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Duration: 6:01

Level: Intermediate

This lesson will discuss:
• ETF Volumes Increase During Volatility
• High Yield ETF Trading Behavior
• High Yield ETF Trading
• 3 Case Studies

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Study Notes:

ETF Volumes Increase During Volatility

HY ETF Trading Behavior

Premium & Discount

High Yield ETF Trading

High Yield Volume versus High Yield ETF Primary Market Activity.

  • During periods of high volatility, the High Yield ETF primary market activity is only a small percentage of overall High Yield cash bond trading
  • High Yield ETFs have become a notable trading tool
  • The secondary market volume is additive to the liquidity profile of the overall High Yield market

Case Study: August 24, 2015

What happened

Global growth concerns triggered a sharp selloff in emerging markets, and spilled over into US markets. This resulted in pre-market volatility, an atypical opening market process, and SPY’s largest notional trading session ever.

Case Study: February 2018

What happened

A technically driven unwind of historically long S&P 500 derivative positioning contributed to equity market volatility on February 5 and 6, resulting in SPY’s 2nd and 3rd largest notional trading sessions ever.

Case Study: Q4 2018

SPY maintains consistent spreads during market selloff.

What happened

Market volatility spiked in the 4th quarter of 2018, as concerns over slowing global growth, tightening monetary policy and escalating trade wars resulted in a sharp market selloff. During this time period, SPY’s spreads remained at consistent levels.

An ETF liquidity comparison: In Q4 2018, the iShares Core S&P 500 ETF (IVV) saw spreads widen with heightened volatility. Meanwhile, SPY maintained consistent spreads—allowing investors to pivot in any direction with the same trading costs.

Disclosure: Stock Symbols

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

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