The artificial intelligence (AI) boom that took the world by storm in early 2023 extended into this year, with the likes of NVIDIA Corporation (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Super Micro Computer (NASDAQ:SMCI), among many others, continuing to reap benefits from this technological revolution.
This sustained momentum has pushed the broader S&P 500 to several consecutive record highs in recent months. The benchmark index is already up 8.5% in 2024.
What is the option volume?
Options volume refers to the total number of options contracts traded in a day for a particular security, demonstrating the overall activity level of options for stocks or indexes.
It's a key metric for investors as it indicates the liquidity of an option; a higher volume means more liquidity, facilitating easier entry and exit positions at competitive prices.
Another important gauge that investors monitor is open interest, which represents the total number of outstanding options contracts that have not been settled. Unlike options volume, which resets daily, open interest provides a cumulative tally, increasing with newly opened positions and decreasing as contracts are closed.
For stock investors, understanding options volume and open interest is highly important.
High volume can signal that a particular option is attracting significant attention, possibly due to impending news or market movements. Meanwhile, open interest offers insights into the strength and potential direction of the market or specific stock trends.
Together, these metrics help investors gauge market sentiment, with rising volume and open interest often indicating bullishness, while declining figures might suggest bearish trends. Thus, by monitoring both, investors can make more informed decisions, aligning their strategies with market dynamics.
Stocks where options volumes matter most as per Goldman
Amidst the AI-led bull market in equities, Goldman Sachs strategists identified a notable development. In particular, they highlighted that options volume has exceeded shares volume in US individual stocks for the first time since 2021.
According to them, this volume matters the most in a select group of 20 stocks.
“We believe it is critical to monitor flows in the options market when trading these stocks,” strategists led by John Marshall said in a note.
“The options market provides rich detail on investor expectations for upcoming catalysts, expected volatility, directional skew, and broad attention being paid to a stock by individual investors and hedge funds,” they added.
Specifically, Goldman said the top 20 stocks by total options volume include Nvidia Corporation (NASDAQ:NVDA), Tesla (NASDAQ:TSLA), Meta Platforms (NASDAQ:META), Apple (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT)., and AMD (NASDAQ:AMD), among others.
“On the average day over the past 3 months, NVDA options have traded $98bn notional, equal to 4.2% of their market cap,” Marshall and his team noted.
Meanwhile, among the top 20 stocks with the highest options volume against their market cap are Super Micro Computer, Marathon Digital (NASDAQ:MARA), MicroStrategy Incorporated (NASDAQ:MSTR), Coinbase (NASDAQ:COIN), Tesla, and AMD.
For instance, over the past three months, the daily average trading volume of SMCI options reached a notional value of $15 billion, which represents 22.2% of the company's market capitalization.