Innovations in Trading and Technology (Short-term options (STOs) are arguably one of the most successful product innovations launched by exchanges in recent years, with growing investor interest a big factor behind their success.
Although technically not all that new — the Chicago Board Options Exchange has offered weekly options on a few of its proprietary index products since 2005 — over the past year they have become a substantial part of the market, accounting for as much as 25 percent of total volume on any given day.
STOs were a significant factor behind record options volume in 2011, especially as rising volatility in the latter half of the year attracted the attention of investors seeking to hedge exposure and those making directional plays using low premium options instead of much higher priced underlying equities. STOs volume totaled an estimated 378.9 million contracts in 2011, accounting for 8.3 percent of total volume.
Growing Investor Appeal
Short term options appeal to a variety of trading strategies and end-users, especially investors seeking to manage short term exposures through hedging or directional strategies. As would be expected, the low price and shorter expirations provide considerable appeal for speculation but they also represent a valuable tool to manage risk and enhance income. TABB Group believes that the majority of STOs volume currently originates from retail trading accounts but institutional investors are quickly embracing the products for risk management, premium generating strategies and, of course, as a way to speculate on short-term market movements.
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2 Comments to "Accelerated Expirations: The Growing Relevance of Short Term Options":
shamlet76
11 January 2012
there is a problem with the growth of this type of "investment". it isn't an investment and it depends on the ability of the counterparty to produce. in an economic shake-out, this risk might be significant. there is no limit on the # of options being sold, which means that there could be more options than there is in the float. there is no correspondence to # of shares trading and no one know what would happen if there was great votaility in stock demand/stock price.
i myself am attracted to this style of "investing" but am not attracted to the current trend. i am inclined to the long side and very few things are trending upward. most are trending downward for the moment. this is why i am not trading in options now. however i am thinking of buying some longer-term options in the future as i believe the market will be better regulated and the future will be better for retail investors.
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crammond1964
11 January 2012
as locals we traded more weekly options in 2011 than any time before ; basically as we could control our risk far better .
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