According to Nybo, a lack of market volatility and anemic trading in underlying equity markets contributed to stagnant options trading volume in the first two months of 2013. Volume totaled 682 million contracts through February 2013, a .4% decline from the year-earlier period.
Market disruptions from the sequestration had minimal impacts on market volume, with traders seemingly ignoring the debate around potential economic impacts of the spending cuts. The CBOE VIX index, however, saw elevated levels in the latter half of February as the debate around the budget process intensified, with the level spiking to 19.28 on February 25.
Not surprisingly, the highest levels of trading occurred in the days around the debate. But by the time sequestration kicked in, market sentiment returned to complacency, with the VIX falling to historical lows as March began. February volume totaled 320.9 million contracts, off 8.2% from February 2012, a month that included one less trading day.
A number of factors will prop up trading volumes into March, however, including the debate surrounding budget negotiations in advance of the March 27 expiration of the continuing resolution funding agreement. As media focus intensifies, volatility likely will begin to return and influence trading activity.
The industry is also expecting to see significant activity in the new mini options products that launch this week. Mini options (http://tabbforum.com/news/mini-options-debut-in-five-large-names) are expected to see immediate attention from retail investors who have only been able to trade options for higher-priced stocks in one and two lots. TABB Group expects trading volume in the mini options to be strong at launch, especially since the products are being launched in some of the most actively traded options.
One benefit of the lower volatility has been improved market quality for investors. Average spreads across all options measured $0.181 in February, a decline of 17% from February 2012 and the lowest level since January 2011. Average bid/ask size was 138.4 contracts in February, up 11.5% from February 2012. However, average bid/ask size has fallen steadily since October 2012, when it reached 182.1 contracts.
