The COVID-19 pandemic has affected the options market along with equities.
While the broad financial media has focused on the vacillations of the stock market and red ink posted by thousands of securities, there is one derivative market that is holding up relatively well – options.
Traders Magazine caught up with Stino Milito, Co-Chief Operating Officer at DASH Financial Technologies to get his take on how both the stock and options markets are handling the new market structure and volatility that coronavirus has brought.
TRADERS MAGAZINE: How do you view the broad market responding to COVID fear? Is it rational or irrational?
Stino Milito: The response has certainly been dramatic – holistically its probably irrational, but given the severity of the actions being taken many companies, especially those with a lot of debt, will have a hard time surviving this.
TM: Is the market structure showing any signs of stress? In any sector – ie stocks? Options?
Milito: No, the markets have held up very well, even with the exchange floors closing. In addition, the OCC (options clearing corporation) has operated like business as usual and all reporting and money are flowing as expected. We’ve seen no issues in options.
TM: How are options performing? As bad as stocks? Are they being used as a hedge or a pure investment vehicle?
Milito: Option volumes are at record highs and the markets have held up very well as stated above. Spreads of course are wider in this environment but they should be because there is more risk when the market is moving so quickly and dramatically. Options are doing what they’re supposed to. People who bought puts for insurance a few weeks ago at historically low volatility levels are very thankful right now. People always use options for various reasons – generate income from stock positions, hedging an existing portfolio, to gain increased leverage on a trade, or to put on defined risk trades.