Not as Bad as it Seems: Schwartz Addresses the State of the Options Industry

Spencer Doar

Spencer Doar

Associate Editor

Henry Schwartz, president of Trade Alert, gave his annual “State of the Options Industry” address at the Options Industry Conference in Scottsdale, Arizona, and painted a more optimistic picture than recent portrayals in the press.  

Yes, options volumes for 2017 are predicted to be flat to slightly up, a bit more than 4 billion contracts, but to Schwartz, that is a good number given the lack of volatility.

Another positive is that more institutional users are appearing in the options market. According to his calculations based on regulatory filings, some 100 institutions enter options markets annually while 85-90 drop out.

But there are obvious concerns and they are well documented — fragmentation, widening spreads, lack of transparency on the screen, huge number of strikes to quote, increased competition and costs (data, technology, exchange connections) to maintain a business.

 

Options Industry by the Numbers

Schwartz’s presentation was data-centric, so here are some notable stats.

Market share based on fee structure breaks down as: 55 percent payment for order flow, 43 percent maker-taker and 2 percent hybrid.

As pertains to market makers, Susquehanna holds 15 percent of options open interest based on Q4 2016 data. The top 10 market makers represent 50 percent of the open interest and the top 35 represent 80 percent of the open interest. To him, that is a decent amount of diversity despite the industry angst over the shrinking number of market makers in the space.

Regarding the approximately 900,000 strikes on some 4,300 underlyings, Schwartz suggested delisting the 1,000 underlyings with the least overall activity.

Options on ETFs are expected to grow by 4.22 percent in 2017. Overall growth of options volumes over the last 10 years is 2.74 percent.

There are seven maker-taker exchanges — three at Nasdaq, two at CBOE, NYSE Arca and MIAX Pearl. Schwartz doesn’t see the need for multiple exchanges with the same model, though his sentiment was immediately disputed by the exchange leader panel later in the morning.

In terms of premium received from selling options, SPX options represent 45 percent of daily premium. Weeklys represent 35 percent of the average daily volume. Complex orders are 65 percent of ISE’s volume, 44 percent of PHLX’s and 43 percent of CBOE’s.

John Lothian Newsletter

Today's Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

Now Read This

Covering Your Downside – Shielding Against Market Downturns

Covering Your Downside – Shielding Against Market Downturns

The year 2020 has been a time of political and economic turbulence, resulting in significant volatility. For investors, it is a good time to look for strategies for mitigating downside risk exposure. An October 12 webinar from Cboe Global Markets offered to teach attendees how VIX products can be used for this purpose.

Pin It on Pinterest

Share This Story