Options

After three years of near dormancy, mutual funds using covered calls showed signs of life last year. That's despite evidence of investor dissatisfaction with fund companies.

Chicago Board Options Exchange chairman and chief executive officer Bill Brodsky and president and chief operating officer Ed Tilly broke bread with the New York City press corps in January in order to update the scribes on the exchange operator's initiatives. Traders Magazine presents a slice of the Q&A session.

Weekly Options Surge in Popularity

Pensions Eye Buy-Writes

High-frequency trading may have transformed the country's stock exchanges into ultra-fast, high-volume marketplaces, but it has had little impact on U.S. options exchanges. Five years into the penny tick/maker-taker revolution, high-frequency traders are bit players at best in options.

Volume is up for the ninth straight year in the options industry, but there's a big difference this year. Of the 21.6 percent increase in total year-over-year volume through October, over a third of the growth is coming from contracts that expire weekly. That makes weeklies one of the most successful product launches in the industry's history.

With crisis comes opportunity. That seems to be the message for the options industry as a group of public pension plans moves closer to incorporating options into their portfolios, most for the first time, in an attempt to squeeze out some of the volatility in their stock portfolios.

The battle between the exchanges over the electronic trading of complex orders is heating up. NYSE Amex Options is reporting the number of contracts traded on its complex order book has shot up dramatically since the beginning of the year, positioning the exchange as a contender in what had been a three-legged race.

Institutions are trading more options on indexes and exchange-traded funds than on single stocks, a reversal of practices just five years ago. That's the view of one agency broker who says the change reflects a desire on the part of money managers to hedge entire portfolios.

The trading of complex orders is getting streamlined. MEB Options, an institutional brokerage based in Chicago, has begun automating the process of trading complex options orders, or those with more than one leg. The firm's Click to Trade service uses instant messaging to bring quotes, orders and RFQs to client desktops and then allows for instant executions.

Rob Newhouse has a new gig. The co-founder and onetime chief executive officer of the now defunct Ballista Securities recently became president of Victor Technologies, a vendor of risk management software for options traders.

BATS Options, barely a month after receiving approval from the Securities and Exchange Commission, scuttled its controversial directed order program. The move may only be temporary, however.

Emergent Trading Solutions, a start-up vendor of execution management technology, is trying to drum up interest in an electronic auction mechanism for the trading of large options orders. The firm is positioning the platform as an alternative to capital commitment by large institutional brokers.

The story of the origins of the CBOE is told in Emily Lambert's engaging new book "The Futures." Although most of the book covers the development of Chicago's futures industry, Lambert, a reporter with Forbes, devotes a chapter to the CBOE's beginnings. It is an informative and entertaining tale that should appeal to anyone interested in the roots of the options industry.

Brokers are stepping up development of more sophisticated electronic tools for options trading. Hedge funds and professional traders using sophisticated strategies are the main beneficiaries.