Through the storm? Options usage trends to end 2022 and start 2023
Choey Li
Published
February 6, 2023
The second half of 2022 saw continued pressure on equities indices and periods of elevated volatility. Investors frequently used the options market to gain or hedge exposure to these fluctuations, resulting in the busiest year ever for options trading volume1. To start 2023, the equity market has rallied and options volume continues to increase, setting an all-time single-day record of 64.8mm multi-list contracts traded.
Much of the options market usage we observed has reflected concurrent equity index activity, but examining the market by flow type reveals some variations in bullishness and bearishness from different types of investors.
General put-call volume ratio vs. equity market trend
The below chart looks at weekly data in the latter half of 2022 and January 2023. The put-call ratio generally corresponded to average daily price fluctuations in SPY, an ETF tracking the S&P500 index. Drops in SPY corresponded to the rises in put-call ratios and vice versa. As expected, this trend suggests much options activity aligned with the overall equity market moves.
Put-call ratio vs. equity market price moves
Did retail and institutional investors differ views via the options market?
The put-call volume ratio is considered an indicator of market sentiment: a higher put-call ratio generally demonstrates more bearish sentiment for the equity market, which is what we observed in our data from 2022. As shown in the chart below, the monthly median put-call ratio over the latter half of last year ranged from about 0.8 to 1.03, averaging 0.94. The nearly 1.0 ratio corresponds to a mixed view on the market: almost the same number of puts traded as calls in 2022. This differs from 2021, when the monthly median put-call ratio ranged from 0.5 to 0.7 indicating a much more bullish sentiment despite an already-rising equity market.
According to the chart below, different types of order flow exhibited different ratios. Electronic trading, which is highly correlated with retail activity, saw a slightly lower put-call ratio than floor trading, with around 1.4% less on average, showing more bullish view than institutionally driven floor activity. A higher premium gap between calls and puts the floor traded with the same underlying, expiration and moneyness reflects a willingness to pay more for protection. In early 2023, electronic trading showed more bullish sentiment and floor trading had much lower premium gaps between calls and puts.
Premiums & put-call ratios for electronic and floor trading
How do retail and institutional options traders handle major market events?
Important economic and market events such as index rebalances, option expiry dates, CPI announcements and FOMC (Federal Open Market Committee) meetings usually see significant volume traded in both equities and options.
In line with the trend of the overall options market, these events saw high volumes in short-dated options. We investigated activity using the same electronic/floor split three days around CPI announcements and FOMC meetings in the latter half of 2022 and beginning of 2023.
SPY was consistently the most heavily traded symbol on all such days, similar to nearly all standard days. FOMC events did little to alter the composition of the most active options symbols, but did increase the concentration of electronic activity in SPY. Trading floors had noticeably different behavior, with much less activity in SPY, greater share in individual corporate names, and very high usage of HYG (a high-yield corporate bond ETF). This suggests institutional activity used options with relatively more focus on the FOMC impact on fixed income markets.
CPI events showed a similar electronic/floor split, with even greater concentration on trading floors in HYG. HYG accounted for 14-18% of all options trading floor volume around CPI announcements, highlighting the usefulness of the options market in managing risk around macroeconomic sentiment.
Most active symbols around FOMC events
| 1 Day Before FOMC | FOMC Day | 1 Day Post FOMC | |||
| SPY | 13.18% | SPY | 17.40% | SPY | 15.41% |
| QQQ | 3.83% | QQQ | 5.27% | QQQ | 4.45% |
| TSLA | 3.27% | TSLA | 3.44% | TSLA | 4.15% |
| AAPL | 2.38% | AAPL | 2.64% | AAPL | 3.40% |
| AMZN | 1.97% | AMZN | 2.02% | AMZN | 2.26% |
| IWM | 1.13% | IWM | 1.66% | IWM | 1.61% |
| META | 1.07% | NVDA | 1.17% | META | 1.29% |
| AMD | 0.93% | META | 1.16% | AMD | 1.28% |
| NVDA | 0.78% | AMD | 1.16% | NVDA | 1.14% |
| HYG | 0.15% | HYG | 0.19% | HYG | 0.23% |
| 1 Day Before FOMC | FOMC Day | 1 Day Post FOMC | |||
