Since their debut in 1983, S&P 500 options have grown into the most liquid index options in the market today.1 In 2005, Cboe introduced PM-settled S&P 500 weekly options (SPXW) to meet market demand for additional trading frequency. The first weekly options expired only on Fridays, with Monday and Wednesday expirations added over time. On April 18 and May 11, 2022, respectively, Tuesday and Thursday expirations were added to complete the suite. Now SPXW options have five expirations a week.
Adding Tuesday and Thursday expirations reflects the increasing popularity of SPXW options. S&P 500 option trading has grown significantly in recent years; in the first quarter of 2022, S&P 500 option average daily trading volume (ADTV) exceeded 1.7 million, five times higher than that of 2005 (~285,000). Of that, SPXW option ADTV topped 1.2 million, about 70% of the total. Among the weeklies, roughly 45% ADTV expires on Fridays, 46% is split between Monday and Wednesday expirations, and the remaining 9% expires on Tuesdays or Thursdays because of holidays and end-of-month expirations.
Adding more expirations will offer more trading flexibility. Demand for short-term expirations has grown drastically since 2020. A Cboe study2 showed that in 2021, almost half of trading volume came from options that expired within five business days. Day trading and ultra-short-term option trading have broadly gained popularity. Whether the goal is to adjust exposure to imminent events or target specific risk/return objectives, more expirations allow more precise positioning.
Ultra-short-term options also come handy in option trading strategies. For example, in a calendar spread, a market participant expresses their view through a long position in a longer-dated option and sells a nearer-dated option to finance it. Ultra-short-term options tend to be less noisy compared with longer-term ones, due to their limited time frame. Therefore, participants implementing spread trade may benefit from the increased selection of ultra-short option expirations.
Since its introduction in mid-April, the ADTV of Tuesday-expired SPXW options increased to 211,714 in the first week of May, catching up the ADTV of Monday-expired (303,191) and Wednesday-expired (261,523) options. Five expirations per week is exciting news for market participants and could boost the S&P 500 options trading to a new level.
1 Cboe. “Cboe Global Markets Monthly Trading Statistics.” https://www.cboe.com/us/options/market_statistics/monthly_volume_rpc_reports/.
2 Cboe. “Trading SPXW Options with Expirations Five Days a Week.” April 20, 2022.The posts on this blog are opinions, not advice. Please read our Disclaimers.