Derek Sammann, senior managing director and global head of
commodities & options products, CME
trading is growing rapidly, and for good reason. We are
seeing seismic shifts in volatility potential coming from a
wide variety of sources. The Fed is likely to end its
quantitative easing program soon, setting up a debate in the
market about the timing of when zero short-term rates might be
went from new high to new high for the past few years, but a
decelerating China and deflation possibilities in Europe have
brought more volatility. And FX markets are now alive as
the U.S. and U.K. economies outperform Japan and Europe.
Options come into their own as risk management tools when
volatility regimes are in motion.
earlier this year, the research firm Tabb Group released a
paper outlining why options on futures was
a market primed for expansion. The prediction was
based on factors like changing interest rate policies, the
increased electronification of options and underlying futures
becoming more attractive to investors.
All of these
factors bring more participants, which means more liquidity,
and makes positions easier to enter and exit. Options on
futures are a lower cost, more flexible way to manage exposure
to all kinds of markets.
crisis, we’ve seen the popularity of options grow
across all asset classes, from around 30 million total options
traded monthly five years ago to around 50 million monthly this
year – an average daily volume of nearly 2.5 million
September, the strong growth Tabb’s report
predicted was fully realized. The month saw increased trading,
including several average daily volume (ADV) records, across
CME Group’s options complex, including
agriculture, equities, interest rates and foreign exchange
– to reach an all-time record options ADV of
3,087,724. This beats the previous monthly record set in
January 2008 by over 30,000 trades per day.
predicting an options explosion was spot on, but for so many
varied asset classes to achieve such high levels of trading
volume at the same time?
many factors converging at once to influence everyone from
farmers to hedge fund managers to trade. A review of the
records we saw in September could serve as a review of world
events for the month:
FX Options (record ADV 110,226): On Sept. 4,
the European Central Bank surprised everyone by cutting
interest rates to record lows, which spurred record trading in
Euro/U.S. Dollar options. That mixed with close polls in the
Scottish Referendum vote –
which sparked record British Pound/USD options – and the
upcoming election in Brazil led to a single day record of
$32.4bn in FX options traded on Sept. 4.
Weekly Treasury Options
(record ADV of 95,110):
second consecutive month Weekly Treasury Options saw record
trading, and again it can be largely traced to the Federal
Reserve’s perspective on interest rates. Ahead of
the Fed’s September meeting, and following it,
with Fed Chair Janet Yellen’s
"considerable time" language, market participants wanted
to manage their exposure to rates staying flat for the
E-mini S&P 500 Weekly Options (record ADV
volatility within the stock market during the month led to
increased short-term hedging and trading opportunities through
the use of Weekly E-mini S&P 500 index options, as
volatility began the month just over 12%, and ended the month
at over 16 percent.
Agricultural options (302,914, 40 percent increase over Sept.
saw strong growth during the month as well, led by soybeans
options, which were up 55% over August in terms of average
daily volume. The market is expecting record corn and soybean
harvests this year, which has resulted in additional customer
hedging using options to manage price risk.
We’re also seeing strong growth in newer
non-standard options like our
weekly agricultural options.
and macroeconomic events may have triggered much of the trading
in September. But as Tabb’s report suggests,
expanded availability of electronic trading had a lot to do
with making those records possible:
"Electronic markets now offered by exchanges provide many
wholesale market benefits including an open playing field that
leads to more efficient and seamless executions. Electronic
trading currently accounts for more than half of total futures
options volume, up from just 13% in 2009. As trading increases,
markets tighten and better execution tools facilitate automated
executions, electronic trading will continue to dominate
overall futures options volume."
30.1m options were traded electronically in September. As
global events continue to signal uncertainty across all of
these markets, we could see that number increase in the near
future, as options continue to climb in popularity among market
participants of all kinds.