Options Mart Sees Uptick in Weeklys Volume, Spreads Stable in H1: TABB

The first half was a good one for the options markets, with an uptick in one particular instrument and steady bid/ask spreads for all.

Not a bad first six months.

The good news was part of a new report from market consultancy TABB Group. In its latest U.S. Options Market Review research, head options analyst Andy Nybo noted that weekly options expirations remained a “bright spot” in the quarter, with volume in options with weekly expirations totaling almost 500 million contracts, a 38 percent increase from the same period in 2013.

Options with weekly expirations represented 24 percent of total trading in the period. This compares to the 17 percent proportion in the first half of 2013 – where 363.2 million contracts changed hands.

Nybo and TABB reported trading in weekly options continued to become less concentrated though, with the top ten names representing 56 percent of all trading volume, down from 66 percent in the first half of 2013. The dispersion, Nybo said, is due to increasing number of symbols with weekly expirations and more investors using weeklies to manage short term exposures.

On the volatility front, Nybo pointed out that bid/offer spreads remained relatively stable in the second quarter, with the average spread for all options measuring 34 cents in the quarter, up marginally from the 33 cents average in the first quarter of 2014. However, the first half 2014 average of 33 cents represented a 67 percent increase over the first half of 2013 – where the average spread averaged 20 cents.

The spread widening was accompanied by an increase in size available to trade, with bid/ask size at the top of book jumping to an average 229 contracts in June, a 24% increase from March 2014, and a 52% increase from December 2013.

The average number of contracts per trade benefited from the market environment, averaging 17.5 contracts in June, a 9% increase from the March average and the highest average since June 2013. The value of a trade (as measured by total premium) fell by 14% from the year earlier average to $4.8 thousand, as compared to $5.6 thousand in March 2014.

The report examines market trends in U.S. listed options markets, provides detailed insight into volume trends across the index, ETF and single stock sectors, examining trading in the most active symbols, by concentration and by type of account. The report also examines trading in weekly options, provides market quality metrics and examines trends in volatility.

Nybo also noted a few troubling developments in the options mart. First and perhaps most importantly, was trading in U.S. listed options declined sharply in the second quarter of 2014. This was in contrast to the strong first quarter start in volumes. Overall, first half volume was 2.1 billion contracts, a 1.4 percent decline from the year earlier total.

Relatedly, volatility trended lower throughout the second quarter, with the CBOE VIX index averaging 11.5 in June, the lowest monthly average in 2014. This decline in volatility and falling cash equity volumes in the quarter did little to support options trading either, Nybo said.

According to TABB, VIX levels remained well below the 2000 to current period average of 21.31, with volatility as measured by the VIX averaging 12.7 in the second quarter of 2014, compared to the 14.8 average in the first quarter. The VIX peaked at 17.01 on April 11 and trended steadily lower into June.
Nybo and TABB also note that the VVIX index (a CBOE gauge measuring “volatility of volatility”) experienced similar trends to the VIX, although global unrest in the Middle East and in Ukraine caused the index to jump to period highs in June, with the index averaging 72.8 for the month.