Welcome to the world of options investing, advisors. Now put on your thinking cap and figure out how you can make your visit to this competitive marketplace worthwhile.
That was essentially the message to registered investment advisors (RIAs) at an equity options conference held by the Options Industry Council (OIC) and the Futures Industry Association this week in New York.
Still, the focus placed on welcoming RIAs into the options fold sent an equally strong message that advisors are viewed as an increasingly important segment of the market by the market makers themselves.
“We’re really just getting started with options in the RIA community,” said Jeff Chiappetta, managing director of Institutional Trading and Fixed Income at TD Ameritrade Institutional, in a panel on the new generation of markets. “Retail investors are so much smarter than they were 10 years ago. Those people are challenging their advisors to use products like covered call spreads.”
But as RIAs flock to this alternative marketplace, gaining a foothold can be tricky.
While it’s true that clients are demanding high rewards along with low risk in this yield-impoverished economic environment, advisors face a big uphill climb in learning about how options can be used as a portfolio hedge. The challenge comes not just from understanding which options products are best from a risk management standpoint, but also from gaining liquidity in a marketplace that has seen a proliferation of trading venues in recent years.
Growth of U.S. options exchanges has exploded over the last few years, with the number of venues for trading equity options expected to double from six in 2008 to 12 within the next year.
“All of these venues are jostling for a share of the market at a time when total volume has been shrinking,” writes Rachel Koning Beals in Futures Industry magazine’s September issue.