As the stock market alternatively displays the grace of a boxer and the oafishness of a drunkard, investors are once more confronting that which they fear most: volatility.
Sharp up and down days are increasingly common, suggesting chaos beneath the market's bid-and-ask machinations.
Key assumptions about stocks that will lead the market higher, or lower, are under pressure, and stubborn inflation means interest-rate cuts are no longer guaranteed.
Buying stocks that benefit from market volatility is a useful way to hedge unrest and profit from big trading volumes. We have long championed brokerages Robinhood Markets and Interactive Brokers Group.
U.S. margin debt was a record $1.4 trillion in May. If the market breaks and stocks decisively slump, trading volumes should surge. And since brokers would sell client stocks to cover margin loans, selling could hit historic levels. The amount of money in leveraged exchange-traded funds is also at historic highs, casting a sinister shadow.
With Robinhood at $100.28, aggressive investors can buy the September $105 call option and sell the September $120 call for a cost of $4.90. At $120 at expiration, the spread's maximum profit is $10.10. The trade fails if the stock is below $109.90.
This call-spread strategy -- buying a call and selling another with a higher strike but the same expiration -- allows investors to benefit from rallies while reducing the amount of capital at risk should stocks decline. It also works for Interactive Brokers.
September's expiration is often volatile, as the worst corrections historically occur in October -- and fear of falling defines September.
Exchanges such as CME Group's Chicago Mercantile Exchange and Cboe Global Markets used to be our preferred stock volatility proxies -- at least until March, when S&P Dow Jones Indices licensed perpetual S&P 500 futures to Trade[XYZ] for trading on a new 24-hour Hyperliquid trading platform. These so-called perps trade overseas but are not yet available in the U.S., except for Bitcoin perps.
The U.S. market is the greater opportunity, thanks to young investors who treat trading like videogames. The contracts will likely be popular because they are simpler than traditional derivatives. Investors get to add money to their positions when values shift, rather than rolling contracts to chase price changes.
These innovative contracts, which were unleashed under S&P Dow Jones Indices' new CEO, Cathy Clay, threaten CME's and Cboe's S&P 500 index derivatives monopolies and even multiple-listed exchange-traded funds, including State Street SPDR S&P 500 and Invesco QQQ Trust.
Exchange stock prices reflect these challenges -- but perhaps not enough.
Most investors think of exchanges, if at all, as utilities that generate loads of cash. In the late 1990s, that reputation was unimaginable. Exchanges were member-owned, resistant to change, and mostly avoided.
When Bill Porter, E*Trade's founder, helped launch an electronic options exchange in 2000, young traders understood that something better had arrived. Legacy exchanges tried protecting their anticompetitive trading pits -- and their livelihoods. After a few years, David toppled Goliath.
Innovation is threatening exchanges once again. A simpler derivatives contract could hurt some of CME's and Cboe's most popular products, which critics characterize as monopolies.
CME recently sued the Commodity Futures Trading Commission, Coinbase Global, and Kalshi to halt trading in Bitcoin perpetual futures. Crypto contracts might seem unrelated to traditional S&P 500 derivatives, but they serve as a subtle way to introduce American investors to a controversial derivatives contract.
Cboe has successfully battled litigation to multiple-list S&P 500 options. And everyone knows CME is tough and politically powerful.
But S&P's Clay is well suited to this moment. She recently led Cboe's global derivatives business, and she even has experience with open-outcry options trading. She joined S&P in November after Craig Donahue, a retired CME chief, became Cboe's leader.
Creative destruction has now returned as an exchange sector risk. In time, just how serious it is will be better understood.
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(END) Dow Jones Newswires
July 01, 2026 02:30 ET (06:30 GMT)
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