All the big equity cash and futures exchanges reported higher volumes as US sub-prime mortgage worries led to a spike in volatility. Trading in pure volatility products also surged, and the Chicago Board Options Exchange (CBOE) expanded its suite of volatility offerings.
The London Stock Exchange reports that in the five months to August 2007, the average daily numbers of bargains on its Sets electronic order book rose 75% to 551,000, clearing its target level of 480,000 for the full year. Sets trades exceeded a million on three days in August, with the average daily number of deals in the month at a record high of 688,391. For the entire LSE market, total average daily trades went up by more than 30% from July to August, from 719,129 to 943,352 deals. Despite the credit crunch and general market uncertainty, the LSE says new issues for the five months to August rose to 216, with the main market more than doubling its new issues to 68. New issues on Aim, the market for smaller companies, fell from 177 to 147.
Euronext Liffe, the derivatives market of transatlantic exchange group NYSE Euronext, traded just short of 104 million contracts in August, a new record, and its Frankfurt competitor, Eurex, did 175 million trades, a 64% year-on-year increase for the month.
On electronic US equity options market the International Securities Exchange, daily trading volume for equity and index options contracts for August increased almost 75% to 3.6 million contracts, compared with the 2 million contracts traded during the same period last year. Average daily trading volume in index options contracts reached a record 100,000 contracts a day, and total equity and index options volumes for the month increased to a record 82.1 million contracts from 47.1 million for the same period a year ago.
On a year-to-date basis, average daily trading volumes of equity and index options are up to 3 million contracts, compared with the 2.3 million contracts equivalent traded in 2006. Total year-to-date equity and index volume through August increased 29.8% to 509.6 million contracts, up from 392.5 million for the same period in 2006.
In Chicago, futures on the CBOE’s benchmark Volatility Index (Vix) set three trading records in August. Volumes totalled 163,079 contracts for the month, a new high and a 46% increase over July’s 111,814 deals, the previous record. Average daily volume in Vix futures during August was a record 7,090 contracts, and at the month’s end open interest stood at 63,995 contracts, 41% ahead of August 2006.
The Vix measures market expectation of 30-day volatility on S&P 500 index option prices. It is often referred to as the fear index, since it reflects investor sentiment on how volatile the equity market will be in the short term. The index has traded as low as 10% but leapt to just shy of 38% on August 16, its highest level since October 2002. Futures volumes on the DJIA Volatility Index, the CBOE’s volatility contract on the Dow Jones Industrial Average, totalled 7,253 contracts traded during August, a new record for monthly volume and up 87% on the equivalent total last year of 3,870 contracts. Trading on another of the exchange’s volatility products, S&P 500 Three-Month Variance futures, was also up significantly in percentage terms, to 1,021 contracts, an increase of 334% over August 2006.
At the end of September the CBOE expanded its volatility offerings to launch options on the Nasdaq 100 volatility index (VXN) and the Russell 2000 volatility index (RVX). The exchange’s chief executive, Bill Brodsky, commented: "CBOE pioneered the volatility space with the creation of the CBOE Volatility Index, the pre-eminent measure of market volatility. Subsequently, CBOE’s introduction of options and futures on Vix made volatility itself a tradable asset class. The growth of Vix futures and options has been impressive, and we are eager to expand our suite of volatility products." Futures on the Nasdaq 100 and Russell 2000 volatility indices began trading on July 6. The Russell 2000 futures contract traded 10,217 times in August, and 773 contracts traded on the equivalent Nasdaq index.