Strong volumes, a stress-tested market structure, and attractive volatility have created near-ideal conditions for institutional investment managers to buy and sell options.

That was a key takeaway of the Navigating Market Trends: Buyside Perspectives in Options Trading panel, which took place May 8 at the Options Industry Conference in Palm Beach Gardens, Florida.

In essence, institutional firms who haven’t used options in the past are increasingly entering the space as more liquidity suggests larger trades can be executed efficiently.

John Smollen, Executive Vice President, Exchange Traded Products at MIAX, noted that the options market passed the test of recent volatility spikes.

“As an industry, it’s a fantastic spot to be buy-side right now,” Smollen said. “We went from 50 million to 100 million contracts in a day and nobody flinched…If you’re buy-side there is a lot of opportunity.”

Another headwind is that the broader capital markets industry has been operating smoothly with no significant, highly publicized breakdowns, the kind that undermine confidence in listed derivatives markets sometimes perceived as overly risky. “We’re at the best point we have been in the past 25 years” in terms of the industry’s reputation as a fiduciary, said Eric Metz, Managing Director, Chief Investment Officer & Head of SpiderRock Advisors.

To be sure, the options industry faces continued risks and challenges. For one, Metz said liquidity below the most-traded 50 to 100 names is not reliable. “Liquidity has come in and come out,” he said. “Being able to supply liquidity equitably, when liquidity ebbs and flows on market conditions, is a concern.”

Also, significantly increased operating and compliance costs has thinned the universe of options market makers over the years, which has effectively created an oligarchy in that business. Technology can help mitigate that liquidity concentration, but that requires increased capital investment on the part of the industry.

Smollen noted another area of concern for markets is the recent staff purge at US government agencies, including the Securities and Exchange Commission and the Commodity Futures Regulatory Commission. “A lot of good people have left the regulators,” Smollen said. “We need good regulators who ‘get it’. Everybody should keep an eye at what’s happening at the SEC and CFTC. It’s unfortunate.”