A booming options market has exchanges and brokerage firms vigorously competing to capture and defend turf in fast-growing areas such as short-dated contracts and extended hours trading. The primary beneficiary of the “hand-to-hand combat” is the retail options trader.
“Individual investors wins when everyone is competing at a high level,” said Chris Larkin, Managing Director, Head of Trading & Investing at E*TRADE from Morgan Stanley.
In the options market evolution of recent years, “there’s always been something that’s helped retail have a much better experience,” said JJ Kinahan, CEO at IG North America.
The state of play for retail investors was discussed on the Evolution of Retail Options Trading: Navigating Change in a Dynamic Landscape panel Wednesday morning at the Options Industry Conference in Palm Beach Gardens, Florida.
Patrick Zielinski, CEO at Box Options Market, said options exchanges use three primary levers to optimize efficiency: fee structures, order types, and technology. Zielinski described the daily fight for order flow among the 18 US options exchanges as hand-to-hand combat, which results in better execution quality, liquidity sourcing, and price improvement for customers.
Tanya Patwa, Head U.S. Options Sales at Nasdaq, noted that today’s retail traders are more sophisticated than ever and they need access to more data and resources; exchanges can help ensure a better experience for end clients by providing that.
To the point of retail sophistication, Tony Zhang, Chief Strategist at OptionsPlay, said customers are increasingly using application programming interfaces (APIs) to build their own tools and systems for algorithmic and systematic trading strategies, mostly for short-dated options contracts.
“Clients are engaging on daily options,” Zhang said. “When we talk about monthlies, there’s not that much interest from customers,” so OptionsPlay has focused its educational efforts on short-dated options to align with the demand.
Nasdaq recently filed with the US Securities and Exchange Commission to expand short-term options series to certain qualified securities. The listings would be for up to two Mondays and Wednesdays per month, and exclude earnings release dates.
“The demand is there,” Patwa said, noting that about 30% of Nasdaq’s current options order flow is in zero- or one-day expirations. “We think it’s a natural evolution of our market.”
To the question of what have been the primary drivers of growth in the options market, Larkin pointed to 2019, the year most brokerages rolled out zero-commission trading. The price point has stuck: “the one place with no inflation these days is retail brokerage,” he said.