![]() ![]() That timeframe is now just about two weeks. Before 2020, the typical timeframe for an option trade looks to be around 30 days. The proliferation of weekly options now available to trade also surely accounts for some of the decrease in timeframes. This could be another indication of money from non-professional investors. This has been a trend for a long time, but it has accelerated since the pandemic. There has been a clear shortening of time frames when it comes to SPY option volumes. The chart below shows the volume-weighted average number of calendar days before options expire. I'm just hypothesizing here as I don't know the reason but there has been an increase in volumes since Covid-19. Another factor, which might account for the increased calls, is that retail traders have spent more time on personal computers allowing them to speculate in the options markets. Increased option volumes could be due to more hedging during these uncertain times or maybe the new money created for relief bills passed by Congress during the pandemic found its way into the markets. In other words, call volume is up compared to put volume. ![]() Another change since the pandemic is a general decrease in this ratio. The second chart shows the ratio of puts to calls. Option volumes have increased significantly since Covid-19. For SPY options, I tend to focus on put trades, as these tend to outpace calls and are frequently used to hedge large stock portfolios. This first chart simply shows the 20-day average option volumes for puts and calls. Hopefully, we will gain some insight into how investors are positioning themselves during this shaky market. In addition, I'll be looking at the characteristics of the volume now and how it compares to the past, especially since Covid-19. I'll be looking at the behavior of puts, which make money when the SPY goes down, compared to calls, which make money as the SPY goes up. This week I'm examining the SPY options markets. The SPDR S&P 500 ETF Trust (SPY), an exchanged-traded fund (ETF) that tracks the S&P 500 Index (SPX), recently closed with an 18% loss on the year however, it bounced nearly 7% in a little over a week, leaving many investors wondering if it's heading back to new highs or just a bear market rally. There is an elevated amount of uncertainty in stocks right now. ![]()
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