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Rising market volatility and expanded investor demand are driving volume in options on futures (OOF) markets, with trading volume seeing a 12.8% CAGR since 2009, based on new TABB Group’s research, “Options on Futures: Use Cases in Efficient Risk Management.” It provides a detailed look at how the rising adoption of OOF has been facilitated by a number of structural shifts, including the electronification of the trading environment and a corresponding rise in liquidity as more and more firms are including OOF in their strategies.
Growth Rates by Asset Class for Options on Futures Traded at CME: 2009 to 2015: Q3
Source: TABB Group
According to TABB, there have been broad volume gains across most asset classes as liquidity has grown and institutions expand their use of OOF for risk and exposure management.
“Options on futures are capital-efficient tools that are useful as risk-hedging instruments with low cost, relative to the underlying futures contract. They also can be used as part of spread strategies that benefit from margin offsets for the defined and limited risk of the trade,” says Andy Nybo, report co-author, partner and global head of research and consulting at TABB.
“The electronic evolution of the OOF marketplace has allowed institutions around the world better access, along with more comprehensive data sets that feed analytics and allow for greater complexity in strategies.”
The report details how the liquidity in the sector has grown by a boost in electronic activity, noting the strongest growth has occurred in the FX and equity index segments, areas that have seen intense interest in recent years as capital flows among the global equity markets has attracted investor demand.
“With electronic trading now accounting for 55.8% of the market, compared to 18% in 2009 and with more robust global support and connectivity following, it’s not surprising to see electronic execution of OOF also steadily growing,” says Nybo.
The 14-page, 5-exhibit report is available for download by TABB derivatives clients and pre-qualified media athttps://research.tabbgroup.com/search/grid. For more information or to purchase the report, contact info@tabbgroup.com.
