More Options With More Options
By Chintan Kotecha, Nitin Saksena, Youssef Brahimi and Benjamin Bowler

Growth in SPY options volume has outpaced the growth of the total volume traded in listed S&P 500 index options, in part because ETF options allow for more accessibility than index options, as they are denominated on a smaller notional.

Market Breadth
A key feature of the ETF market is the accessibility to trade nonequity assets in an equitylike fashion. ETFs allow investors to take views on fixed income, commodities and currencies with the same mechanical and infrastructural simplicity as when taking views on stocks. Similarly, within the ETF options market, investors can now take advantage of the benefits of optionality across a variety of asset classes.

Even though the majority of ETF options volume is concentrated within four ETFs (three are equity funds; the other is gold), there is close to $6 billion of options notional traded per day in the remainder of liquid ETF options (Figure 3). Of the remaining ETF options volume, 75 percent ($4.4 billion) is in equity funds, 11 percent ($671 million) in fixed-income funds, 10 percent ($620 million) in commodity funds and 4 percent ($208 million) in currency funds. In the next section, we take a closer look at size and growth in ETF options within each asset class.

SPY, IWM and QQQ the most liquid ETF options within equities: Options on equity-based ETFs have approximately $36 billion notional traded per day with the SPY (S&P 500), IWM (Russell 2000) and QQQ (Nasdaq 100) making up $32 billion per day (Figure 4). Since its inception in 2005, options on SPY have grown tremendously and are now trading at approximately $26 billion notional per day. This growth can be attributed to the popularity of S&P 500 optionality (a global benchmark for equities), combined with SPY’s minimal tracking error (as its underlying stocks are the largest U.S. companies) to the S&P 500. Within the equity-asset class, the top three volume leaders represent a diverse selection of equities with access to U.S. large- and small-cap stocks (NYSE Arca: SPY and NYSE Arca: IWM) and technology stocks (Nasdaq GM: QQQ).

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