Innovation Comes to Options
The options asset class, which has seen substantial growth in recent years, is continuing to develop as market participants introduce innovation.
Chicago agency broker-dealer MEB Options recently launched a new functionality to its suite of services called Auto Trade. This low-touch service essentially brings co-location functionality and speed to its users.
“Some of the smaller trading groups may not want to go to the expense of co-locating on an exchange, so what we’ve done is taken on that expense,” Jason Stamer, manager of business development at MEB Options, told Markets Media.
Under the Auto Trade service, customers are able to specify what kind of trades they would like to make and, under certain circumstances, when the conditions are right, the orders will be executed by MEB Options on the client’s behalf, and will be done at speeds typically experienced by firms with co-location connections.
The move by the broker-dealer is the latest in an industry that is continuing to innovate, as options volume continues to grow and as investors become more educated about how to use the asset class as part of their portfolio.
“It’s important to give clients cutting-edge tools they can use,” said Stamer. “It lets you stand out versus the next guy. At some point, when contract rates go to zero, that’s what you can offer.”
In addition to innovation, education has also been key in the continuing growth of options as an asset class.
“We’re continuing to educate the trading groups that are just trading equities as to what they can do with options,” said Stamer. “Education is key to this game; we want to educate investors that options are a great hedging and risk management tool.”
“The two things that we can do to help further grow options are education and innovation,” said one exchange executive. “One thing this industry has done well is education, in helping retail and institutional players know how they can use this product even in a market that’s going sideways and with low volatility. Everyone thinks options are best used with high volatility but it can also be used in times of low volatility.”
MEB Options was founded in 2001 and is an institutional commissioned brokerage firm with offices in Chicago, New York and Philadelphia. It specializes in stock option execution on the various listed options exchanges. With direct access to the trading floor, it offers clients the ability to trade all equity options including exchange-traded funds and flexible exchange options, and also offers direct phone access to the OEX, SPX and VIX trading pits.
Essentially, what Auto Trade offers is co-location to customers that may not want to pay for it. Traders can enter a number of different criteria in order to respond to a show from MEB or any of the other options exchanges. A trade is executed based off their criteria and then a message is sent back to the trader confirming the trade. MEB is also working on the ability to have trading groups plug in their own algorithms so they do not have to use their offerings, if they choose.
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