures in the past.

Coronavirus

The 7-day average COVID-19 infection rate in the U.S. decreased from approximately 110,000 a week ago to approximately 99,700 on October 8. Hospitalization rates and new cases have fallen consistently since mid-September.  

57% of the U.S. population is fully vaccinated against COVID-19 and 65% have received at least one dose of a COVID-19 vaccine. For just those 12 years and older, the numbers are 66% and 76% respectively. Daily vaccination rates are ticking higher since the Pfizer booster shots were rolled out. 

Globally, the 7-day average infection rate again moved lower, from 447,000 to 420,000 week-over-week. Eastern Europe is the latest hotspot.

COVID-19 Infection Rate in the U.S.

Source: The New York Times

Tidbits from the News

  • Cboe’s SKEW Index declined from slightly above 160 to nearly 130 between early September and early October. The SKEW Index tends to fall when the S&P 500 Index declines. According to data from Susquehanna International Group, 1-month S&P 500 Index returns tend to be positive following a 10%+ fall in SKEW. The average 1-month S&P 500 Index return is 2% and the median is 1.68%. Expectancy is also high, with 83% of occurrences being positive a month later.

SPDR S&P 500 ETF Trust Returns

Source: Susquehanna International Group

  • Small-caps outperformed large-caps between November 2020 and mid-March 2021, then reversed course until August 19, 2021. Since August, small caps have again had an edge and the Russell 2000 Index has outperformed by about 400 basis points over the past seven weeks.

iShares Russell 2000 ETF Total Return Price/SPDR S&P 500 ETF Trust Total Return Price

Source: Compound Advisors/Cboe Options Institute

The Week Ahead

  • Data to be released this week: NFIB Small-Business Index on Tuesday; Consumer Price Index (CPI) and Federal Open Market Committee (FOMC) meeting minutes on Wednesday; Weekly Jobless Claims and Producer Price Index (PPI) on Thursday; Retail Sales and Consumer Sentiment on Friday.

Like what you see? Don’t miss the latest insights, webinars, news and announcements from the Cboe Options Institute.

Upcoming Webinars

Portfolio Risk Reduction and VIX® Futures | Wednesday, October 13 at 12 p.m. ET

QVR Advisors’ Benn Eifert and CAIA Association’s Keith Black will join Cboe Options Institute’s Matt Moran for a discussion about strategies related to portfolio risk reduction and VIX futures.

Learn more and register >>>

Cboe Options Institute Back to School Series

IRL: Volatility | Thursday, October 14 at 12:30 p.m. ET

Citadel Securities' Head of Institutional Equity Derivatives and Cboe Options Institute Adjunct Faculty member Dave Silber will discuss current practices for effectively using volatility information to trade, manage and protect your portfolio.

Learn more and register >>>

Volatility Spreads – Part One | Tuesday, October 26 at 10 a.m. ET

Cboe Options Institute Adjunct Faculty member Sheldon Natenberg will discuss the characteristics of the most common volatility spreads and how to put them in to practice.

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Cboe Options Calculator

The Options Calculator is an intuitive and easy-to-use tool for new and seasoned traders alike, powered by Cboe’s All Access APIs. Customize your inputs or select a symbol and generate theoretical price and Greek values to take your understanding to the next level.

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General

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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. 
  • VIX futures and Mini VIX futures, traded on Cboe Futures Exchange, LLC, and VIX options, traded on Cboe Options Exchange, Inc. (collectively, “VIX® Index Products”), are based on the VIX Index. VIX Index Products are complicated financial products only suitable for sophisticated market participants. 
  • 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).
  • Market participants should put at risk only funds that they can afford to lose without affecting their lifestyles.
  • Before transacting in VIX Index Products, market participants should fully inform themselves about the VIX Index and the characteristics and risks of VIX Index Products, including those described here. Market participants also should make sure they understand the product specifications for VIX Index Products (VIX futures, Mini VIX futures and VIX options) and the methodologies for calculating the underlying VIX Index and the settlement values for VIX Index Products. Answers to questions frequently asked about VIX Index products and how they are settled is available here.
  • 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.
  • 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.) 

 Exchange Traded Products (“ETPs”)

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  • Investments in ETPs involve risk, including the possible loss of principal, and are not appropriate for all investors. Non-traditional ETPs, including leveraged and inverse ETPs, pose additional risks and can result in magnified gains or losses in an investment. Specific risks relating to investment in an ETP are outlined in the fund prospectus and may include concentration risk, correlation risk, counterparty risk, credit risk, market risk, interest rate risk, volatility risk, tracking error risk, among others. Investors should consult with their tax advisors to determine how the profit and loss on any particular investment strategy will be taxed.

 Cboe Strategy Benchmark Indices

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Index and Benchmark Values Prior to Launch Date

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 General

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