Options Trading Has Joined Mainstream in Today's Investment World
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Bernie Schaeffer Schaeffers Research.com |
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The following is a reprint of the market commentary from the October edition of the Option Advisor, published on September 24. Prices and the chart are as of the close on September 24. For more information or to subscribe to the Option Advisor, click here.
I'm very pleased to have attended the 4th Annual FIA/OIC New York Equity Options Conference this week. After performing without a hitch during the worst of the financial crisis in 2008, the listed equity options industry is more vibrant than ever.
According to Gina McFadden, President of the Options Industry Council, year-to-date equity options volume is now slightly higher than that of 2008, which is all the more remarkable because 2008 was itself a record volume year. In fact, according to Thomas Peterffy, one of three options industry pioneers honored at the conference, since their inception 36 years ago, listed equity options volume has grown at an annual compound rate of 36%!
Much of the foundation for this incredible growth can be attributed to the visionary thinking of two additional industry legends who were honored - William Brodsky, Chairman and CEO of the Chicago Board Options Exchange (CBOE), whose vast legacy includes stock index futures and options and numerous innovations such as volatility options, and David Krell, whose International Securities Exchange (ISE) was the first all-electronic exchange and who almost single-handedly moved the industry into an era of lower transaction costs and open competition and transparency across the various options exchanges.
The fact that equity options trading is very much mainstream in today's investment world is due in no small part to the visionary efforts of Thomas, Bill, and David, and, as Bill told the conference: "If anyone had said even 10 years ago that there would be a front page article in The Wall Street Journal (in September 2009) that featured the mechanics of selling equity option strangles, no one would have believed it!"
I consider myself to be extremely fortunate to have played a part in the equity options industry for well over 25 years, and to have developed strong relationships with such industry giants as Bill and David. Most recently, the success of our new magazine - SENTIMENT - Smart Options for Today's Investor - can be attributed in no small manner to the tireless efforts of the Options Industry Council over the past 20 years to teach options principles and concepts to investors.
Our industry continues to develop new ways to improve your experience in trading options, as evidenced by the announcement at the conference by Elizabeth King of the Securities and Exchange Commission that they have approved an expansion of the industry's "penny pilot program," whereby selected options classes trade in penny increments instead of nickels and dimes. This program, currently available for about 60 underlying stocks, greatly reduces the transaction costs for individual investors by reducing the "slippage" created by the difference between the "bid" and the "ask" prices on equity options. According to Ms. King, the program will now be expanded to over 300 option classes that account for more than 80% of total options volume.
You should also be cheered by the fact that those often very arcane and illogical symbols used to designate individual option series will be replaced in early 2010 with symbols that are much more intuitive and easy to understand. If, for example, "IKG JS" strikes you as insane as a descriptive symbol for the AIG October 45 call, help is on the way!
I'll close with a mild "horn toot" - the fact that our SchaeffersResearch.com site is consistently ranked as the highest traffic site for options traders, and as such I feel we have contributed in some tangible way to the growth and success of our industry. If you haven't visited our site recently, I invite you to so. I feel we're more adept than ever at teaching you the ins and outs of options trading, while at the same time pointing out stocks that may be worthy of your attention, based on our unique sentiment-based analysis, and option trading activity that should be on your radar.
Bernie Schaeffer:
• Developed Expectational Analysis®, a proprietary, three-tiered method of options analysis combining technical and fundamental studies with the analysis of investor sentiment.
Publisher
• In 1981, Bernie launched the newsletter, Bernie Schaeffer’s Option Advisor. Serving as senior editor since inception, Bernie has led the Option Advisor to become the nation’s leading options newsletter. Features: market commentary, specific trade recommendations, and trading strategy.
• Launched SchaeffersResearch.com, in 1997. A four-time winner of Forbes “Best of the Web” award, the website has also received positive mention in Barron’s, AAII and The Wall Street Journal Guide to Online Investing - “An independent options site that is one of the best for providing primers for both novice and advanced investors.” Features tools, quotes, data, commentary, and education.
• 10 Days to Successful Options TradingSM – This multi-media home study program teaches options basics. Learn fundamental strategies with hands-on application exercises and examples.
Author
• The Option Advisor: Wealth-Building Techniques Using Equity and Index Options (1997)
• New Thinking in Technical Analysis: Trading Models from the Masters – The industry has viewed Bernie’s Expectational Analysis® methodology as a groundbreaking approach to trading. Proof of this came with the publication of this new book by Bloomberg Press. One of twelve authors, Bernie was honored to be chosen from hundreds of market analysts to explain his methodology.
• Writes a monthly options column for Bloomberg Personal Finance magazine.
• Multexinvestor.com regularly calls on Bernie to contribute to their “Analyst Corner.”
Awards and Recognition
• Three time winner of The Wall Street Journal stock picking contest.
• Ranks fifth among market timers tracked by Timer Digest for the past decade.
• Dick Davis Hall of Fame inductee for his bearish posture ahead of the 1987 crash.
• He is known for successfully maintaining a bullish market posture throughout the 1990s.
• The Market Technician’s Association (MTA) awarded Bernie “Best of the Best” in 1997 in the field of Sentiment/Psychological Analysis.
• Bernie is regularly featured on investment chats on Yahoo! Finance.
• Bernie’s views on the stock market and the economy are regularly quoted in The Wall Street Journal, The New York Times, BusinessWeek, Investor’s Business Daily, and USA Today.
• Both Barron’s and The New York Times have featured Bernie in “Question & Answer” interviews.
• Recognized as a CNBC “Market Maven.”
• Appears regularly on national financial broadcasts such as CNBC, CNN, Bloomberg Television, the Nightly Business Report, Wall Street Week with Fortune and Fox News. Also serves as a guest host on CNNfn.
• Frequently invited to speak at national investment conferences and seminars.
• Regularly sits on Options Industry Council panels around the country.
• One of 50 market strategists appearing in BusinessWeek’s 2001 market forecast.