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.
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