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The Week That Was: October 25 to October 29

The Week That Was: October 25 to October 29

Posted November 2, 2021 at 10:12 am
Kevin Davitt
Cboe Global Markets

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

Last week (October 25 – October 29), U.S. Gross Domestic Product (GDP) for third-quarter 2021 came in at +0.5%. On an annualized basis, GDP is up 2.0%. Based on that metric, the economy slowed over the past three months as the COVID-19 Delta variant and supply-chain issues weighed heavily. Factory output slowed as did consumer spending on retail and leisure. There are expectations of continued supply chain and labor issues, but also a spending pickup in the fourth quarter as COVID-19 cases continue to decline.

Last week was the busiest week of earnings season. Roughly 55% of the S&P 500 Index constituents have now reported earnings for third-quarter 2021. So far, earnings growth is up 36% year-over-year, outpacing expectations for an increase of 28%. Meanwhile, the Consumer Discretionary sector led the market higher.

The Biden Administration’s Infrastructure and Social bill appeared to gain traction early in the week, but Senator Manchin and Senator Sinema have expressed hesitation with portions of the proposal. The reworked bill does not include higher corporate or personal tax rates but includes a 15% minimum tax on corporations and a 1% tax on stock repurchase programs.

Looking ahead, the Federal Reserve will meet on November 2 and 3, sharing details of its meeting on Wednesday. On Friday, the Bureau of Labor Statistics will release U.S. October jobs data. Analysts are expecting a 425,000 increase in jobs for the month. The September data was well below the original forecast.

Quick Bites

Indices

  • U.S. Equity Indices continued to march higher as October came to a close.
  • S&P 500 Index (SPX®): Increased 1.33% week-over-week.
  • Nasdaq 100 Index (NDX): Increased 3.23% week-over-week. 
  • Russell 2000 Index (RUT℠): Increased 0.3% last week.
  • Cboe Volatility Index (VIX™ Index): Measured between 18.06 and 14.90 last week and closed at 16.26, up 0.8 vols on the week.

Options

  • SPX options average daily volume (ADV) was about 1.38 million contracts per day, slightly below last week’s average of 1.42 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4605 strike with an 11/05 expiration) implies a +/- range of about 1.2%. The weekly ATM straddle settled on a 11.9% implied volatility
  • VIX options ADV was about 300,000 contracts last week, which was below the previous week’s ADV of 530,000 contracts. The VIX options call-put ratio was 1.06:1.
  •  RUT options ADV was 42,700 contracts, which was in line with the previous week.

Across the Pond 

  • The Euro STOXX 50 Index increased 0.8% on the week.
  • The MSCI EAFE Index (MXEA℠) decreased 0.1% week-over-week and the MSCI Emerging Markets Index (MXEF℠) decreased 2.3% week-over-week.  

Charting It Out

Observations on VIX futures term structure

  • The VIX Index moved slightly higher on the week.
  • The November/December VIX futures spread widened by 0.30 on the week and settled at 2.25 wide. The November VIX futures contract fell by 0.40 and the December VIX futures contract declined by 0.10.
  • On a week-over-week basis, the VIX futures curve is slightly steeper and fell incrementally at the far end.

VIX Futures Term Structure

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield declined early in the week, then rallied Friday. Relative to the previous Friday, the yield fell 0.1% and closed at 1.56%.
  • The S&P GSCI lost 0.3% last week, marking the second straight weekly decline. Crude Oil was slightly lower on the week, but natural gas gained 5.4%. Industrial and Precious Metals lost ground. Platinum fell 3%, Copper lost 2.8%, Silver fell 2%, and Gold was down 0.6%.
  • Nearly all U.S. commodity markets advanced in October, except for Natural Gas, Lumber and Ethanol. Oats, Canola, Crude Oil and Cotton led, gaining between 8.8% and 26% (Oats). 
  • Big Tech earnings were the highlight last week. The top five S&P 500 Index constituents are Apple, Microsoft, Amazon, Facebook and Google. They currently account for 22.2% of the index’s performance.
  • Microsoft and Google reported earnings-per-share (EPS) well above expectations, advancing 4% and 5%, respectively, following earnings reports.
  • Facebook slightly exceeded on EPS, but disappointed on revenues.
  • Apple and Amazon’s earnings reports came in below expectations. Both companies pointed to supply-chain constraints and margin pressures.
  • Tesla stock moved significantly higher following the news that it signed an agreement with Hertz to deliver 100,000 electric vehicles to the rental car company.
  • Tesla shares jumped more than 22% on the week and surpassed Facebook in market cap. Tesla is now in the “trillion-dollar club.”

