Nasdaq Targets Options Growth
Nasdaq, whose purchase of International Securities Exchange eight months ago increased its share in U.S. options to about 40%, is working to expand what has been a largely stagnant market over the past few years.
Total cleared contract volume was 4.17 billion contracts in 2016, a decline of 1% from 2015 and little changed from 2013 levels, according to OCC data.
“Nasdaq is addressing this,” Kevin Kennedy, head of U.S. options at Nasdaq, said today in a Facebook Live interview. “If we can provide better analytics and better (trading) tools, we bring something that can help grow the market.”
New York-based Nasdaq runs six options exchanges, the largest of which are PHLX, Nasdaq Options Market (NOM), and ISE. Options are one of the exchange operators’ three foundations, along with equities and listings, Kennedy said.
Specific initiatives in the works are around options education, as well as technological aspects pertaining to data science, machine learning and algorithms, said Kennedy and Jeff Kimsey, vice president of product management for Nasdaq’s Global Information Services group.
“Retail investors are not very well-versed in options typically, because of the historical complexities” of the market, Kimsey said. “And those that are don’t have a lot of information. We want to create products that will help the retail audience.”
For example, there is untapped value in analyzing correlations between the options and the underlying equity market “If we can help Main Street access this cross-asset-class type of information in an actionable way, that will be good for retail.”
Kennedy noted that the Nasdaq-100 (NDX), which includes 100 of the largest non-financial securities including Facebook, Amazon, and Google, is “a great index to trade.” Selling calls or buying puts, either on the NDX as a standalone or in conjunction with the QQQ index, can remove risk from a portfolio by hedging to lock in gains, especially after a sizable rally such as the one the stock market has had over the past four months.
Regarding time horizons, “options do best at giving you a choice,” Kennedy said. “Someone who plays the ‘tweet market’ can trade weeklies, where you can react quickly and get a lot of exposure without a lot of risk. Other investors may want to hedge and not get caught up in tweets — they can go longer-term.”
Clients want short-dated options to hedge or trade with more flexibility around market-moving events.
CEDX opened on 6 September, offering contracts on Cboe Europe single country and pan-European indices.
Abu Dhabi Securities Exchange plans to launch single stock futures and index futures in Q4.
Retail participation across CME continued to grow during the first half of the year.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.