An independent study that shows options investors are savvier than their non-options trading counterparts is helping an industry group promote the hedging tool to financial advisors.
Investors who use options tend to be more educated, financially literate and open to new risk management ideas, according to the study sponsored by the Options Industry Council (OIC). The OIC is funded by eight options exchanges, including the Chicago Board Options Exchange (CBOE), NASDAQ Options Market, and NYSE Amex Options.
“If I could sum up this study in one page, it says that options traders are affluent, sophisticated and open to new ideas,” said Eric Cott, OIC director, whose mission is to be the “minister, preist, and rabbi” of the options world.
The study released on Thursday, April 29, and conducted by Harris Interactive shows that 83% of options users consider themselves “extremely knowledgeable investors” compared to 63% of non-users. Eighty percent of users are college graduates versus 73% of non-users.
Options users also are more strategic and likely to have exchange-traded funds, futures and American Depository Receipts (ADR) in their portfolios than non-options users.
At the same time, options users are likely to be more active. They made an average of 31 stock trades per year compared to 24 for non-options users. In 1995, this was 23 trades for options users compared to 14 for non-users and 35 to 21 in 2000.
Mutual funds were the only investment category where those who do not trade options invest more, with 65% of non-options investors choosing funds compared to 53% of options investors.
Thirteen percent of options investors earned incomes ranging from $250,000 to $1 million versus 8% of non-investors, and liquid assets were also higher for investors, at $643,000 versus $580,000.
For advisors considering options trading, Cott, in an interview with Investment Advisor, suggested a “simple” three-tiered approach of cover calls, protective puts and collars, comparing it to buying insurance for stocks.
“There’s an appetite for options interest,” he said, noting that many advisors’ clients have themselves already traded an option in the last 12 months.
This year’s study, which is the fourth in 15 years, was conducted online among customers of five discount brokers and for the first time did not include the big wirehouse brokerages.
Read the results of the OIC’s 2000, 2005 and 2010 surveys.