Market Liquidity Drivers
Oct. 23, 2020
NYSE recently hosted a Virtual Options Update, which included a review of industry liquidity trends. We highlighted some key themes impacting market volume:
Declining Market Correlations Creating More Varied Risk and Opportunity
A large divergence has emerged between the (market-cap weighted) S&P 500 and an equal-weighted version of the index
This means getting efficient exposure to better performing stocks in an index may be even more critical to maximize returns.
5 Year Return: SPY vs. RSP (Equal Weight S&P 500)
Options Can Help Offer Exposure to High-Priced Stocks
As market returns have become more varied, efficient exposure to certain stocks has become more impactful to overall portfolio returns.
Options can help address this need and we have seen increasing options popularity for some of the highest-price underlying stocks.
- March - Options ADV Rank vs. Underlying Price Rank (left)
- September - Options ADV Rank vs. Underlying Price Rank (right)
Changes in Market Return Patterns Has Contributed to Less Options Volume Concentration
We applied the Herfindahl-Hirschmann Index (HHI), a measure of market concentration, to the underlying symbols in the options market.
Volatility and macroeconomic uncertainty in March led to increased concentration, particularly in broad-market ETFs, while the recent divergence of returns has reduced concentration.
2020 Options Symbol Concentration: Herfindahl-Hirschman Index (HHI)
For further information on these trends, and to discuss how NYSE Options can help navigate this market environment, contact [email protected].
NYSE Research Insights
Find all of NYSE Research's articles on market quality, market structure, auctions, and options.