The total has dropped in recent days to 3 .91 million contracts, which is yet clearly above five-year averages. Open interest in May was a record and April was the third largest on record.
The jump reflects bets in both direction — investors use a short futures position to hedge against a longer cash bet or go long futures to get exposure to the rally in the benchmark index without taking a long-term cash position.
Futures have become more popular recently as funds have launched absolute bring back or multi-asset strategies that generally seek to capture moves in headline indexes rather than exposure to individual stocks.
As a deeper pool of liquidity, it is easier for traders to buy and sell futures.
Open interest can fluctuate sharply every month, particularly in the direction of the end of a quarter when investors whether close out or roll over positions.
Activity in futures also typically rises during periods of market tumult. Turnover in the Eurostoxx 50 soared in December from November and during the global financial market rout when implied volatility shot up.
But recent months have seen a pronounced pick-up in open interest even though volatility has remained relatively stable — a signal that investors are seeking to protect against a market crash.
The rise is all the more significant because volumes in cash equities in Europe have fallen amid tighter regulation, worries about Brexit, political upheaval in the eurozone and a wide economic slowdown.
In January-May, cash equity volumes across 15 European exchanges fell 16% from a year earlier, their slowest pace for those months since 2014, exchange information analyzed by UBS shows.
For Edmund Shing, global head of equity and derivatives approach at BNP Paribas, the surge in open interest shows anxiety about the direction of stock markets after the unexpectedly strong and prolonged rally so far this year.
“Investors remain frozen in the markets headlights and the default is to do nothing,” he stated. “They don’t want to get stuck in cash equities and are hedging through futures .”
The pan European STOXX 600 is up above 13% so far this year, placing it on track for its best year since 2013.