In quiet times, traders learn to love options
March 6, 2005
BY DAVID ROEDER SUN-TIMES COLUMNIST
Friday's session notwithstanding, you might have noticed the stock market hasn't done much in weeks. All the major indexes have stayed in a tight trading range, and measures of volatility are the lowest, experts say, since before the storming bull of the 1990s.
Normally, that would be awful news for the Chicago options business. Options are what traders turn to when things get exciting, according to the old rules. But a quiet revolution has occurred.
Options trading continues to set records despite the deadened pattern of stocks. The Chicago-based Options Industry Council, which tracks trading at all the U.S. exchanges, has tallied its busiest January and February ever this year, and that's after record-setting numbers in 2004. The same story comes from the Chicago Board Options Exchange, where the 2004 volume of 361 million contracts topped the record set in 2000 by a wide margin.
Industry leaders said they're benefiting from a new, Internet-savvy generation of traders who have learned how to use options to squeeze income from their portfolios and to reduce risk. Once deemed exotic even by high-finance types, options have gone mainstream. "They've been around long enough to where people accept them, and they know they're not too complicated or too risky,'' said William Brodsky, CBOE chairman.
Brodsky and Gina McFadden, executive director of the OIC, credit the years of seminars the industry has staged around the country. They credit the Internet with bringing market data closer to investors, and brokers slicing commissions to get in on the action. And they credit new investment products, chiefly exchange-traded funds and options now based on them, as appealing to average investors.
Hedge funds are a factor, too, and McFadden said her organization has hired a staff member to examine the hows and whys of their market use.
So what will happen to trading volumes once volatility returns? History says investors will send the record volumes of index trading even higher, Brodsky said. "That's always the point where people say, 'This market is moving, and I'm getting on board,'" he said. |
