The U.S. options market continues to show strength and resilience, enabling market operators and trade handlers to deliver a quality customer experience. But there are challenges pertaining to transparency, the rise of shorter-dated options, and the increasing number of exchanges.
Those were themes articulated Wednesday afternoon on the Options Market Today panel at the Options Industry Conference in Nashville.
The options market boomed in 2020-2021, largely driven by retail traders trading during the pandemic. That has leveled off, but institutional and ETF activity has remained robust, and infrastructure has improved.
“The industry has raised bar around risk protections and technology,” said Joe Bracco, Senior Vice President, Head of Sales, MIAX. “We now have a super secure framework.”
Also on the question of what the industry is doing right, Jason Hedberg, Global Head of Equity Derivatives and Flow Distribution, UBS, said product transparency has increased thanks to options exchanges and the OCC.
Henry Schwartz, Vice President, Global Head of Client Engagement, Cboe Global Markets, said the industry is supporting volume of about 45 million contracts per day, and has handled as many as 70 million contracts on some big days earlier this year, “without an exchange going down or latency creeping in.”
“It’s an incredibly positive trading experience for customers,” Schwartz said, especially given additional listings and expirations that have expanded choices.
With regard to what can be improved, Hedberg said there should be more transparency on the clearing side; Schwartz said cross-product spreads would be a good idea; moderator JJ Kinahan, Chief Executive Officer, IG North America, tastytrade/tastylive, said that cross-margining of products could generate cost savings.
Zero days to expiration (0DTE) options, option contracts that exist for a single trading session and expire on the same day, were a big discussion topic. Panelists agreed that while ODTEs are a success, the industry needs to provide more education on to clear up some misconceptions about what the product is and its risk level.
“0DTEs are considered risky, so we have to send the message out there that we have great risk systems around them,” said Kinahan, who added that he has heard from some consolidators that 0DTEs now comprise as much as 50-60% of their order flow.
Hedberg said 0DTEs have continued a historical pattern of options volume increasing in step as incremental expiration days are added in a week. “It unlocks the ability to put in systematic trades,” he said. “Suddenly you can put more systematic strategies together, because you have a profile that’s constant on a daily basis.”
There are currently 16 U.S. options exchanges and two new ones pending. Hedberg said “it’s not clear to me why we need two more exchanges,” as even the existing ones don’t all have a unique value proposition. Schwartz said more exchanges increase competition and innovation, while Bracco noted exchange groups need to add venus to better compete with other exchange groups.
