Rise in options is more than a retail story, say industry experts

Discussion at FIA Expo highlights 0DTE but also broader global options adoption

3 October 2023


Short-term options markets are booming, but experts at FIA's Expo conference agreed that this is part of a global, multiyear growth story – and much bigger than zero day to expiry options that have gotten so much press lately.

options panel expo 2023
Panelists at FIA Expo discuss the growth of global options markets. Participants included Rob Creamer, CEO, Geneva Trading; Arianne Adams, SVP, Head of Derivatives and Global Client Services, Cboe Global Markets, Inc.; Paul Jiganti, Managing Director Business Development & Market Structure Strategy, IMC; Derek Sammann, Senior Managing Director, Commodities, Options & International Markets, CME Group; Liam Smith, Head of Corporate Strategy US, Optiver.

Liam Smith, the head of corporate strategy at the US arm of market maker Optiver, mentioned that options markets have "a bit of a PR problem" because most of the attention lately has been on the recent popularity of short-dated options that expire within a day – so called "0DTE" contracts, short for zero days to expiration.

But while the rise of 0DTE is noteworthy, the trend is not the only tailwind for the broader US options market. And furthermore, while 0DTE products are often thought of as the playground of unsophisticated retail investors, the truth is that these markets are deep and liquid thanks to a wide variety of market participants from around the world.

"When you really look at the mix of the volume that's happening in there, you see a lot of complex orders," Smith said. "You see a significant and diverse set of participants. Retail gets a lot of focus and there definitely is retail there, but there's a really good mix of institutional, there's a lot of market maker on market maker volume at times, and trading for hedging purposes."

Derek Sammann, senior managing director of commodities, options and international markets at CME Group, concurred that the growth in 0DTE is "one sliver of a much broader story."

"We've gone from record year to record year to record year," Sammann said, noting that the short-term US equity options business is thriving recently but it's part of "a global options growth story where we're seeing record participation across all of our asset classes" including energy and metals products and longer-dated contracts, as well as strong investor increase overseas from regions like Europe and APAC.

"We think this is a great story, adding new participants and a broader use of options across the curve, across client segments, and across geography," he said.

Arianne Adams, a senior vice president and head of derivatives and global client services at Cboe Global Markets, said the growth across options markets is as much a risk-management story as it is a story about market access and retail participation. A closer look at the true makeup of customers and volume reveals there is increased interest from traditional market participants using 0DTE options in new ways to manage their risks in the most efficient and cost-effective way.

"The institutional community said, 'We want more precision around our hedging, we want to be more tactical intraday in terms of handling market moves,' " Adams said.

She noted that in addition to options markets being "well balanced" in terms of the strategies and investor profiles, demand has been consistent across all market environments ranging from bullish to bearish equity markets and both high and low volatility environments. That seems to indicate that recent growth is not reliant on a single macro event or product, but rather part of sustained demand across the board.

Paul Jiganti, managing director of business development and market structure strategy at IMC, offered another market maker perspective and noted that the high liquidity and low spreads allow for very efficient risk management practices.

"The risk from the market maker side is actually better with 0DTE -- better meaning lower risk, better liquidity provision," Jiganti said. "And it's that way because you have now more access to places to hedge and these are well quoted products. It allows us to pinpoint the risk and mitigate that risk."

Those factors result in a virtuous cycle where effective risk management for market makers allows for greater confidence in these markets, which adds liquidity and tightens spreads -- ultimately benefiting everyone in the marketplace, he said.

Looking forward, all of the panelists were bullish on the future outlook of global options markets even after recent growth trends.

Derek Sammann of CME noted that the options growth story has many contributing factors including better access to analytics, market data, and front-end capabilities. That includes the specific area of retail interest or 0DTE options, but also the product category across the board that has seen a revolution in "democratizing access to these markets," he said.

There are challenges that come with the potential for continued growth, however, including the importance to focus on capacity. Sammann noted that means exchanges like CME are increasingly investing in the underlying infrastructure to ensure this growth can occur responsibly and options markets can continue their multiyear success story.

"I think that we put a lot of time and effort into the robustness of the infrastructure," he said. While the past was all about "speed, speed, speed," he said the future success of options markets worldwide will be driven by a continued focus on access but also a resilient foundation to support the forecasts of ever-increasing options volumes.

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