Last night I was browsing on JSE web site and I’ve found very nice documents showing monthly statistics for futures and options traded in
Posted above are just two tables from documents published on mentioned web site.
First table represents number of contracts traded from August 2009 to January 2010, while the second table represents number of contracts traded from August 2008 to January 2009.
If we compare first rows (Index futures) for those two tables we can see that volume is very much the same. Average for period August 2009 - January 2010 is 1.141.932 contracts per month. Average for period August 2008 - January 2009 is 1.140.761 contracts per month. In my opinion, this small difference could not take away volatility from our market.
If we compare second rows (Single stock future) for those two tables we can see that there is drastic change. Average for period August 2009 - January 2010 is 6.683.356 contracts per month. Average for period August 2008 - January 2009 is 41.635.729 contracts per month. This represents decrease of about 83%.
What we can conclude from those two tables is that ALSI traders are still out there, but traders in single stock futures are gone from the market.
How this influence volatility?
Trading ALSI, we often forget that ALSI is futures contract based on Top40 (J200) index. Top40 index is calculated as average for Top40 South African companies and cash value of Top40 is based on cash values of each stock that makes part of Top40. If trades in single stock futures dropped 83% year-on-year that means that volatility in cash market for stocks dropped by, more or less, the same margin (Remember that SSF issuer must hedge what it is sold to you by buying 100 shares for each contract for that specific share.). So, we have situation in which shares volatility dropped, causing Top40 volatility to drop, which is at the end causing ALSI volatility to drop.
Last two rows of these tables represent total number of futures and options traded on JSE. It is obvious that number of contracts traded for instruments dropped by quite some margin, especially over September and December (close out months). Such a big drop could have, for sure, caused volatility drop, which makes our systems underperform levels of return from year 2008 and early 2009.
Trade with trend!