| HYG | 6.03% | AMZN | 12.52% | HYG | 9.28% |
| QQQ | 3.44% | META | 8.44% | SPY | 7.78% |
| SPY | 3.19% | HYG | 5.93% | IWM | 4.49% |
| IWM | 2.46% | TSLA | 5.79% | AMZN | 4.47% |
| AMZN | 0.83% | QQQ | 4.28% | QQQ | 2.91% |
| AAPL | 0.55% | IWM | 3.65% | META | 1.73% |
| AMD | 0.53% | SPY | 2.94% | AAPL | 1.54% |
| TSLA | 0.28% | AAPL | 2.15% | TSLA | 0.70% |
| NVDA | 0.17% | AMD | 2.04% | AMD | 0.30% |
| META | 0.11% | NVDA | 1.29% | NVDA | 0.18% |
Most active symbols around CPI announcements
| 1 Day Before CPI Announcement | CPI Announcement | 1 Day Post CPI Announcement | |||
| SPY | 11.94% | SPY | 18.43% | SPY | 17.09% |
| QQQ | 3.80% | QQQ | 5.40% | QQQ | 5.23% |
| AAPL | 2.91% | AAPL | 3.19% | AAPL | 3.45% |
| AMZN | 2.31% | TSLA | 3.17% | TSLA | 2.26% |
| TSLA | 2.50% | AMZN | 3.14% | AMZN | 2.17% |
| HYG | 0.31% | IWM | 1.62% | IWM | 1.66% |
| IWM | 0.93% | AMD | 1.22% | AMD | 1.02% |
| AMD | 0.93% | NVDA | 1.05% | NVDA | 0.94% |
| NVDA | 0.77% | META | 0.59% | META | 0.68% |
| META | 0.58% | HYG | 0.33% | HYG | 0.36% |
| 1 Day Before CPU Announcement | CPI Announcement | 1 Day Post CPI Announcement | |||
| HYG | 14.12% | HYG | 15.57% | HYG | 17.84% |
| QQQ | 5.25% | SPY | 11.28% | SPY | 5.64% |
| SPY | 3.90% | QQQ | 4.91% | QQQ | 4.12% |
| AMZN | 1.97% | AMZN | 2.61% | IWM | 2.08% |
| IWM | 0.65% | IWM | 2.43% | AMZN | 1.01% |
| AAPL | 0.62% | META | 0.94% | AAPL | 0.82% |
| TSLA | 0.49% | TSLA | 0.62% | TSLA | 0.58% |
| META | 0.31% | NVDA | 0.51% | META | 0.44% |
| AMD | 0.15% | AAPL | 0.48% | AMD | 0.33% |
| NVDA | 0.06% | AMD | 0.15% | NVDA | 0.12% |
Most active symbols around January 2023 FOMC
| 1 Day Before FOMC | FOMC | 1 Day Post FOMC | |||
| SPY | 12.36% | SPY | 15.89% | SPY | 18.43% |
| TSLA | 3.90% | TSLA | 4.45% | TSLA | 6.79% |
| QQQ | 2.68% | QQQ | 3.94% | QQQ | 5.23% |
| AAPL | 0.89% | AMD | 2.12% | META | 3.71% |
| AMD | 0.88% | AAPL | 1.33% | AAPL | 3.34% |
| AMZN | 0.84% | NVDA | 1.28% | AMZN | 3.20% |
| NVDA | 0.67% | META | 1.02% | AMD | 1.39% |
| IWM | 0.58% | AMZN | 0.95% | NVDA | 1.22% |
| META | 0.50% | IWM | 0.94% | IWM | 0.99% |
| HYG | 0.12% | HYG | 0.17% | HYG | 0.19% |
| 1 Day Before FOMC | FOMC | 1 Day Post FOMC | |||
| HYG | 14.79% | HYG | 11.18% | QQQ | 7.57% |
| SPY | 5.67% | QQQ | 6.26% | SPY | 6.19% |
| QQQ | 3.30% | AMZN | 6.22% | HYG | 4.97% |
| IWM | 2.65% | SPY | 5.36% | AMZN | 3.89% |
| AMZN | 1.38% | IWM | 2.93% | IWM | 3.69% |
| META | 0.90% | AMD | 2.06% | META | 2.27% |
| AMD | 0.80% | TSLA | 1.76% | AAPL | 1.63% |
| TSLA | 0.46% | META | 0.87% | TSLA | 1.54% |
| AAPL | 0.20% | NVDA | 0.28% | AMD | 0.82% |
| NVDA | 0.06% | AAPL | 0.03% | NVDA | 0.29% |
Sentiment trends around macro events
The below charts show the put-call volume distribution of options with less than one month left to expire around FOMC and CPI events in the latter half of 2022 and early 2023.
Among all short-dated options, floor trading flows showed significantly higher put-call ratios on Tuesday, a day ahead of FOMC meeting, for July, September and November in the below chart. Most puts were traded a day before FOMC meetings when the stock market showed higher volatility, representing a bearish sentiment towards the Fed’s hawkish decision on interest rate hikes. Looking at 2023, floor trading still traded more puts than calls relative to electronic trading, particularly for the day after FOMC meeting in February this year.
Put-call ratios around FOMC announcements
Put-call ratios did not show as consistent a trend around CPI events. Since CPI announcements could occur any day of the week but FOMC meetings are scheduled to be on Wednesday only, it is harder to study the CPI announcement impact independently from the standard Friday option expiry impact. Higher put-call ratios were observed before, on or after CPI announcement days in different months, but October and December last year saw the highest put-call ratios.
Put-call ratios around CPI releases
Summary
- 2022 options market activity generally was aligned with equity market moves, with bearishness in both asset classes.
- In options this is most visible in the average monthly put-call volume ratio close to 1.0, compared to a much lower ratio in 2021.
- The put-call ratio has declined sharply in 2023 as the equity market has rallied.
- Trading around significant macro events focused on short-dated options in 2022 and early 2023. Electronic trading saw more activity in SPY and QQQ, while floor trading saw most activity in HYG.
- Floor trading had a significantly higher put-call ratio than electronic trading for days around FOMC meetings and CPI announcements over most of this period.