This article is behind a paywall. But the headline provides the key point: Liquidity of the E-mini S&P 500 futures contracts is shrinking – hit hard after the two volatility shocks in 2018.
Liquidity provides a cushion for those times when the market goes haywire… up or down.
When that cushion disappears, volatility has a tendency to be higher than normal.
If you’re an option buyer, this works to your advantage.
If you’re an options seller, it’s yet another reason to trade cautiously. Note that I am not saying don’t trade. It’s just that you need to very deliberate in your trade process. That’s one of the reasons why we continue to stress test our high probability credit spreads.