For example on comparing EEM/VWO , SPY/IVV/VOO etc and I always wonder why some ETFs are popular but options are not. I see a question How to pick ETFs that hedge against stock market crashes? that correctly says

problematic with VTI due to illiquidity and wide B/A spreads. With the SPY, it would be no problem

but wonder why. Is it OCC that is preventing it or the issuer ( e.g Vanguard) ? . What will OCC get by keeping low liquidity ? Does it cost the issuer ( iShare/Vanguard) any thing extra so keep the option illiquid to save money)

On EEM, I feel the higher expense ratio is due to the fact of its options are very liquid. Is my feeling correct ?

2 Answers 2


The OCC and Vanguard have nothing to do with the liquidity of an ETF's options. Like the stocks, option trading is an auction maket and liquidity is a function of supply and demand.

Vanguard's target audience is the investor rather than the trader and their commission structure and facilitation of option trading is intended to dissuade traders. See:

why some brokerage does not allow uncovered (cash secured) put via online order?

Because of that, I would hazard a guess that the typical Vanguard investor is mostly Buy & Hold and tends not to trade options. Hence, the interest in Vanguard ETF options is low.

As for EEM, its expense ratio has nothing to do with it's options.

  • then How and why iShare is able to charge more on EEM in comparison to VWO. Investors/Traders are mostly institutional and these entities can see that EEM expense ratio 0.69% is a lot on their bottom line than similar VWO (0.14%)
    – Raj
    May 1, 2019 at 23:14
  • What does your question have to do with and ETF's expenses versus its exchange traded options (from the OP's question)? ETFs and options trade on independent exchanges. May 1, 2019 at 23:49

Liquidity suffers from a kind of catch-22: If there is no liquidity, people don't trade in the security. If people don't trade in the security, there is not enough liquidity. Similarly, people like to trade on the NYSE but not so much on the Chicago Exchange - why? because the liquidity is on the NYSE.

With SPY, they are a smaller version of the S&P 500 that has liquid futures traded in the futures market. It gives the market maker the ability to hedge their positions more easily. Whereas there are not futures for VTI and possibly the details of what exactly VTI contains may be difficult to obtain. It is more work and more risk for the market maker, who might find it easier and more profitable to trade something else.

The market maker of SPY options is probably not concerned with expense ratios when he buys and sells SPY to hedge his option positions.

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