Major Cryptos

Bitcoin

  • Bitcoin (BTC) traded up to $63,600 on Monday. By Friday afternoon BTC was trading around $62,400. On a week-over-week basis BTC gained 2.4%.
  • BTC makes up 45.5% of crypto’s total market cap.

Ethereum

  • ETH trended higher last week, increasing 10.8% week-over-week and trading near $4,420 on Friday – reaching new all-time highs.
  • ETH makes up 19% of crypto’s total market cap.

Digital Asset Industry

  • There is speculation that U.S. regulators may approve an ETH futures-based ETF.
  • The Shiba Inu coin is higher by about 800% this month.
  • There’s also a new “Squid Game” cryptocurrency that was inspired by the Netflix series. SQUID trading started on Tuesday around $0.0124 and moved beyond $5.41 on Friday. That’s a 40,000% jump in three days.

Coronavirus

  • The 7-day average COVID-19 infection rate in the U.S. continues to fall. The rate decreased to 72,500 on Friday, compared to 75,000 a week prior.
  • 58% of the U.S. population is fully vaccinated against COVID-19 and 67% have received at least one dose of a COVID-19 vaccine. For just those 12 years and older, the numbers are 67% and 78% respectively.
  • Booster shots are available for many U.S. adults and plans to roll out vaccines for children ages 5 to 11 are on the horizon.
  • Globally, the 7-day average caseload has been slowly climbing. Parts of eastern Europe are experiencing higher infection rates.

COVID-19 in the U.S.

COVID-19 in the U.S.

Source: The New York Times

Tidbits from the News

  • For the past month, the VIX Index has been mostly declining. By contrast, VXTLT, which applies the VIX methodology to the iShares 20Y+ Treasury ETF, has been generally higher. The divergence indicates increasing uncertainty in the longer-term fixed income market and more “normal” volatility currently priced into the S&P 500 Index.

VIX Index Compared to VXTLT Index

VIX Index Compared to VXTLT Index

Source: LiveVol Pro

  • Third-quarter 2021 earnings season has been mostly positive thus far. The number of S&P 500 Index constituents beating headline expectations is at or near record highs. Stock prices have not reacted much, on average, to the upside. However, in situations where companies have disappointed relative to expectations, the response has been more negative than in any quarter over the last five years.

Earnings per Share Estimates Since 2016

arnings per Share Estimates Since 2016

Source: The Daily Shot, JP Morgan

  • The U.S. 30-year Treasury Yield recently fell below the 20-year Treasury Yield for the first time ever. The relationship between shorter dated treasuries has also been flattening. The U.S. debt markets have been roiled by the Federal Reserve’s plans to slow asset purchases, but not raise rates for quite some time. That, combined with more persistent inflation pressure, brought about the first inversion between the 20-year yield and 30-year yield.

20-Year U.S. Treasury Yield Compared to 30-Year U.S. Treasury Yield

20-Year U.S. Treasury Yield Compared to 30-Year U.S. Treasury Yield

The Week Ahead

  • Data to be released this week: Purchasing Managers Index and ISM Manufacturing Index on Monday; ADP Employment, Federal Open Market Committee Statement and Press Conference on Wednesday; Weekly Jobless Claims, International Trade Deficit on Thursday; Nonfarm Payrolls, Unemployment Rate and Consumer Credit on Friday.

