Cboe Global Markets

The Week that Was: September 27 to October 4

Kevin Davitt
October 4, 2021

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

Despite the week ending on a positive note, the S&P 500 Index and Nasdaq 100 Index suffered their largest weekly declines since February. September was the worst monthly performance since March 2020. In September, every S&P 500 Index sector was lower, except for Energy. Energy gained nearly 11% as crude oil and natural gas prices rose substantially. Rate-sensitive Utilities and Real Estate declined 6.9% and 5.8%, respectively. Information Technology and Healthcare each lost 5.1%. Financials were only lower by 4% as the yield curve steepened. The prospect of rising rates has spurred market rotation and value outperformed growth by 3.2% in September. For comparison, from January to March, when rates rose and the curve steepened, value outperformed growth by approximately 9%. Small caps have outperformed in recent weeks as inflation and interest rate fears percolate.

Meanwhile, U.S. legislators temporarily avoided a government shutdown by passing a short-term spending bill. Concerns about a debt ceiling breach remain. Treasury Secretary Yellen and others have warned against political brinkmanship that could affect U.S. treasury markets.

Quick Bites

Indices

  • U.S. Equity Indices wrapped up a volatile week on a positive note following the most significant decline from highs in 2021.
  • S&P 500 Index (SPX®): Decreased 2.2% week-over-week.
  • Nasdaq 100 Index (NDX): Decreased 3.5% week-over-week. 
  • Russell 2000 Index (RUT℠): Decreased 0.2% last week.
  • Cboe Volatility Index (VIX™ Index): Measured between 24.89 and 17.74 last week and closed at 21.15, higher by 3.27 vols week-over-week.

Options

  • SPX options average daily volume (ADV) was about 1.9 million contracts per day, the heaviest SPX options volume since the week ending March 15, 2020. The one-week at-the-money (ATM) SPX options straddle (4360 strike with a 10/8 expiration) implies a +/- range of about 1.9%. The weekly ATM straddle settled on a 16.2% implied volatility.
  • VIX options ADV was about 320,000 contracts last week, which was significantly lower than the previous week’s ADV of 620,000 contracts. The VIX options call-put ratio was 0.09:1.
  • RUT options ADV was 62,100 contracts, compared to an ADV of 63,700 contracts the previous week.

Across the Pond

  • The Euro STOXX 50 Index decreased 3.6% on the week.
  • The MSCI EAFE Index (MXEA℠) decreased 3.3% week-over-week and the MSCI Emerging Markets Index (MXEF℠) decreased 1.2% week-over-week.  

Charting It Out

Observations on VIX futures term structure

  • The VIX Index moved higher by more than 3 vols week-over-week and the spread between the October and November VIX futures settled at 1.45 wide.
  • A week prior, that spread was 1.70 wide. The October VIX futures jumped 1.75 whereas the November contract gained 1.50.
  • The visual below plots the VIX futures term structure after Tuesday’s 2.2% selloff in the S&P 500 Index. Despite the largest single day decline since May, the VIX futures curve did not close inverted.

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield traded up to 1.56% on Tuesday, the highest level for the 10-year yield since mid-June. Rates fell on Thursday and Friday and the 10-year yield ended the week at 1.46%, which is in line with the previous Friday.
  • The S&P GSCI climbed another 2.2% on the week. The GSCI is currently at the highest levels since late 2014. Hogs, Cotton, Natural Gas, Crude Oil and Grains rose. Cotton futures are at the highest levels since 2011.
  • Cattle, Industrial Metals (Copper), Lumber and the Bean complex declined.
  • Bigger picture, the U.S. Dollar Index has been stronger alongside higher U.S. sovereign yields. Historically, commodities perform well when the USD declines (most commodities are dollar denominated) so it is unusual to see a positive correlation between the dollar and commodities.
  • Big Tech leaders struggled last week and underperformed the S&P 500 Index.
  • Amazon fell 4.2%. Alphabet lost 4.0%. Microsoft declined by 3.4%. Apple and Facebook declined by 2.9% and 2.8%, respectively.
  • Tesla outperformed the group, ending the week unchanged. 
  • The technology-heavy Nasdaq 100 Index suffered its worst weekly performance since February. Growth stocks have underperformed as interest rates climb.

Major Cryptos

  • Bitcoin (BTC) prices were approximately $42,000 on Friday, Sept. 24. Last week the cryptocurrency traded between $48,000 and $40,700.
  • Bitcoin was trading about $47,800 as of Friday, October 1, higher by 13.2% week-over-week.
  • Bitcoin’s market cap is approximately $900 billion and it constitutes 34% of the overall crypto market. 
  • Last week, Ethereum (ETH) traded between $3,300 and $2,700.
  • ETH ended the week up 14%, on highs near $3,300.
  • ETH market cap is $390 billion and makes up 15% of the overall crypto market.
  • On Friday Coinbase (COIN) announced that hackers stole cryptocurrencies from roughly 6,000 clients. The attacks occurred between March and May of this year. The company promised to reimburse those impacted.
  • Most cryptos moved higher on October 1 following news that Federal Reserve Chair Jerome Powell “does not intend to ban cryptocurrencies.”

Coronavirus

  • The 7-day average COVID-19 infection rate in the U.S. decreased from approximately 127,000 a week ago to approximately 111,000 on October 1. The trend continues to improve domestically and globally. 
  • 56% 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 65% and 76% respectively. Daily vaccination numbers, however, continue to decline. 
  • Globally, the 7-day average infection rate continues to decline, moving from 507,000 to 447,000 week-over-week.

COVID-19 Infection Rate in the U.S.

Source: The New York Times

Tidbits from the News

  • On September 28, the S&P 500 Total Return Index fell by more than 2%. It was the largest decline since May 12. Also on September 28, the VIX Index closed at 23.25. On May 12, the VIX Index closed at 27.59. Interest rate concerns tethered to ongoing debt ceiling negotiations were a primary driver. 1-month realized S&P 500 Index volatility increased considerably since early September. 30-day realized volatility shifted from approximately 7.5% to approximately 12% by month’s end.

Days the S&P 500 Index Rose and Fell

Source: Chartr

  • September was a difficult month for both developed and emerging markets. The third quarter overall, however, was more mixed. China and Brazil struggled but U.S. equity indices were mostly higher (excluding small caps). Indian markets have performed very well and the Nifty 50, a benchmark Indian stock market index, gained more than 12% on the quarter.

Quarter-to-Date Performance

Source: S&P Dow Jones Research

  • Natural Gas futures moved significantly higher over the past five weeks. The November contract moved from 4.00 to as high as 6.32 on September 28. In the UK, Natural Gas futures have gained more than 400% from the early 2021 lows. The Natural Gas market has a history of parabolic rallies.

Natural Gas Futures March/April 2022 Spread

Source: Barchart/CME

The Week Ahead

  • Data to be released this week: Factory Orders on Monday; ISM and Markit Services Purchasing Managers Index and Trade Deficit on Tuesday; ADP Employment Data on Wednesday; Weekly Jobless Claims on Thursday; Nonfarm Payrolls and Unemployment Rate on Friday.

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

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Cboe Options Institute Adjunct Faculty member Sheldon Natenberg will discuss volatility as probability distribution and the roles played by realized and implied volatility in options pricing and trading

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Upcoming Webinar

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.

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  • 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.
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