US options volume reached its second highest level in 2013 but can it continue to grow in 2014? Jon Najarian, co-founder of OptionMONSTER, said the key drivers for the options industry are: weekly options, a strong economic recovery and continued demand for more options education.
In 2013, US options volumes topped 4 billion contracts traded for the third consecutive year, and were up 3 percent from 2012 volume. And at the Chicago Board Options Exchange, for example, its S&P 500 Weeklys hit a record of 747,616 contracts on January 24, while average daily volume in the contract shot up 98 percent to almost 200,000 contacts last year, from 2012 figures.
“The two biggest things driving volumes in options, or at least holding them, are weekly options,” said Najarian, who is also a regular contributor on the markets for CNBC. “As we get more weekly options, there is more turnover because of course they are an expiring option and you’re in an expiring option every single week. They are extremely popular because they let you drill down into the dates you want.”
The second driver will be the US economy. If it maintains its recovery, Najarian believes there will be even more volume flowing into options markets.
“I think people would be more comfortable, and chasing returns even more than they would in a low interest rate environment,” he said. “If (the economy) gets started and is rolling…I think options will be a tool people scramble for.”
Finally, Najarian says education will be key to bringing more investors to the market, and keeping them there. His firm, OptionMonster has emphasized education online and through various in-person education seminars. The firm also struck a chord with customers by directly sending a self-published book titled “How We Trade Options” by Najarian and his brother Pete Najarian, who serves as co-founder at OptionMonster.
“It feels good to pass along some information and have somebody “get it.’” he said. “Additionally, we know they are not going to blow themselves up if they know what they are doing.”