On Wednesday at the CBOE Risk Management Conference, a panel discussed The Evolution of Options Strategies on the Buy-Side Trading Desk.
Participants in the discussion were —
- Moderator: Andy Nybo, Principal, Head of Derivatives, TABB Group
- Andrew Claeys, CFA, Director of Trading, Analytic Investors
- Ken Kwalik, Portfolio Manager, Investment Management Division, Goldman Sachs
- Mahsa Zeinali, Chief Operating Officer, Rosen Capital Advisors
Topics discussed included —
- Selecting order channels for optimal execution
- The role of algo’s in options trading
- The benefits and challenges of extended hours trading
- Maximizing the value of the broker balance sheet
- The role of weekly options in institutional portfolios
Andy Nybo noted that (1) There is more interest in Weekly options and extended trading hours for SPX and VIX options; (2) Asset managers want strategy ideas and hedge funds want great execution, (3) Managers want improvement in complex order capabilities, (4) Benign volatility environment forced some traders to the sidelines; (5) There are liquidity challenges for buy-side traders.
Andrew Claeys, CFA, Director of Trading, Analytic Investors, said his firm has $11 billion in AUM. The firm started by use of warrants and then switched to use of options after CBOE launched in 1973. SPX Extended Trading Hours (ETH) that overlap early with European hours can appeal. I would like to see more attribution analysis. We use listed options cleared on OCC.
Mahsa Zeinali, Chief Operating Officer, Rosen Capital Advisors, said her firm focuses on use of S&P 500 Weekly (SPXW) options. We can trade electronically or we can call the CBOE floor brokers regarding execution in times of stress. Extended hours for SPX options have potential to be appealing.
Ken Kwalik, Portfolio Manager, Investment Management Division, Goldman Sachs, said his firm offers overlay services. We are in touch with CBOE floor brokers. Early hours trading in SPX options could be great. I like XSP (Mini-SPX) options.
There was general agreement that liquidity in S&P 500 options liquidity continues to be pretty good, but there can be challenges re: liquidity for single-stock options.
GROWTH IN S&P 500 (SPX) OPTIONS VOLUME
The average daily volume for S&P 500 options grew from 92,421 in 2000 to 888,089 in 2014. A 2015 study by Keith Black and Ed Szado estimate the notional value of average daily value of S&P 500 options volume grew to $172 billion in 2014 (visit www.cboe.com/funds for a link to the study and testimonials by fund managers).