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Q1 2021 Options Review

Data Insights

Market Liquidity Drivers

October 23, 2020

NYSE recently hosted a Virtual Options Update, which included a review of industry liquidity trends. We highlighted some key themes impacting market volume:

Declining Market Correlations Creating More Varied Risk and Opportunity

  • A large divergence has emerged between the (market-cap weighted) S&P 500 and an equal-weighted version of the index
  • This means getting efficient exposure to better performing stocks in an index may be even more critical to maximize returns

5 Year Return: SPY vs. RSP (Equal Weight S&P 500)

Options Can Help Offer Exposure to High-Priced Stocks

  • As market returns have become more varied, efficient exposure to certain stocks has become more impactful to overall portfolio returns
  • Options can help address this need and we have seen increasing options popularity for some of the highest-price underlying stocks

March - Options ADV Rank vs. Underlying Price Rank

September - Options ADV Rank vs. Underlying Price Rank

Changes in Market Return Patterns Has Contributed to Less Options Volume Concentration

  • We applied the Herfindahl-Hirschmann Index (HHI), a measure of market concentration, to the underlying symbols in the options market
  • Volatility and macroeconomic uncertainty in March led to increased concentration, particularly in broad-market ETFs, while the recent divergence of returns has reduced concentration

2020 Options Symbol Concentration: Herfindahl-Hirschman Index (HHI)

For further information on these trends, and to discuss how NYSE Options can help navigate this market environment, contact [email protected].

Recent Articles

Multi-list options broke nearly all volume records in 2021, driven by the growth of retail participation: daily records (24 of the top 25 volume days of all-time came in 2021), monthly ADV records (April was the only month from 2021 not in the top 12 all-time), and yearly ADV records (37.3M ADV in 2021 was nearly 10M more than in 2020 and double the ADV in 2019).

Increased retail activity in the equities market has affected which stocks are trading the most, and when and where those stocks trade. We’ve previously highlighted retail’s impact on pre- and post-market volume and the opening auction, and now focus on the period immediately after the opening auction. Market participants often avoid this time of day due to higher volatility, an approach worth re-evaluating given current trends.

As the home of ETFs, the NYSE continuously works to strengthen market quality and provide the optimal trading environment for listing and trading ETFs. In April 2021, in service of this goal, the NYSE introduced new requirements and incentives for its industry-leading NYSE ETF Liquidity Program, including the assignment of additional market makers ("Less Active ETF Leads") for new and/or low-volume ETFs.