Options Biz Is Stepping Into The Spotlight Posted on 9/6/2007 in Industry by Mark S. Longo Here We Go Again If you've spent any time in the options business over the past six or seven years, then you are no stranger to record-breaking volume numbers. Given this long string of record options volume, the fact that August was yet another record month should come as no surprise to anyone. However, even the most jaded options observers continue to be stunned by the sheer magnitude of the increases taking place in this marketplace. With credit fears rocking the market, these volume numbers truly are something to behold. The Big Picture Options volume in August exploded to over 294 million contracts. That's an astonishing 83.4% increase over the previous year. This record volume is also 11% higher than the previous record that was set back in July. The August options explosion pushed year-to-date volume past the 1.82 billion contract mark. That translates to an impressive 37.5% increase over the same period last year. These numbers are definitely food for thought, especially with the Penny Pilot expansion looming on the horizon. With so many lingering questions about the impact of penny pricing on institutional volume, this dramatic increase may help to assuage fears of the Pilot curtailing the industry's growth. Breaking It Down When we break down these numbers, the picture becomes even more interesting. The equity options sector is still remarkably healthy, posting an almost 80% increase from 2006. When you factor in the August numbers, total equity volume is up 37.5% over last year. Daily trading volume was equally impressive throughout the month of August. Average daily volume (ADV) nearly reached the 13 million contract level, a mark that was once thought to be unattainable. This volume puts July's 7 million contract ADV to shame. The August surge brings the overall ADV for the year to nearly 11 million contracts, a far cry from the nearly 8 million level of a year ago. As is to be expected given the volume surge, open interest is also soaring into the stratosphere. When the bottom fell out of the market on August 17, open interest surged to a record of nearly 312 million contracts. Out Of The Shadows... While these increases may seem almost routine to a jaded options veteran, it is impossible to overstate how incredible this growth has become. It represents a continued expansion of the institutional market, a segment that many feared would be killed by the Penny Pilot. It also represents an impressive rate of penetration into the retail world. That is something many thought was impossible given the overwhelmingly negative view of derivatives in the minds of retail investors. Not only is this growth impressive, it represents the overall maturation of the options market. After lingering in the shadows of the financial world for decades, the options biz is finally taking its rightful place in the spotlight... ...continued HERE
Like many people, I assumed that the crazy growth in the options business was coming to an end. I guess I was wrong. Those numbers from August are just insane! Where the hell is all of this volume coming from? This raises the ultimate question of what, if anything, can derail all of this growth? Is the options business ever going to cool off or are they just going to keep printing money forever?
I thought the party would be coming to an end right about now as well. Instead, we just witnessed the busiest month in options history. Granted, August was a big of an outlier given the credit crisis. However, it still raises a number of questions about what the hell is driving all of this volume. Are there still hedge funds out there that haven't entered the options market at this point? If so, what the hell are they doing to earn their 2/20?