ETF dominance in equity and options – is fixed income next?

Mon, Jan 21, 2013 | Jared Woodard

Blog, Options Education

ETFs keep taking market share away from mutual funds, that much is well-known. In their 2012 review and 2013 outlook for the ETF industry, Deutsche Bank show how the trend away from equity mutual funds and into equity ETFs continued last year:

One place where mutual funds still have control is in fixed income, and the 2012 picture was a kind of continuation of 2011: the hunt for yield saw more money pouring into both fixed income funds and ETFs. The analysts note that “because the debt market is less transparent and less efficient than the stock market,” more opportunities persist for active fixed income managers. But with the entrance of PIMCO last year into ETFs and the general strength of the segment, they compare fixed income ETFs now to where equity ETFs were in 2007.

ETFs are also stealing the focus in the options world. Here are the twenty most active equity, index, and ETF assets ranked by option open interest as of Friday, January 18, 2013. Nine of the them are ETFs, plus VIX. Data from CBOE and Livevol.

Symbol Name Price Open Interest Volume
SPY S&P Depository Receipts 148.33 20562674 3005982
^SPX S&P 500 Index RTH 1485.98 11654074 759853
BAC Bank of America Corporation 11.14 10292004 667215
^VIX CBOE Volatility Index 12.44 6061669 806461
EEM iShares MSCI Emerging Markets Index 44.78 6035349 522400
IWM iShares Russell 2000 Index 88.57 5916652 701350
C Citigroup Inc. 41.66 5632122 208274
XLF Financial Select Sector SPDR 17.15 5393977 237629
SLV iShares Silver Trust 30.81 4470132 158040
AAPL Apple Inc. 500.00 4413385 797068
GLD SPDR Gold Shares 163.09 4393205 385740
MSFT Microsoft Corporation 27.25 4181001 152872
QQQ PowerShares QQQ 67.07 4031005 478587
F Ford Motor Co. 14.11 3650728 156361
INTC Intel Corp. 21.21 2787597 423519
VXX iPath S&P 500 VIX Short-Term Futures ETN 23.98 2718790 405415
FB Facebook, Inc. 29.66 2594489 384516
FXI iShares FTSE/Xinhua China 25 Index 41.70 2587327 107590
JPM JPMorgan Chase & Co 46.46 2427517 186641
S Sprint Nextel Corp. 5.65 2422433 45316

In a related vein, several readers have asked recently about which optionable ETFs we trade. The PDF I’ve attached below shows the 65 most active optionable ETFs, sorted by open interest. I wouldn’t have qualms about trading options on anything on the top half of the list, and plenty on the bottom half can be helpful in some situations. Less activity tends to mean wider markets, which also tends to mean that complex spreads are more difficult to execute without giving up any edge.

I think it’s notable that on the day I collected this data, only four assets on the list traded more volume that the much-maligned VXX.

Select optionable ETFs by open interest [pdf]

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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