Originally Posted on November 1, 2021 – The Week that Was: October 25 to October 29

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.
  • In particular, the inclusion of a security or other instrument within an index is not a recommendation to buy, sell, or hold that security or any other instrument, nor should it be considered investment advice.

 Options

  • Options involve risk and are not suitable for all market participants. Prior to buying or selling an option, a person should review the Characteristics and Risks of Standardized Options (ODD), which is required to be provided to all such persons. Copies of the ODD are available from your broker or from The Options Clearing Corporation, 125 S. Franklin Street, Suite 1200, Chicago, IL 60606. 
  • Trading FLEX options may not be suitable for all options-qualified market participants. FLEX options strategies only should be considered by those with extensive prior options trading experience.
  • Uncovered option writing is suitable only for the knowledgeable market participant who understands the risks, has the financial capacity and willingness to incur potentially substantial losses, and has sufficient liquid assets to meet applicable margin requirements. In this regard, if the value of the underlying instrument moves against an uncovered writer’s options position, the writer may incur large losses in that options position and the participant’s broker may require significant additional margin payments. If a market participant does not make those margin payments, the broker may liquidate positions in the market participant’s account with little or no prior notice in accordance with the market participant’s margin agreement.

 Futures

  • Futures trading is not suitable for all market participants and involves the risk of loss, which can be substantial and can exceed the amount of money deposited for a futures position. You should, therefore, carefully consider whether futures trading is suitable for you in light of your circumstances and financial resources. You should put at risk only funds that you can afford to lose without affecting your lifestyle.
  • For additional information regarding the risks associated with trading futures and security futures, see respectively the Risk Disclosure Statement set forth in Appendix A to CFTC Regulation 1.55(c) and the Risk Disclosure Statement for Security Futures Contracts.

 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”)

  • Cboe does not endorse or sell any ETP or other financial product, including those investment products that are or may be based on a Cboe index or methodology or on a non-Cboe index that is based on investment products trading on a Cboe Company exchange (e.g., VIX futures); and Cboe makes no representations regarding the advisability of investing in such products. An investor should consider the investment objectives, risks, charges, and expenses of these products carefully before investing. Investors also should carefully review the information provided in the prospectuses for these products.
  • 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

  • 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.
  • Strategy Benchmark Indices are designed to measure the performance of hypothetical portfolios comprised of one or more derivative instruments and other assets used as collateral. Past performance is not indicative of future results. Strategy Benchmark Indices are not financial products that can be invested in directly, but can be used as the basis for financial products or managing portfolios. 
  • The actual performance of financial products such as mutual funds or managed accounts can differ significantly from the performance of the underlying index due to execution timing, market disruptions, lack of liquidity, brokerage expenses, transaction costs, tax consequences and other considerations that may not be applicable to the subject index.

Index and Benchmark Values Prior to Launch Date

  • Index and benchmark values for the period prior to an index’s launch date are calculated by a theoretical approach involving back-testing historical data in accordance with the methodology in place on the launch date (unless otherwise stated). A limitation of back-testing is that it reflects the theoretical application of the index or benchmark methodology and selection of the index’s constituents in hindsight. Back-testing may not result in performance commensurate with prospective application of a methodology, especially during periods of high economic stress in which adjustments might be made. No back-tested approach can completely account for the impact of decisions that might have been made if calculations were made at the same time as the underlying market conditions occurred. There are numerous factors related to markets that cannot be, and have not been, accounted for in the preparation of back-tested index and benchmark information. 

Taxes

  • No Cboe Company is an investment adviser or tax advisor, and no representation is made regarding the advisability or tax consequences of investing in, holding or selling any financial product. A decision to invest in, hold or sell any financial product should not be made in reliance on any of the statements or information provided. Market participants are advised to make an investment in, hold or sell any financial product only after carefully considering the associated risks and tax consequences, including information detailed in any offering memorandum or similar document prepared by or on behalf of the issuer of the financial product, with the advice of a qualified professional investment adviser and tax advisor.
  • Under section 1256 of the Tax Code, profit and loss on transactions in certain exchange-traded options and futures are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the market participants involved and the strategy employed satisfy the criteria of the Tax Code. Market participants should consult with their tax advisors to determine how the profit and loss on any particular option or futures strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations.

