January Options Review

Macro events had an impact on nearly every asset class in January, leading to elevated options trading across multiple product groups.

• Haven markets like US Treasuries and Gold saw outsized trading
• Short-dated options shined as traders managed economic event risks
  • Weekly options on commodity futures saw the second highest monthly ADV ever, led by a record month for Crude weeklies
• Ag markets saw seasonally high volumes led by Soybean oil and Lean Hog options
• Volatility returned to Equity and Energy markets

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Coronavirus concerns and other macro drivers drove strong volumes in Treasury options while the relatively stable FOMC policy outlook for 2020 as compared to that observed in 2019, weighed on STIR volumes.

• Options on 10s and T-Bonds saw outsized growth relative to the short end of the curve, with ADV +36% and 49% respectively
• Weekly Treasury options averaged over 255K contracts/day (211K in Fridays and 44K in Wednesdays)
• SOFR options began trading with numerous initial trades

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Concerns over the outbreak of the coronavirus from China and the announcement of a public health emergency largely overshadowed corporate results, causing a significant selloff toward the end of January. In January, the Nasdaq gained 2% but the Dow fell 1% and the S&P 500 fell 0.2%.

• E-mini S&P 500 options on futures are now the second largest pool in index options liquidity during non-U.S. trading hours, averaging 148K contracts per day in January, up 46% vs 2019 ADV
• Monday and Wednesday weekly options outcontinued to outsized growth, accounting for 23% of total S&P 500 options (standard and E-mini) volume in 2019
• E-mini Nasdaq 100 options volumes surged 36% YoY, averaging nearly 18K contracts/day
• Bitcoin options began trading with early ADV of 19 contracts/day and open interest growing to 351 contracts at month-end

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Volatility stemming from a slew of geopolitical events boosted Energy options volumes in January.

• WTI weekly options (LO1-5) saw record ADV for the second straight month bolstered by new participants and deepened liquidity
• WTI Crude Oil options (LO) averaged 163K contracts/day, with a record 21.5% traded outside of US hours
• Natural Gas calendar spread options continue to be highly active with ADV of nearly 14K

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The Phase 1 trade agreement with China and more positive export expectations boosted Ag options volumes in January. Options growth reflects the possibility of significantly greater Ag exports in 2020 but with uncertainty of when and exactly how much actually occurs. Soybean Oil volumes surged at least in part due to a significant correction in the related palm oil market which saw increased volatility.  In the US, livestock was impacted by Trump signing the USMCA as well as hog slaughter for the last week of January coming in at 2.707 million head, which was 14% higher than the same week last year as production highs continue.

• Soybean Oil options volume surged 137% YoY, OI +69%
• Lean Hog option volume +54% YoY, OI +55%
• KC Wheat volume +76% YoY

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Historically low volatility continues to weigh heavily on G6 options volumes. Emerging market currencies slumped in January as the coronavirus outbreak dented economic activity in China, weighing on demand for global goods and services.

• JPY/USD volume +19% YoY
• CHF/USD volume +315% YoY
• NZD/USD volumes building as liquidity improves

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Concerns around possible conflict with Iran resulted in strong trading in Gold option during the first weeks of the year, while coronavirus concerns and its effect on the consumption and the Chinese economy drove significant trading in Copper options.

• Having never reached 100K ADV prior to June 2019, Metals options have now averaged over 100K contracts/day in four out of the last eight months
• Weekly Gold options (OG1-5) surged 280% to nearly 9K contracts/day, a 48^th consecutive month of YoY growth
• Copper options volume +58% YoY, OI +52%

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Open Interest as of 1/31/20, unless otherwise specified
YoY – Compares current period 2020 to same period 2019
MoM – Compares current month 2020 to previous month 2019

Futures and options trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures.

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