In a volatile month, many investors turned to exchange traded funds and even derivatives linked to ETFs to engage with the markets and participate in price actions.
The October pullback coincided with a marked jump in ETF activity, with ETFs accounting for about a third of daily U.S. market activity for the month, the highest monthly share for more than three years, the Financial Times reports.
For example, the SPDR S&P 500 ETF (NYSEArca: SPY), the largest ETF on the market, made up about a quarter of the $1.4 trillion in U.S. ETF trading activity for October.
Furthermore, options or derivatives linked to ETFs have become an increasingly important investment tool for market professionals. During the most volatile trading days in the past month, activity in derivative “puts” that give investors the option to sell SPY at a pre-determined price was double the pace of “calls” that give the right to buy the ETF.
Increased Usage of ETFs
“Investors have clearly ramped up their usage of ETFs as well as other derivatives including futures and options on ETFs as tools to reposition and hedge [protect]their holdings,” Katherine Fogertey, an analyst with Goldman Sachs, told the Financial Times.
According to S3 Analytics, short interest in ETFs increased by $11.7 billion to $176.5 billion last month, with the top 25-most-shorted ETFs accounting for 75% of total short interest, writes Daniel Liberto for Investopedia.