Tag Archives: hedging with options

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Equities Options Marts Bustling: 1 Billion Contracts Trade in Q3

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tradersmag  Trading in equities options is enjoying a resurgence, thanks to recent volatility in underlying cash markets, a burst in IPO activity and heightened hedging action in the stocks of companies such as Apple, Inc. according to reporting by TradersMag. Citing a TABB Group recent study, 0ptions mart trading volume exceeded 1 billion contracts in Q3. The third quarter gains represent a 4.9% increase from the second quarter total and an 8.2% increase from the year-earlier period.

options volumeIn its latest research, “U.S. Options Market Review: Third Quarter 2014,” Tabb Group also reported that U.S. options volume rebound was driven in part by a 15.8% jump in September’s total as retail fervor around Apple’s new product announcements, the Alibaba IPO and rising volatility brought monthly volume to 365.9 million contracts.

The report, compiled and written by TABB Group principal Andy Nybo, head of derivatives research, also noted that volatility spikes in late July and late September helped push volatility averages up in each month, with the CBOE index averaging 13.5 in both August and September – prompting more trading.

Weeklies trading, Nybo noted, remained strong in the third quarter with volume totaling 270 million contracts, up 7% from the second quarter total and 39% from the year-earlier period.

Noted Matt Gohd, market strategist at WallachBeth Capital, “Aside from volume spikes that typically come with increased volatility, I think there is clearly an increasing trend towards using equity option strategies for opportunistic, alpha capture and hedging purposes on the part of sophisticated investors as well as institutional fund managers.” Added Gohd, “The better news is that an increasing number of fiduciaries recognize that equity option strategies can play a crucial part of their overall approach to managing risk in a responsible way.”

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Options Industry Looks for New Sources of Order Flow-RIAs Need Education

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  Courtesy of Peter Chapman

With options volume down this year, industry professionals are looking beyond traditional players such as retail investors and hedge funds for growth.

“We are strongly focused on the institutional space,” Alan Grigoletto, director of education at the Options Industry Council, said at this year’s joint Futures Industry Association and OIC options conference in New York. “In the coming years, we see much more participation from wealth advisers and pension funds, and even endowments.”

Most of the industry’s volume comes from two sources: retail traders and hedge funds. Retail investors were the driving force that got the industry on its feet in the 1970s. The hedge funds have jumped in over the past 10 years.

But with volume down 13 percent through August of this year, tapping new sources of flow has taken on new urgency. During the first eight months of this year, volume dropped to an average 16 million contracts per day from 18.5 million last year.

“The appetite is just not there,” Nasdaq OMX managing director Chuck Mack said at the FIA-OIC confab. “We need that appetite. We need the hungry investors to come back in.”

For those looking to corral new players, there’s good news and bad news. The good news is that registered investment advisers are “flocking to the options market,” Jeff Chiappetta, a TD Ameritrade executive responsible for institutional trading, including advisers, told conference-goers.

The bad news is that pension funds and mutual funds are not flocking to options, according to industry sources. Mutual funds are starting to set up hedged versions of some of their stock funds using options, but the trend is nascent. Pension plans are also tiptoeing into options, but the pace is glacial.

“The trustees on the boards of these [pension] plans come from all walks of life,” Gregg Johnson, a consultant to public pension plans with Gray & Company, told conference attendees. “They range from policemen and firemen up to sophisticated investors. But when they hear the word ‘options’ or ‘derivatives,’ they become frightened. They don’t understand. They always think they add more risk to a portfolio, rather than reduce it.” Continue reading →