09.15.2011

Volatility Boosts Options Trading

09.15.2011
Terry Flanagan

The recent spike in volatility was a welcome boost for options market participants.

Many of the major options exchanges experienced substantial trading volumes for the month of August, largely because of the surge in volatility seen during the early part of the month. Despite being on track to be the ninth straight year of record-setting volume, options exchanges welcome the additional boost.

“I had forecast a sleepy summer in August, but I was pleasantly surprised by the trading volume,” said Thomas Wittman, president of Nasdaq OMX, during the FIA/OIC Equity Options Conference on Sept. 14.

“A little bit of volatility is a good thing, and a healthy thing,” added Jeromee Johnson, vice president and head of options at Bats Global Markets.

The Chicago Board Options Exchange’s Market Volatility Index, or VIX, has remained at elevated levels since reaching a high of 48 in early August. The so-called Fear Gauge has since fluctuated in the mid to high 30 range, most recently settling at about 37 in mid-September. Market observers assert that the spate in volatility will remain as long as macroeconomic concerns, such as the ongoing European debt issues and the fear of a “double-dip” recession, continue to permeate the market.

Many of the major options exchanges recently reported their trading volume statistics for the month of August, with some also achieving record highs. The IntercontinentalExchange saw a 37 percent jump in futures average daily volume for the month. The International Securities Exchange also saw big gains, with a 75.2 percent bump. NYSE Euronext experienced a 65 percent increase in global derivatives ADV. The Chicago Board Options Exchange and CME Group each posted all-time high trading volumes for August. Futures trading of CBOE’s VIX also established an all-time high, with 1.8 million contracts traded for the month, or 79,402 per day, a 500 percent increase from a year earlier. CME’s record setting month produced a 46 percent increase from last year. Equity and interest rate options were also up 83 percent and 47 percent, respectively.

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