December 20, 2019 Checking in on Micro E-Mini Volume Trends Russell Rhoads TABB Group Followed! | Profile | More Share Despite initial questions, the launch of Micro E-Mini futures could be considered one of the most successful product launches in years, especially for the S&P 500 and Nasdaq-100 contracts. TABB Group head of derivatives Russell Rhoads analyzes Micro contract and related volumes to provide perspective on the market trends. The launch of Micro E-Mini futures, which debuted in May, could be considered one of the most successful product launches in years, especially for the S&P 500 and Nasdaq-100 contracts. There were lots of questions around these new contracts initially, such as, “Who is going to trade them?” Well, someone is trading them, with average daily volumes in the six figures for both S&P 500 and Nasdaq-100 Micro E-Mini futures. The Micro E-Mini futures contracts are all 1/10th the size of their larger (Mini) counterpart. Exhibit 1, below, shows the value of both S&P 500 and Nasdaq-100 contracts based on the closing price for each E-Mini future on the last day of November. One of the reasons for creating the Micro contracts was because the E-Mini notional values had grown so much with the 10-plus-year bull market in equities. A futures contract with a notional value of well over $100,000 was becoming too much for many retail-level traders. The Micros, at around $15,000 notional, provide a more reasonable position for small traders. Exhibit 1: Micro E-Mini vs. E-Mini Futures Data Source: CME Group Exhibit 2, below, compares the average daily volume of the Micro E-Mini S&P 500 and the Nasdaq-100 contracts from May through November of this year. Initial volume was strong when the Micro futures were introduced, and those levels have held. The Micro E-Mini S&P 500 ADV topped 200,000 each month, with the exception of November; and the Nasdaq-100 contact’s ADV is consistently in the six-figure range as well. Both contracts experienced somewhat of a step down in November. Exhibit 2: Micro E-Mini ADV by Month, May – Nov. 2019 Data Source: CME Group The E-Mini and related ETF and ETF option market ADV for each month since the Micros were launched provide more perspective on the Micro contract volume trends. Exhibit 3, below, shows the ADV for the S&P 500 and Nasdaq-100 E-Mini futures over the same time period. Like their Micro counterparts, the volume trend has been lower since spiking in August this year. Exhibit 3: E-Mini ADV by Month, May – Nov. 2019 Data Source: CME Group The same pattern arises for trading volumes for the SPY and QQQ exchange traded funds. Trading activity in the past four months has trended lower for both ETFs. Exhibit 4: SPY and QQQ ETF ADV by Month, May – Nov. 2019 Data Source: Bloomberg The options markets on both of these comparable ETFs also have seen slightly lower volumes over the past four months – though SPY’s trend was interrupted by a little strength in October. Exhibit 5: Options on SPY and QQQ ADV by Month, May – Nov. 2019 Data Source: Options Clearing Corp. The recent drop in Micro E-Mini futures volumes looks a bit concerning when observed in a vacuum, but when comparing changes in volume for trading vehicles that offer similar exposure as the Micro contracts, the trends appear to be influenced by broader market volumes and not product-specific issues with the Micro E-Mini futures contracts. Finally, we compared the month-over-month percentage volume changes for the four markets from June through November. A simple average was calculated for further comparison purposes. Exhibit 6, below, compares the four vehicles that offer exposure to the S&P 500. The Micro E-Mini S&P 500 futures experienced a dramatic drop in volume in November. But this was following a strong October for the Micro volumes. Also, on average, the monthly volume comparisons are the highest for the Micro contracts. Exhibit 6: S&P 500 Monthly Volume Change by Product Data Sources: CME Group, Bloomberg, Options Clearing Corporation The Nasdaq-100 trends, shown in Exhibit 7, below, tell a similar story to the S&P 500 table. The Micro E-Mini contracts are the only instrument that experienced average positive volume growth over the past six months. Exhibit 7: Nasdaq-100 Monthly Volume Change by Product Data Sources: CME Group, Bloomberg, Options Clearing Corporation One final quick analysis was conducted with respect to futures volumes versus open interest. Average daily volume during each month was compared to end-of-month open interest for both the Micro E-Mini and E-Mini futures. The numbers in this case tell an interesting, but not overly surprising, story. Exhibit 8, below, compares S&P 500 volumes with open interest. Each month the average daily volume for E-Mini S&P 500 futures is lower than the end of month open interest. Of the four futures contracts discussed above, this is the only one that does not see volume higher than open interest. The Micro E-Mini S&P 500 ADV consistently is several times higher than the open interest. The volume versus open interest differences are staggering when compared to the E-Mini figures. An easy assumption is that the volume is heavily skewed toward short-term trading. Exhibit 8: S&P 500 E-Mini and Micro E-Mini ADV as a Percent of Month End OI Data Sources: FIA and CME Group Exhibit 9, below, compares ADV for the E-Mini and Micro E-Mini Nasdaq-100 contracts. ADV for the E-Mini futures varies from around 150% to 300% of open interest, while the Micro E-Mini ADV to open interest figures are in line with their S&P 500 counterpart. Exhibit 9: Nasdaq-100 E-Mini and Micro E-Mini ADV as a Percent of Month End OI Data Sources: FIA and CME Group The Micro futures debuted in May to much fanfare and strong volume. The volume has trended lower as of late, but the same may be said for other products offering exposure to the S&P 500 and Nasdaq-100. As far who is trading them? A solid answer is lots of people – and lots of short-term traders. A deeper dive from CME Group into the Micro E-Mini futures can be found here.