Volatility Drives Up Derivatives Trading

Terry Flanagan

Through the first three quarters of the year, options and derivatives trading volume continues to be on another record-setting pace.

Investors continue to turn to derivatives as a hedge while market volatility lingers.

Several derivatives exchange operators, including CME Group, the IntercontinentalExchange, the Chicago Board Options Exchange and Eurex Group have announced their trading volume statistics for September, and while there was a decline from the unprecedented volumes seen August, there continues to be year-over-year growth.

“The slowdown in the U.S. economy is impacting anxiety in marketplace,” said Daniel Deming, senior trading managing partner at Stutland Volatility Group and a market maker at the Chicago Board Options Exchange’s Volatility Index Options pit.

Thanks to the flight of investors to the safety of gold in recent months, CME experienced record quarterly metals trading volume, up 77 percent from 2010. In September alone, there was an 84 percent bump.

As a whole, CME averaged 14 million contracts per day, up 16 percent year-over-year. Total volume was 294 million contracts, of which 85 percent was traded electronically.

For the month of September, CBOE Holding’s aggregate contracts traded totaled 104.2 million contracts. Average daily volume reached 5 million contracts, up 31 percent from the 3.8 million seen in 2010.

Its main CBOE platform averaged 4.7 million contracts daily, up 25 percent. The most gains were seen in the trading of exchange-traded fund options (79 percent increase) and index options (up 42 percent). CBOE’s Futures Exchange trading also saw substantial gains, up 154 percent year-over-year. Its VIX futures volume was up 154 percent to 46,784 contracts ADV, or 982,462 total for the month. Total futures volume for the third quarter was just under 4 million contracts.

ICE’s futures average daily volume increased 23 percent in the third quarter of 2011 over the prior year, and grew 17 percent for the month of September 2011 compared to September 2010.

Europe’s Eurex derivatives exchanges recorded 12.4 million contracts ADV, up 25 percent year over year, of which 9.1 million were traded on Eurex and 3.3 million were traded on the International Securities Exchange.

The Options Industry Council announced that total options trading volume for September was 391.2 million contracts, 29.5 percent higher than the 302.1 million seen a year earlier. Average daily volume stood at 18.6 million contracts, from 14.4 in 2010, also up 29.5 percent.

The VIX, also known as Wall Street’s “fear gauge,” reached a high of 48 on Aug. 8, as the markets reacted to the debt ceiling situation and the Standard & Poor’s downgrade of U.S. debt. It has since fluctuated through the low 30s until most recently spiking up to above 40 again in recent days.

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