ETF options

M

MrBean

Hi everybody. I'm interested in buying options on ETF on broad-based indices, in Euro denomination, but they seem to have very bad liquidity.

I wonder if anyone here can explain to me why, on EUREX, ETF options have such a low trading volume compared to cash-settled index options. For example, in 02/2007 there were around 18,000,000 contract traded on cash-settled DJ EURO STOXX 50 Index options, and only 31 contracts traded on options on the iShares EURO STOXX 50 ETF.

Source:
http://www.eurexchange.com/market/statistics/market_statistics/online_en.htm)

Where else are EURO denominated ETF options traded? Thank you to those who will take some time to clarify my doubts.
 
My guess would be that the underlying itself is not exactly highly liquid, hence the interest in options is even less.
 
Quote from MrBean:

I wonder if anyone here can explain to me why, on EUREX, ETF options have such a low trading volume compared to cash-settled index options.
More...

There are two reasons why the trading volume is so low:

1) There aren't many market makers who quote ETF options on EUREX. Stock and fixed options are more liquid cause there are more market makers in those products.

2) Because of number 1) many traders are hesitant to trade ETF options on EUREX.

I know this because a friend of mine is a market maker and he quotes mostly stock and fixed income options on EUREX.
 
ETFs and ETF options just don't seem to have caught on overseas the same way that they have here. Part of that is undoubtedly due to liquidity and part of that is due to regulation.

Europeans aren't as hindered by regulation as we are here in the States, so ETFs pose less of a benefit for them.

My recommendation is to trade liquid ETF options like SPDR options:

Still Trading SPX? Try a SPDR Instead...

If you insist on trading Euro-denominated products, then I'm out of ideas. I'll look around for a few liquid euro ETFs, but I don't think I'll have much luck.
 
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