2015 US Options Market in Review: Higher Volatility, Stagnant Volume

2015 was a puzzling year for the US listed options market.

Traders, who had been waiting years to capitalize on market swings, were dealt the most volatility since the European debt crisis, with the CBOE VIX Index reaching its highest level since August 2011. But even as prices swung violently across assets, options trading volume tumbled, leaving the industry wondering if volume will ever climb back to levels last seen in 2011. While a lack of market turbulence was a plausible excuse for lackluster volume growth in years past, that reasoning was not as tenable in 2015.

Volatility re-emerged in dramatic fashion in 2015, providing bursts of options volume for a few days at a time. The S&P 500 Index posted its first correction since the European debt crisis as investors grappled with tepid economic growth around the world, a slide in commodity prices, and the Federal Reserve’s first interest-rate hike in nearly a decade.

Since 2012, market participants have pinned stagnant options volume on the lack of volatility, which, they say, has eliminated trading opportunities. While volume grew year-over-year between 2012 and 2014, it has not boomed like the rapid rise seen from 2001 to 2011, when the compound annual growth rate (CAGR) reached 19%. Since 2011, options volume have shrunk at a CAGR of -2.4%.

In this report, TABB Group identifies major trends in volume and market structure in the options market last year and examines the industry’s perennial struggle of re-igniting trading.