The final presentation of the first day of the CBOE RMC Europe conference was delivered by Andy Nybo from TABB Group, Steven Sears from Barron’s, and Leaf Wade of UBS. I was personally looking forward to this presentation, US Options and Volatility Market Client Demographics, and was not disappointed. The specific discussion centered on the results of TABB Groups research of US listed options trading along with insights into the different uses of products.
Andy Nybo from TABB Group went through the client demographic report. Some of the highlights include –
From 2000 to 2014 the compounded annual growth rate for US option volume has been 14%
Growth Drivers –
- Demand for index and ETF options
- The introduction of Weeklys
- Retail investors have returned to the market
- Demand for volatility exposure
With respect to volatility exposure it was noted this increase in volume has come in a low volatility environment. The question is what will happen when volatility returns. Currently the average daily notional value of volatility option trading (VIX & VXX) is over $2 billion and growing.
In the first half of 2014 71% of option volume occurred in the top 100 names and 41% in the top 10 names.
Focusing on Europe – 9% of US option volume originates from European desks. Currently the retail volumes in Europe are very low, but the expansion of electronic trading is sparking interest from individual traders. A big difference between the US and European option markets is the clearing situation. There are twelve different exchanges in the US, but they share clearing (OCC), while in Europe there are twelve different clearing houses.
Steven Sears discussed the change he’s noticed through increased access to the option markets by individuals. Institutionally he noted that put writes and buy writes are very commonly implemented strategies. With respect to VIX or volatility he noted that Blackrock has been calling volatility an asset and also have said it is the last low priced asset to own in the world.
Leaf Wade noted that spiked in volatility are quickly met with supply which pushes volatility right back down. He also thinks that the Fed backing out of the market will not be enough to push volatility to higher levels. It may take more of a market surprise to push volatility higher. He also said that both long and short volatility are being used by more sophisticated investors.