GOLDMAN: Here's Where All The S&P 500 Trading Volume Went

Average daily trading volume in the S&P 500 index has fallen every year since the crisis, and in 2013, it’s now at levels not seen in 15 years.

You have to go all the way back to 1998 to observe lower trading volumes in the index:

S&P 500 Average Daily Share Volume by Calendar Year

Photo: Bloomberg, Goldman Sachs Options Research

On the other hand, the use of options to trade the S&P 500 has taken off over the past 10 years, and in 2013, it’s near all-time highs.

Average daily S&P 500 options volume so far this year is up 10 per cent from that in 2012:

S&P 500 Options Average Daily Volume by Calendar Year

Photo: OptionMetrics, Goldman Sachs Options Research

With more and more investors expressing their views on stocks via options as opposed to trading in actual shares, it’s interesting to take a look at how S&P 500 options traders are positioned.

A “put option” constitutes a bet that stocks will go down whereas a “call option” is a bet that stocks will go up.

The put-call ratio, then, is the ratio of options traders betting against the index to those betting on it.

That ratio has decreased in 2013 from 2012 and is now approaching lows not seen since 2003:

S&P 500 options put to call ratio

Photo: OptionMetrics, Goldman Sachs Options Research

The lower put-call ratio may reflect the incredibly bullish sentiment we’ve seen toward stocks so far in 2013.

At the same time, though, trading volume in the VIX options market – which puts a price to S&P 500 volatility – is at an all-time high already in 2013.

Goldman Sachs options strategists Krag Gregory and Jose Gonzalo Rangel have the details:

The pace in 2013 has been even more remarkable for VIX options where the year-to-date average daily volume is running at a record high of 614,658 contracts – that is 1.4x the 2012 average and 22.4x the 2006 average.

VIX options had a record setting January: A breakdown of average daily volume by calendar month shows that VIX option average daily volume recorded an all-time high in January 2013 while S&P 500 options were in their 90th percentile relative to a 10-year history.

The put-call ratio on VIX options has risen notably over the past month, suggesting that perhaps investors are upping their bets against a rise in volatility.

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