2019: ETFs With The Most Liquid Options

Size isn’t everything when it comes to ETF option market liquidity.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Options just got a lot more expensive. An escalation of the trade war between the U.S. and China sent stocks plunging and volatility surging on Monday, boosting the cost of options on stocks and ETFs.

The CBOE Volatility Index (VIX), which measures the “implied volatility” of S&P 500 Index options based on how much investors are willing to pay for them, jumped to nearly 25, its highest level since early January.

Implied volatility is a key determinant of an option’s price. A VIX of 25 means that S&P 500 Index options are roughly 65% more expensive than their five-year average and 45% more expensive than their 10-year average.

Options Market Active As Ever

Expensive options are either a good thing or a bad thing, depending on who you ask. For investors looking to hedge their portfolios against a market decline using put options, or for speculators interested in betting on more gains in the stock market using call options, it will cost a pretty penny.

The opposite is the case for options sellers. They are receiving a solid premium for writing options contracts.

In any case, high volatility is not a bad thing for the options market—which remains as active as ever—particularly when it comes to ETFs. Below, we look at the 20 ETFs with the most liquid options markets.

SPY Trounces IVV

Just as is perennially the case, the SPDR S&P 500 ETF (SPY) has the most liquid options market of any ETF or even stock. The world's largest ETF, with $268 billion in assets under management (AUM), currently has 19.4 million options contracts outstanding—also called “open interest” (each options contract gives the owner the right to 100 shares of the underlying ETF; the right to buy in the case of calls; and the right to sell in the case of puts).

Bid/ask spreads on SPY options are often no more than a penny wide, minimizing transaction costs for those who want to hedge or speculate on the S&P 500. Here are the top five ETFs with the most liquid options. (For full list of the top 20, see table at the end of the story.)

 

TickerFundOpen Interest
SPY SPDR S&P 500 ETF Trust19,401,425
EEM iShares MSCI Emerging Markets ETF9,559,353
QQQ Invesco QQQ Trust6,723,139
IWM iShares Russell 2000 ETF4,626,784
HYG iShares iBoxx $ High Yield Corporate Bond ETF4,125,567

Source: Bloomberg. Data as of Aug. 5, 2019. For the full list, see the table at the end of the article.

 

Even though SPY is the largest ETF and has the most liquid options market, that correlation doesn't always hold true. There are plenty of big funds with illiquid or even nonexistent options markets.

Take the $183 billion iShares Core S&P 500 ETF (IVV). The second-largest ETF by assets only has total options open interest of 7,528. That's nothing for a fund of that size. Bid/ask spreads for IVV options are huge, making the fund a poor choice for options traders.

Some ETFs Punching Above Their Weight

After SPY, the iShares MSCI Emerging Markets ETF (EEM) has the deepest and most liquid options market. The fund boasts total open interest of 9.6 million contracts, well above No. 3 on the list, the Invesco QQQ Trust (QQQ), with open interest of 6.7 million contracts.

The iShares Russell 2000 ETF (IWM), the SPDR Gold Trust (GLD) and the iShares MSCI EAFE ETF (EFA) are a few other behemoths with active options markets.

Then there's also a number of ETFs on the list that are punching well above their weight. Those include the VanEck Vectors Semiconductor ETF (SMH), the United States Oil Fund (USO), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares MSCI Brazil ETF (EWZ), the iShares Silver Trust (SLV) and the iShares China Large-Cap ETF (FXI).

These ETFs have some of the most liquid options markets, even though they don't have a tremendous amount of assets. SMH, for example, only has AUM of $930 million, while XOP has $1.8 billion. That suggests these funds are popular with short-term traders—not a surprise considering that semiconductors, oil, Brazil, silver and China are among the most volatile areas of the markets.

Here's a full list of the top 20 ETFs with the most liquid options:

 

TickerFundOpen Interest
SPY SPDR S&P 500 ETF Trust19,401,425
EEM iShares MSCI Emerging Markets ETF9,559,353
QQQ Invesco QQQ Trust6,723,139
IWM iShares Russell 2000 ETF4,626,784
HYG iShares iBoxx $ High Yield Corporate Bond ETF4,125,567
EFA iShares MSCI EAFE ETF3,947,224
FXI iShares China Large-Cap ETF3,555,439
GDX VanEck Vectors Gold Miners ETF3,354,685
EWZ iShares MSCI Brazil ETF3,236,333
GLD SPDR Gold Trust3,111,171
XOP SPDR S&P Oil & Gas Exploration & Production ETF2,912,814
SLV iShares Silver Trust2,557,681
XLF Financial Select Sector SPDR Fund2,518,648
USO United States Oil Fund LP2,016,862
TLT iShares 20+ Year Treasury Bond ETF1,088,178
XLE Energy Select Sector SPDR Fund866,920
KRE SPDR S&P Regional Banking ETF740,587
SMH VanEck Vectors Semiconductor ETF695,555
OIH VanEck Vectors Oil Services ETF686,810
XLU Utilities Select Sector SPDR Fund555,199

Source: Bloomberg; data as of Aug. 5, 2019
 

​Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.