The Options Market Surges Past Another Milestone

Discussion in 'Wall St. News' started by archon, Oct 21, 2008.

  1. archon


    The Options Market Surges Past Another Milestone

    Posted on

    by Mark S. Longo

    Another Record Falls
    2008 has certainly been an eventful year for the options market. There have been explosions in the VIX and implosions in many of the major indices and commodity products. We also saw an incredibly reactionary ban on short selling that threatened to derail all of the recent gains in trading volume and derivatives regulation.

    With so much turmoil in the marketplace, 2008 is shaping up to be a record year for for the options market. The Options Clearing Corporation announced this morning that year-to-date options volume has finally surpassed the three billion contract mark. This is the first time that overall options volume has reached that milestone in a single trading year.

    Chasing 3 Billion
    The three billion contract mark has been an elusive milestone for the options industry. This staggering amount of volume would have seemed impossible only a decade ago. However, as the industry expanded and institutional volume poured into the options market, three billion contracts began to appear feasible.

    The options industry flirted with the three billion contract mark last year. Unfortunately, despite a volume surge in the latter half of the year, overall options volume stalled at 2.86 billion contracts.

    Destined To Fall
    The three billion contract milestone seemed destined to fall in 2008. The first clue came back on July 22 when the options market surpassed the two billion contract mark in record time. With so much of the trading year still ahead, the three billion contract mark finally appeared to be within reach.

    When the industry set multiple volume records in the first half of September, there appeared to be no question that the milestone would be surpassed this year. But the SEC's ban on short selling threw a monkey wrench into the works, crushing average daily options volume for the remainder of the month.

    Thankfully, the ban was eventually lifted and volume was allowed to return to its earlier record levels. So far this year, daily contract volume is averaging 14.7 million contracts. That is over three million contracts higher than 2007's ADV.

    Four Billion On The Horizon?
    With fewer than fifty trading days left in the year, four billion contracts does not appear to be on the horizon for 2008. It is also questionable whether it is on the horizon for 2009. After all, 2008 has been something of an aberration when it comes to options volume.

    If you set the ban on short selling aside, 2008 has been a perfect storm for the options market. All of the factors were in place for record growth in options contract volume. These conditions may not persist in an extended economic downturn. Also, with many hedge funds shuttering their doors in 2008, there will be fewer institutional players to drive volume gains in 2009. Next year will certainly be a healthy one for the options market, but it will be difficult to step out of the long shadow of 2008...

    full article here: