ETFs With The Most Liquid Options

With the recent dipping of volatility levels into the lowest territory ever, investors now only have to pay a relatively small amount of
money for stocks and ETFs. In fact, they are paying the least amount ever in history, a factor that has made ETFs’ options very cheap. Investors who wish to make a sensible improvement in their long term plan can have their wishes fulfilled by simply getting down to work through Wall Street’s bargain bin.

For instance, let’s look at the CBOE Volatility Index (VIX). The VIX is used to measure the “implied volatility” of options on S&P 500
Index on the basis of the monetary value investors intend to pay for them in exchange. In the meantime, the VIX has nose-dived to an extremely low level.

Of all the days in history that the VIX has gone below 10, almost half of those cases have been recorded in 2017. This report is according
to the Chicago Board Options Exchange, which also states that it is a rare occasion for the level of VIX to fall below 10. This, however, has been the routine occurrence that has been witnessed through this year.

Rare Cases of Cheaper To Use Options

Depending on who you ask or rather your source of information, cheap options in the trade market are either good or bad. Cheaper
options favor investors who are ever on the lookout for market declines as opportunities to hedge their portfolios using put options. This is also the case for speculators who only follow the fluctuation of the stock market with the interest of betting on more gains using call options. Being a rare occurrence, this seems to be favoring their gain.

On the other hand, we have the case for options sellers. They are unfortunate as they are not gaining much in terms of a premium for
scripting options contracts.

Regardless of the party involved, a drop in volatility is not a knock on the options market. The options market remains active all
through specifically in the part of exchange-traded funds. Below is an outline of the 15 ETFs that have the most liquid options markets.

SPY is the Bid Daddy of the IVV

Just as it was the case in 2016, SPY (the SPDR S&P 500 ETF) has the most-cheap options market of an Exchange-Traded Fund or stock.
SPY is the currently largest Exchange-Traded fund in the world with $237 billion worth of assets under management (AUM). Unlike VOO and IVV, SPY is a unit investment trust which is older but with an entirely self-sufficient structure. It has 17.8 million outstanding options contracts also known as open interest. Open interest dictates that each options contract grants the owner the right to a total of 100 shares of the Exchange-Trade Fund in question; the right to buy while using call options and sell in the case of put options. SPY’s phenomenal volume in trade makes it an excellent option for tactical traders and investors who invest on the trading market.

Bid spreads on SPY options are in most cases less or equal to a penny wide. This minimizes the costs of transactions for those who intend
to hedge or speculate for gains on the S&P 500. Although SPY is the biggest ETF and offers the most liquid options market, the correlation does not always hold true. There are several well-established funds with illiquid or unreal options markets.

Suppose you invest an amount of money totaling to around $10,000 in a fund that tracks the S&P 500 and charges say 1% in expenses.
After a period of 30 years, you will have lost about $18,700 of your income to the expenses of the fund. However, if you invest in a cheap ETF like SPY instead, you will only have lost around $2,000. This is because SPY charge a tenth of the 1% for their expenses, unlike the expensive ETFs. You will in the process have saved around $16,700 which you could use as retirement benefits. This explains the essence of investing in an ETF that offers cheap options. SPY proves the best option in this case which makes it the best ETF in the market.

Consider the $119 billion iShares Core S&P 500 ETF (IVV). This ETF holds the second position in assets with a total of 2,640
options open interest. For a fund of its size, that is a very small number of options. More so, it has huge bid/asks spreads for IVV options, making it a poor choice for options traders.

Some ETFs Scaling Beyond Their Size

The iShares MSCI Emerging Markets ETF (EEM) holds the second position after SPY on the most liquid and deep options market. The fund has a total of 6.6 million contracts in the options market. This is slightly above the second runners-up on the list, PowerShares QQQ Trust (QQQ), which has an open interest of 6.5 million contracts.

There are a few other titans with active options markets. These funds include the SPDR Gold Trust (GLD), iShares Russell 2000 ETF (IWM),
iShares MSCI EAFE ETF (EFA) and the Financial Select Sector SPDR Fund (XLF) among others.

There is also a list of ETFs that are faring well above their size and rank in the options market. These include the United States Oil Fund (USO), the iShares MSCI Brazil Capped ETF (EZW), the iPath S&P VIX Short-Term Futures ETN (VXX), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares China Large-Cap ETF (FXI) and the VanEck Vectors Gold Miners ETF (GDX).

Even though they do not possess huge amounts of assets and investments, the above-mentioned ETFs have some of the most-deep and liquid
options markets. For instance, consider the case of VIX. This fund has assets under management worth $1 billion while XOP has $2 billion worth of assets. VIX, however, offers more liquid options than XOP. Considering the fact that the VIX, Brazil, oil, China and gold miners are some of the most volatile areas of the markets, we can conclude that these funds are more popular with short-term traders.

The table below shows a full list of the top 15 ETFs that offer the most liquid options:

Next: What Option Strategies to use on ETFs?