Options volume hits record, with bullish sentiment at 'extremely high levels,' Goldman Sachs says

Published Fri, Jul 24 20207:39 AM EDT

(This story is for CNBC PRO subscribers only.) Investors have reentered the market at a record rate following the coronavirus-induced sell-off in March, and as traders look to profit, options volume has soared to an all-time high, according to Goldman Sachs. "The average daily value of options traded has exceeded shares for the first time, with July single stock options volumes currently tracking 114% of shares volumes," Goldman Sachs' Vishal Vivek wrote in a note to clients. In other words, the options market is now larger than the shares market. Notional volume in single stock options is up 35% over the past month, and 129% this year. And much of the trading has been concentrated in high-flying tech names. The firm said that so far in July, Amazon , Tesla , Apple , Netflix and Facebook have seen the largest volumes. "Notably, bullish sentiment on a number of names, as indicated by options market skew, is at extremely high levels," Vivek wrote. Tony Zhang, chief strategist at OptionsPlay, noted that this is a trend that's been in place for a few years. "This increase in volume is important because when trading in the derivatives market outpaces the underlying [asset] itself, it can potentially be the driver of the underlying stock more so than trading of the stock itself," he told CNBC. That said, he also noted that this isn't always a market-moving event since a lot of the time large bets are offset by investors taking the other side. This means that market makers don't need to buy or sell large quantities of the underlying stock in order to offset their risk. "In reality, most of the notional volumes offset each other which means that you can have a large notional volume without having a large impact on the stock price itself," he said. However, in the case of Amazon, Tesla, Square and Moderna , bullish call buyers have pushed the skew, or how expensive puts are relative to calls, to below zero. Puts are generally more expensive than calls, but with a negative skew, the opposite is true. "Negative skew is a relatively rare statistic for large cap names such as AMZN (where three month skew is currently at all-time lows), implying crowding in long AMZN calls," Goldman noted. Amazon shares hit a new all-time high on July 13, and the stock has bounced more than 80% since its March 16 low as e-commerce sales rose amid the pandemic. Goldman added that much of the increase in volume is from short-dated contracts. Zhang noted that this can lead to volatility due to the amount of stock market makers need to buy or sell when a contract's expiration approaches. - CNBC's Michael Bloom contributed reporting.

Traders wearing masks on the floor at the New York Stock Exchange.

Brendan McDermid | Reuters

(This story is for CNBC PRO subscribers only.)

Investors have reentered the market at a record rate following the coronavirus-induced sell-off in March, and as traders look to profit, options volume has soared to an all-time high, according to Goldman Sachs.

"The average daily value of options traded has exceeded shares for the first time, with July single stock options volumes currently tracking 114% of shares volumes," Goldman Sachs' Vishal Vivek wrote in a note to clients. In other words, the options market is now larger than the shares market.