The Perfect Options Storm

Discussion in 'Wall St. News' started by archon, Jul 16, 2008.

  1. archon


    The Perfect Options Storm
    Posted on 7/16/2008 in Industry
    by Mark S. Longo

    The Perfect Options Storm

    1. Fears over the potential collapse of Freddie Mac & Fannie Mae
    2. The surging VIX
    3. Rising oil prices & concerns of a broader conflict in the Middle East
    4. Soaring inflation
    5. A run on banks that is reminiscent of the Great Depression

    What do all of these factors have in common? They have combined to create the perfect storm for options volume.

    Options veterans understand that negative headlines usually correlate with increased activity in the options market. This is the result of a number of factors including:

    * Increased interest in portfolio hedging from the retail and institutional markets

    * Dramatic increases in near-term options volatility create new opportunities for speculators and short-term traders

    One For The Record Books
    However, the recent confluence of negative headlines has propelled the options market to new heights. The Options Clearing Corporation (OCC) announced this morning that Tuesday was a day for the record books.

    25,264,883 contracts changed hands during Tuesday's trading session, setting a new daily trading volume record. Tuesday's volume shattered the previous overall record (set on August 16 ,2007) by over 6%.

    If you break the volume down further, the gains become even more dramatic. 22,941,369 equity option contracts traded on Tuesday, shattering the old record from November 8, 2007 by nearly 11%.

    These records, while impressive, only reflect the activity from a single trading session. Given the current record pace of the options market, we can probably expect July to shatter the old monthly trading records as well.

    If the economic outlook continues to darken, and international tensions continue to mount, then expect these new records to be broken relatively soon. After all, the demand for options is always greatest when there are storm clouds on the horizon....

    full article here:
  2. Is it a coincidence that the busiest day in options history coincides with highest point on the VIX's chart (28.54)?

    It seems there is some truth to the belief that spikes in the VIX drive options volume.