Tag Archives: option volatility

Options Market Poised For Pick-Up; Institutional Managers Re-Focus Risk Strategies for 2013

tabb forum logoThe Outlook for 2013

Uncertainty around the elections, low volatility and anemic volumes in the equity markets drove the first year-over-year decline in options trading volume since 2002. But bright spots such as weekly and mini options portend a stronger 2013.

Despite the options market doldrums in 2012, TABB Group believes the volume retreat is a temporary phenomenon, especially when compared to trading activity in the “abnormal” market environment of 2011. The use of US-listed options by institutional investors remains in its infancy, and their adoption will only expand in the future. Latent demand from institutional investors that are just beginning to explore the role of equity options as a part of their portfolio strategies will drive volume in 2013 and beyond.

Weekly options will continue to expand their footprint in 2013 , and the pending March launch of mini options is also expected to drive volumes into 2013, especially from smaller retail accounts that have been largely absent from the options market in recent years. After initially launching for a handful of high-priced stocks, exchanges can be expected to quickly expand the list of names in the program. Trading interest from retail accounts will attract the interest of institutional accounts, especially accounts using relative value and quantitative strategies.

To read the full article from TABB Group, please click here

What’s Next?..Options Trading On Facebook (FB)

Options on Facebook (NASDAQ: FB) will be available as early as May 29th. With volatile price action in FB after its IPO, traders will look to options strategies to profit

In the next several months FB is going to face pressure to grow into its current 100 Billion dollar valuation. As a growth stock trading over 100 times earnings, any sign of slower growth in Facebook will cause the stock to plummet quickly.Traders who do not think Facebook can hold its current valuation have a number of options strategies to profit from any fast downside price action.

Depending on implied volatilities of FB options, traders can be either short or long volatility. It is unlikely that FB stock will increase or decrease in value by more than 30% in one year. If options are trading will implied volatilities greater than 30%, traders should be net sellers of options. Selling vertical call spreads, which involves selling call options at strike prices above the current price and buying a call option at strike prices even farther out from the current price. This strategy will be profitable if FB maintains its price or decreases.

Notes WallachBeth Capital’s Randy Sharringhausen, an institutional options market expert, “Even if the company’s fundamentals don’t come close to justifying its IPO price, this is a company that has 450 million customers that visit every day and a corporate treasury flush with enough currency to finance any number of  major acquisition to better monetize its customers.  This should prove to be an interesting name to trade by the hedge fund and risk arb community, as well as the long/short managers.”

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