2020 was notable for many things, but one of the below the radar happenings in the financial markets was the absolute explosion in options activity. In many cases, option flow actually drove the performance in the underlying stock, the classic “tail wagging the dog” phenomenon. If you are not considering using options as part of your overall investment strategy, I would encourage you to keep closer tabs on the huge daily trade flow. It is a huge and extremely liquid part of the equity markets.
Courtesy of the good folks at TradeAlert (www.trade-alert.com), now part of the CBOE complex, here are some of the more important milestones reached last year:
US Option markets saw unprecedented levels of activity, with average daily volume up 51% to 29.5M contracts and a record total 7.4 billion contracts trading market wide. Option extremes of 2020 included 13 days above 40M contracts and a new all-time record 48.2M set November 9th. Single stock options saw the most dramatic uptick in volume this year with growth of 1.7 billion contracts over 2019, and single stock classes making up 59% of the flow compared to 53.7% last year. Data suggests a growing corps of work-from-home retail traders drove much of the growth as average order size dropped to 7 contracts, nearly 50% below 2018 level and 1-lot executions nearly doubled to make up 8.5% of the daily contract volume, or nearly 2.4M contracts.