S&P 500 Short-Term Contracts See Trading Volume Jump
In a market where stock volume is evaporating, volume in short-term options is surging.
A daily average of 309,000 contracts on the Standard & Poor’s 500 Index (SPX) that expire weekly have changed hands in the first four days of September, about 72 percent more than a year ago, according to data from CBOE Holdings Inc.
The growing market for S&P 500 weekly contracts comes at a time when investors are seeing little volatility in the broader equity market and share trading is languishing at the lowest on record.
“We’ve been having a lot of macro-driven and Fed-driven events where people can get ahead of them in more targeted ways,” Aggarwal, a New York-based equity derivatives strategist, said by phone.
The options, which started in October 2005, are usually listed on Thursdays and expire the following Friday.
Investors are using short-term options to hedge their stock holdings given that losses in the overall market have remained brief. The S&P 500 hasn’t posted a four-day drop this year, compared with an average of nine a year since March 2009, according to data compiled by Bloomberg.
While trading in short-term S&P 500 options has surged, overall volume in equities is near the lowest level in six years.
“People and institutions are hedging very short-term market movements,” Shepherd said by phone. “If you’re a money manager and you want to keep long-term gains or not sell your stocks, per se, one quick way to hedge could be to buy the weeklies.”
