Retail participation, education of new investors, seen as ongoing industry themes in 2021
After two days of heralding the record volume that accompanied exceptional periods of volatility in 2020, panelists in the final sessions of the Options Industry Conference generally breathed a collective sigh of relief that the industry had escaped last year’s challenges relatively unscathed.
Even the Federal Reserve’s Randal Quarles, vice chairman for supervision and chairman of the Financial Stability Board, took a relatively sanguine tone on Thursday in his keynote discussion with OCC Executive Chairman Craig Donohue.
“There’s a lot to be proud of about this industry and the financial sector generally — the way that the [pandemic-related] stress was handled,” he told Donohue. “You handled an unprecedented dash for cash, with levels of uncertainty that were higher than they were in 2008,” during the financial crisis.
Quarles said “as that process was beginning, I would have expected there would be some significant failures … but there were very few of them, at least not in a material sense.” But he added, “probably there are some things to think through — if you get an A, let’s take advantage of a thought experiment to get an A+ and look at some operational issues and general financial stability points that could be improved.”
The theme of lessons learned from a tumultuous year was carried forward in the final session of the conference, a market outlook panel of several industry participants led by Steve Crutchfield, head of market structure at Chicago Trading Company. Another important theme is that the usability and awareness of listed options has expanded, the panel agreed.
In terms of “where we go from here,” the focus will be on better technology, renewed education efforts and the realization that the retail presence in options “is absolutely real,” said David Cross, a managing director at DASH Financial Technology. “Market participants have become more comfortable with options. The genie is out of the bottle.”
Cross noted certain additional “micro factors” that will have an impact on where the market goes next, including levels of realized volatility — which have come in significantly from levels seen in the last 18 months, and the 10-year Treasury note’s return to a more ”normal” basis.
Options’ overall average daily volume is off its recent peak, coming in at about 33.5 million in April, but remains high, Cross said.
The OCC’s year-to-date average daily options volume was nearly 42 million as of March 2021.
“The themes of 2020 are still present,” said Patrick Zielinski. chief operating officer at BOX Options. That includes more single-lot trades, retail volume and the growth of short-dated options, he said.
“It’s a new class of investors,“ Zielinski said. He added that his hope was that with education, those investors would branch out and start trading options spreads, not just buying puts or calls, “which would be an additional tailwind for the industry.”
But Zielinski also noted that the options markets “are competing against crypto” for a certain segment of retail participants. In terms of new product development, an equity-like product in that sector “that makes its way down to listed options” would be a plus, he said.