Tag Archives: TABB

Mini Options Ready to Grow?

tabb forum logoCourtesy of Andy Nybo, TABB Forum

The recent approval by the Securities and Exchange Commission (SEC) to allow the listing of “mini” options provides the options industry with a wealth of potential opportunities. The potential success of mini options, however, will be a double-edged sword. The costs to build out the necessary technological infrastructure to support trading of minis needs to be offset against the benefits (and revenues) they bring to options market participants, an evaluation many have yet to make.

minimeMini options may be simple in concept, but their very simplicity masks many of the challenges that will inevitably arise, especially if the contracts see broad trading success. On the surface, mini option products look just like their larger brethren — the “only” difference is that the deliverable size for a mini option is 10 shares of the underlying as opposed to 100 shares for standard contracts. All other facets for minis remain the same, with expirations, strikes and classes all replicating the standard contract terms. To date, exchanges have proposed listing mini options to five “high priced” stocks with a large retail following, namely Amazon, Apple, Google, the Spider S&P 500 ETF, and the Spider Gold Trust.

A number of factions have been actively campaigning behind the scenes to shape the ultimate structure of the mini options product. Not surprisingly, exchanges have taken a lead role in seeking the SEC’s blessing, with the ISE and NYSE ARCA receiving approvals in September to list the mini options on their respective exchanges beginning March 18, 2013. NASDAQ’s PHLX exchange filed for approval of its own mini products on Nov. 1 this year, and it is probably safe to assume that the other eight (or nine, depending on when you read this) exchanges are working on their own rule filings.

There is no doubt that the exchange efforts are broadly supported by retail brokers, as their retail investor clients are arguably the biggest potential end user of any mini options products. The high price of the selected underlyings prohibits the use of options by most retail accounts, which cannot afford the standard contract price. In many cases, a retail account will hold an odd lot of the stock and is shut out of using the standard contract for hedging or as a way to earn premium income.

Are We There Yet?

The major challenge is one of readiness. Although current proposals are targeting a March 18, 2013, launch date, hitting this date will depend on industry readiness to support the new mini product set.  The ISE and NYSE Arca may be ready for trading on the proposed start date, but brokers, market makers and industry vendors may not have all their ducks in a row in time for the launch.

For the full article from TABB Forum, please click here (registration required for 1st time readers)

ETP Volatility Report from Velocity Shares

VelocityShares is pleased to present the October 2012 Volatility Report, providing insights into the volatility landscape.

Highlights from this report include:

  • Year-to-Date Performance for the VIX Index is -21%.
  • Year-to-Date Performance for the S&P VIX Futures Indices:
    • Short-Term: -74% (SPVXSP)
    • Mid-Term: -47% (SPVXMP)
    • Tail Risk: -20% (SPVXTRSP)
  • VIX spot increased steadily in October, opening at 15.73 before closing the month at 18.40.
  • VIX Call Option Volume once again reached its second highest levels ever (and the most in over a year) on October 17th, 2012, nearing $850MM traded.
  • The Short-Term S&P 500 VIX Futures Tail Risk Index (SPVXTRSP) ended the month with a long-vol bias of 23.87% long, its greatest long exposure since June 2012.
  • Due to Hurricane Sandy, the stock exchange was closed for two days and reopened on October 31st. While a catastrophic event might be the cause of a spike in volatility, the following was observed:.
    • Short-Term VIX Futures gained 3.62%, which is within one standard deviation of the daily returns observed in October 2012
    • VIX Futures Dollar Volume on the 31st was greater than its 20-day moving average ($2.7B vs. $1.9B)
    • ETP Dollar Volume on the 31st was the same as its 20-day moving average ($1.4B each)
    • VIX Options Trading Volume on the 31st trailed its 20-day moving average (378K vs. 479K)

    For the full report, visit TABBForum.com