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In HY1 2018, average daily volume in Bund options was ca. 192,000 contracts, an increase of more than 15 percent versus 2017. The screen to block volume share for Bund options moved from 30 percent in 2017 to 40 percent in HY1 2018. While higher volumes in the fall-out of the Italian elections were mostly conducted as block trades, screen trading was more strongly driven by an increase in option strategy trading.
Streaming quotes in Bund options are provided by a total of 15 liquidity providers. With these quotes, institutional end-users can easily execute trade sizes beyond 500 contracts in Bund options onscreen, while larger trades are mostly negotiated in person by phone brokers.
Strategy trading as a driving force
The majority of liquidity providers also quote options strategies. Trades off quotes in strategies account for 20 percent of the volume that was traded in the option order book.
Total volume in strategies amounted to roughly 6 million contracts in Bund, Bobl and Schatz options (quote trades and from regular orders) in 2017, and is exceeded by the strategy volumes traded onscreen in HY 1 2018 that came in at far over 10 million contracts. Should the volume trajectory in strategy quote trades continue throughout 2018, then the liquidity development is on route to double for the second consecutive year.
In HY1 2018, average daily order book volume in strategies was ca. 40,000 contracts for all fixed income options. 29,000 contracts traded daily in the strategy order books in Bund options, while Bobl options recorded 6,000 and Schatz options saw 5,000 daily volume trading onscreen. This is 40 percent of the volume traded in the order book overall and has supported the growth of screen volume
Focus on directional strategies
Investor interest focused on directional strategies, with bear spreads outpacing bull spreads in Bund options, and with Bobl options showing a similar ratio of bearish to bullish strategies.
Besides directional strategies, Schatz options feature high volumes in butterflies and condors as investors attempt to either pinpoint price developments of the underlying futures, or set up trades with a perspective on the volatility skew or changes thereof.