The Options Out of This Country session at CBOE RMC today focused on international indexes, the economics of dollar denominated ETF options, and FX equity correlations. Rocky Fishman from Deutsche Bank, Ricardo Manrique from MSCI, and Yoav Sharon from Driehaus Capital Management split presentation duties for this discussion.
Manrique kicked things off discussing the growth of international markets. One interesting statistic noted that in 1988 emerging markets represented 1% of total global stock market capitalization. That number has grown to 11%. He also showed that the dispersion of returns among emerging markets has widened over the past few years and noted that currency volatility has been influencing the volatility of returns.
Rocky Fishman followed up with a presentation focusing on options on ETFs that focus on international markets. He notes that you can get US dollar denominated exposure with these ETFs and their associated options. He highlighted the liquidity of EEM options noting that the average daily dollar volume is greater than that of DIA options. Rocky broke down the returns, country correlations, and volatility of regional ETFs with a focus on EEM and EFA. One very interesting statistic was that all of the EFA returns in January 2017 came from FX. A final takeaway was Fishman showing that EFA ETF volatility is often closer to VIX than VSTOXX despite VSTOXX being based on EuroStoxx 50 options which is a good part of the EFA.
Yoav Sharon took the session home with a presentation titled It’s Low…But Is It Cheap? With respect to options this may be judged with implied volatility low, but generally low for a reason. He stated that you shouldn’t stop at “low is cheap, high is expensive” as the environment should be taken into account when evaluating the level of implied volatility. ETF option volume growth has greatly outpaced that of stock option volume over the past couple of years. He finished noted that election outcomes (past and future) are important, there is a recent increased focus on correlations, and there are unique opportunities in the option market based on current low volatility.