When trading options, the options chain is both an advertisement and entry point for the retail investor. But for an options novice, a chart of prices for puts and calls is not the most clear or engaging means of joining the fray.
Founded in 2012, OptionsPlay has some 70,000 users and aims to remove the clutter and noise from trading options with straightforward explanations, strategy visualizations, strategy recommendations and technical data and analysis.
What founder Mark Engelhardt and crew didn’t realize when they started the firm was that it’s not only retail traders who need an assist— financial advisors are desperate for tools to help adopt and implement options trading, too. In its nascent stages, OptionsPlay focused on licensing its product to discount brokerages and the like (Merrill Edge, eOption and SogoTrade use OptionsPlay). Over the course of growing the business the firm realized the different, sizable market right on their doorstep.
“When you look at the tools that are available to you through TD Ameritrade or Schwab, there’s a wealth of tools available to the average retail trader completely free of charge from the brokerage firm,” Zhang said. “When you go to the advisor’s desktop, most of them don’t have many tools at all — a lot of them don’t even have real time quotes. That’s when we realized there was a huge gap in the market on the advisory side.”
A recent Options Industry Council study conducted by Cerulli Associates found that 75 percent of advisors who stopped using options “subscribe to the idea that options are too time-consuming” and that scalable technology solutions would be a way for advisors to “enhance their current methods for monitoring portfolio risk factors.”
Zhang said that when he talks with advisors, he encounters the time issue constantly. Either advisors don’t sell covered calls because they don’t have the time or tools to manage it; they were selling covered calls but would have the stock called away because they didn’t know that dividends were coming up; or they lost the stock because they didn’t realize it was expiration day. All of these are relatively simple trade management issues automation would help address.
“We’re really looking to automate that process for users, so that they don’t have to do the research themselves,” Zhang said. “They don’t have to manually go in, find the covered calls, look after their covered calls, roll them. That’s a big part of our story.”
The time consuming nature of options trading for advisors can result in less than ideal results for investors. For example, some retirement advisors end up selling longer dated options (three to four months out) since that is all they can manage. Sometimes they only have the bandwidth to check a portfolio once a quarter, which makes managing the usual monthly and weekly expiries impossible.
“When we talk to some groups that are heavy into covered calls, they usually have one to one-and-a-half people dedicated to just that strategy full time,” Zhang said. “That’s not feasible for your average advisor.”