 General

  • Past performance of an index or financial product is not indicative of future results.
  • Brokerage firms may require customers to post higher margins than any minimum margins specified.
  • No data, values or other content contained in this document (including without limitation, index values or information, ratings, credit-related analyses and data, research, valuations, strategies, methodologies and models) or any part thereof may be modified, reverse-engineered, reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of Cboe.
  • Cboe does not guarantee the accuracy, completeness, or timeliness of the information provided. THE CONTENT IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY WITH RESPECT MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
  • Hypothetical scenarios are provided for illustrative purposes only. The actual performance of financial products can differ significantly from the performance of a hypothetical scenario due to execution timing, market disruptions, lack of liquidity, brokerage expenses, transaction costs, tax consequences and other considerations that may not be applicable to the hypothetical scenario.
  • Supporting documentation for statements, comparisons, statistics or other technical data provided is available by contacting Cboe Global Markets at www.cboe.com/Contact.
  • The views of any third-party speakers or third-party materials are their own and do not necessarily represent the views of any Cboe Company. That content should not be construed as an endorsement or an indication by Cboe of the value of any non-Cboe financial product or service described.

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  • Cboe®, Cboe Global Markets®, Bats®, BIDS Trading®, BYX®, BZX®, Cboe Options Institute®, Cboe Vest®, Cboe Volatility Index®, CFE®, EDGA®, EDGX®, Hybrid®, LiveVol®, Silexx® and VIX® are registered trademarks, and Cboe Futures ExchangeSM, C2SM, f(t)optionsSM, HanweckSM, and Trade AlertSM are service marks of Cboe Global Markets, Inc. and its subsidiaries. Standard & Poor’s®, S&P®, S&P 100®, S&P 500® and SPX® are registered trademarks of Standard & Poor’s Financial Services LLC and have been licensed for use by Cboe Exchange, Inc. Dow Jones®, Dow Jones Industrial Average®, DJIA® and Dow Jones Global Indexes® are registered trademarks or service marks of Dow Jones Trademark Holdings, LLC, used under license. Russell, Russell 1000®, Russell 2000®, Russell 3000® and Russell MidCap® names are registered trademarks of Frank Russell Company, used under license. FTSE® and the FTSE indices are trademarks and service marks of FTSE International Limited, used under license. MSCI and the MSCI index names are service marks of MSCI Inc. (“MSCI”) or its affiliates and have been licensed for use by Cboe. All other trademarks and service marks are the property of their respective owners.

Copyright

  • © 2021 Cboe Exchange, Inc. All Rights Reserved.
Disclosure: Cboe Global Markets

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.

Copyright © 2023 Chicago Board Options Exchange, Incorporated. All rights reserved.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus 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 Global Markets and is being posted with its permission. The views expressed in this material are solely those of the author and/or Cboe Global Markets and Interactive Brokers 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 buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. 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.

Disclosure: Complex or Leveraged Exchange-Traded Products

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

Disclosure: Tax-Related Items (Circular 230 Notice)

The information in this material is provided for informational purposes only and does not constitute tax advice and cannot be used by the recipient or any other taxpayer to avoid penalties under any federal, state, local or other tax statutes or regulations, or to resolve any tax issue.

Disclosure: OTC Securities

An investment in an OTC security is speculative and involves a high degree of risk. Many OTC securities are relatively illiquid, or "thinly traded," which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. In some cases, the liquidation of a position in an OTC security may not be possible within a reasonable period of time.

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: Bitcoin Futures

TRADING IN BITCOIN FUTURES IS ESPECIALLY RISKY AND IS ONLY FOR CLIENTS WITH A HIGH RISK TOLERANCE AND THE FINANCIAL ABILITY TO SUSTAIN LOSSES. More information about the risk of trading Bitcoin products can be found on the IBKR website. If you're new to bitcoin, or futures in general, see Introduction to Bitcoin Futures.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD) or visit ibkr.com/occ

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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