Equity market volatility benefited the options market in Janaury, goosing volumes to four month highs and narrowing bid-ask spreads.
Traders flocked to the options mart in January, according to the latest data compiled by market consultancy Tabb Group. In its January 2016 Options LiquidityMatrix (OLM), U.S. listed options volumes surged to 364.4 million contracts in January, while average bid/ask size drops to lowest in two years.
Key points from Januarys OLM are outlined as follows:
Januarys resurgence of violent market swings were a boon to U.S. listed options trading. Volume last month totaled 364.4 million contracts, 7.6% higher than Decembers total and 3.2% higher than the year-ago January.
The S&P 500 Index dropped 5.1% in January, with daily swings averaging 1.3% on a closing basis.
The CBOE VIX Index averaged 23.72 in the month, closing as high as 27.59 on Jan. 20 and as low as 19.34 on Jan. 5. Much of equities turbulence was tied to a plunge in oil prices and signs of a slowing economy in China.
Stocks volatility over the past several months has had a chilling effect on market makers, who have reduced their risk exposures in every month since September. The average bid/ask size at the top of the book was 144.2 contracts in January, around the smallest since November 2013.
Market quality as measured by bid/ask spreads also deteriorated last month, with the average bid/ask spread climbing to 0.36, the widest since August.
