The US listed equity options market is set for a record volume in 2018 due mainly to a resurgence in stock market gyrations after a couple of unusually quiet years, data from derivatives clearing organization OCC showed on Friday. Total listed options volume for the year so far is at about 3.8 billion contracts, on pace to end the year with a little more than 5 billion contracts traded, according to a Reuters analysis of OCC's data.
The average daily options trading volume this year is 19.9 million contracts, up nearly 20 percent from last year, the data showed. Analysts pegged the surge of interest in options trading to a mix of factors, including a pick up in volatility, changed interest rate environment and growing adoption of options trading strategies.
"February and the increased volatility has created some interest," he said Matt Amberson, founder at Chicago-based volatility and options data firm ORATS. A stock-market rout in February, jolted investors from their slumber and revived interest in options trading, analysts said.
Daily stock gyrations this year are a sharp departure from the trend in 2017. One-month historical volatility for the S&P 500 for the year so far is at 13.4, compared with 7.2 for the comparable period last year, according to Thomson Reuters data. Not only are stocks moving more, they are not all moving in tandem. Low correlation between stocks and indexes creates opportunities for putting on options trades, analysts said.
The changing interest rate environment has also provided a boost to trading activity, analysts said. The US Federal Reserve has raised interest rates three times this year, most recently on Wednesday. "What you get when you have interest rate movement is the fundamentals in underlying sectors start to diverge," Eric Metz, chief investment officer at SpiderRock Advisors LLC in Chicago.
Options are a useful tool for investors responding to that divergence, he said. Both institutional and retail players have also become increasingly more comfortable using options, Metz said. "Groups that are interested in performing options-based strategies, both institutional and retail, are escalating," he said.
"Education in the space over the last decade has really started to bear some fruit in the eyes of allocators," he said. "And whether it's in-house or outsourced to a professional money manager like ourselves, that demand is filtering through into the options volume," said Metz.