Today’s Number: S&P 500 Select Sectors and Weekly Options

 

Equity markets have been hitting records in March, or near records in the case of the S&P 500. In conjunction with this, there’s been higher than usual activity in S&P 500 futures and options. But it’s not just in the standard contract. In fact, two complementary products saw record trading volume and open interest this week, a sign that participants wish to manage their exposure to the S&P in more nuanced ways.

Back in January, I wrote about some of the ways our nine select sectors futures are used as complementary products to S&P 500 futures. Different sectors can be overweighted or underweighted by market participants depending on market and economic conditions.

These products reached a trading volume record in December, and this week they broke that record with 10,553 contracts traded on March 13.

In December, we saw trading in some sectors at much higher levels than what their weight in the S&P would suggest – materials and utilities, for example – due to uncertain fiscal conditions in the U.S.

That uncertainty has passed, and the reasons for increased trading in select sectors now is pretty simple: More people are using them.

There is always increased activity during the quarterly roll from one contract to the next (March to June in the case this week), but users of our e-mini S&P contract are beginning to more frequently use select sector futures in conjunction with the e-mini. That wasn’t necessarily the case before. We’ve spoken with several firms who have recently adopted select sectors and others who have stepped up their usage.

Electronic trading volume is up 110 percent from the same period in 2012. We’re also seeing more long term positions as a result of the new entrants. 17,943 open positions were held in select sectors as of March 13, also a record.

It makes sense then that a related product, S&P e-mini weekly options, set a new record this week as well – twice, in fact – with over 3.1 million open positions on both March 13 and March 14. Weekly options expire on the first, second and fourth Friday of the month and are intended to manage short-term exposure to the S&P. Trading in these products can help manage exposure ahead of economic announcements. Much of this week’s interest occurred ahead of today’s Consumer Price Index release.

What all of this tells us, among other things, is that there was no single culminating event that sparked increased trading in select sectors or weekly options. Rather, new and current users understood the market, and their potential benefits, but wanted to be sure the market was liquid enough before entering. The latest volume and open interest numbers suggest that they are.

Richard Co is executive director of equity products at CME Group.

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