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After-hours price discovery more robust as pandemic and retail participation provide boost

Data Insights

Options Market Snapshot: New Issues Driving Volume,

Floors Active Late in the Session

Authors

James Chu, Stefanos Bazinas, Choey Li


Published
July 16, 2021
Following the record-setting 40.1 million average daily volume (ADV) in the 1st quarter of this year, Q2 2021 options volume was the 2nd highest of all-time with 37.6 million contracts traded per day. Robust volume was driven in part by market anticipation of a potential earlier rise in interest rates and Fed tapering, as well as increased volume in options on new issues and continued activity in retail-focused stocks.

Options Volume on New Listings

A growing percentage of Equity & ETF options volume in Q2 2021 was driven by newly listed symbols, which we define as any symbol with options listed in the last 12 months. This figure reached a high of 13.7% (5.1 million ADV) of total industry volume in June 2021.

Figure 1

New Issue Symbol Share of Options Industry

New Issue Symbol Share of Options Industry

Many of the top 10 newly listed issues in June were consumer brands with a strong retail following. We also saw several pre-deal SPACs within the newly issued category, representing 0.9% (349K ADV) of total industry volume in June.

Figure 2

Top 10 New Issues

Symbol
ADV
PLTR411,696
WISH373,767
CLOV354,235
RKT171,048
CCIV170,337
SOFI157,187
RBLX119,691
FUBO116,198
ABNB113,537
FSR91,936

Perhaps indicative of a larger retail following, options trading in new issues had a higher proportion of smaller-sized transactions than the rest of the market. In Q2, transactions of 10 or fewer contracts were 40.6% of volume in new issues compared to 32.5% in other symbols. Conversely, transactions of greater than 100 contracts were 16.8% of volume in new issues compared to 28.2% in other symbols.

Figure 3

Transaction Size

Transaction Size

As is typical of smaller-sized transactions, a higher proportion of volume in new issues traded as electronic trades rather than on a trading floor where larger-sized transactions tend to occur. In new issues, grouping auction, complex, and electronic trades together as “electronic,” these transactions represented 95.5% of volume in new issues, with only 3.8% of such transactions traded on the Floor (Open Outcry Manual + QCC). In other symbols, excluding new issues, electronic transactions represented a slightly lower 87.9% of volume, and a higher 9.9% of transactions occurred on the Floor.

Figure 4

Trade Type

Trade Type

The NYSE Capital Markets team has forecast a strong IPO market in the second half of 2021. If this bears out, it should continue to provide the U.S. options markets with new issues, which in turn will support options industry volume strength for the remainder of the year.

Options Listing Process

For firms interested in trading options on new issues, listing options follows a prescribed timeline by uniform rule. The following general principles apply to listing options on all exchanges:

Day 1 - Issue begins trading on equity markets

Day 3 - After close of business, exchange regulation approves listing if the following qualifications are met:

a) 7 million share float
b) 2,000 shareholders
c) Traded at least 2,400,000 shares cumulative in 12 months
d) Closed at or above $3 for three consecutive days

Day 4 - Issue is certified with OCC

Day 5 - Options begin trading

For details about listing options on NYSE, see NYSE Arca Rule 5.30-O and NYSE American Rule 915.

Electronic vs Floor Volume

The Floors have continued to cater to larger institutional-sized transactions with an average transaction size just over 400 contracts in the first two quarters of this year. Smaller retail-sized transactions tended to dominate trading at the beginning of the day, with nearly 10% of total “electronic” volume (auction, complex, electronic) having occurred in the first 15 minutes of the day. Electronic volume trailed off the rest of the trading day before it picked up again towards the close. The average transaction size for electronic trades executed earlier in the day was 5.5 contracts , which size gradually increased to nearly 6.5 contracts per transaction by end of day. Floor volume tended to be slower than electronic volume shortly after the open and maintained a steady flow of volume throughout the trading day before it increased towards the close. Overall, transaction size increased throughout the day, driven primarily by the increased proportion of larger-sized Floor transactions.

Figure 5

Daily Volume Distribution

H1 2021

Daily Volume Distribution

The most active symbols traded “electronically” were a mix of single stock names and ETFs. Despite the growth in new issue volume described above, only one new issue made the top 10 most-active list, highlighting the increased dispersion of market volume. In Floor trading, the most actively traded symbols were almost exclusively ETFs, with AAPL being the only single stock name in the top 10.

Figure 6

Top Electronic and Floor Symbols

Top Elect Floor Symbols

Conclusion

Retail continued to drive strong volumes in the options markets in Q2, and the increased activity was particularly noticeable in new issues and retail-focused symbols. Floors continued to service larger transactions and primarily ETF names, whereas smaller-sized transactions were often executed using electronic mechanisms and included more single stock symbols.

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