US Equity Options 2016/17: When Markets Give You Lemons…Make Lemonade

The 2016/17 US Equity Options markets are feeling the regulatory hangover of the financial crisis. Options trading desks at big banks have had the capital allocated to their business slashed which has in turn hurt liquidity and on many occasions widened spreads. More exchange and venue choices has added to the complexity of order routing and has also had a hand in confusing liquidity. On the flip side, technology, led by the increased use of algos, has helped maintain trading volumes. The exchanges have tried to adapt to market needs by adding new products such as weekly options as ways to keep investors involved during this time of technical innovation and low volatility. It is not all doom and gloom as the current trend of active to passive strategies have stimulated growth in the Index and ETF options space. Despite all the challenges, we predict that volumes will be up in 2017 signaling a never-ending quest for alpha.

For TABB Group’s 2016/17 US Equity Options study, we interviewed close to 50 traders who manage approximately 5 trillion dollars of assets under management. Many of our sample demographics are traders at asset managers and hedge funds. Our participants represent a diverse cross section of the marketplace ranging from small shops with as little as $3M AUM to some of the largest and most recognized names in the industry. This year’s study focused on the day to day trading activities and deciphered the US Equity Options market structure.