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Advisors Sharply Increase Use of Options for Clients: OIC

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Fifty-two percent of financial advisors used exchange-listed options at least once for a client account within the past 12 months, a 13% increase in three years, according to a new benchmark survey released by The Options Industry Council (OIC). The increased use was consistent across all advisor channels, according to the OIC, and advisors said they plan to increase their use of options.

The study looked into how, when and why advisors use options and what differentiated advisors who use them with clients from those who don’t. There were 637 advisors who completed the 20-minute online survey by Bellomy Research in March 2014, representing the wirehouse, RIA, insurance company, bank and other channels.

In a similar study sponsored by OIC in 2011, advisors expected to increase their use of options in the following year by 33%, but in the 2014 study, those surveyed projected their usage to increase by 45% over the next year.

The biggest reason advisors said they used options was to generate income; 59% of those surveyed said they used them for this purpose. Forty-nine percent used options to hedge an existing portfolio, 49% to lock in profits on existing investments, 47% to acquire a desired stock at a later date and to diversify a portfolio and 31% used options for speculation.

Noting that options aren’t appropriate for every client, they do “provide a solution in every kind of market,” Eric Cott, director of OIC, told ThinkAdvisor, pointing out that advisor use of options is growing despite the markets’ recent low volatility.

Calls and covered calls remain the most popular strategies used by advisors, with Cott saying that advisors are “focusing on managing risk” for clients, “not mitigating it,” and are reacting to clients’ “insatiable need for income.” Advisor use of options reflects their concerns about persistent low interest rates and fear of rising rates, said Cott. One increasing trend he sees is in advisors using CSPs, or cash secured puts: 43% of advisors using options said they had CSPs in client portfolios.

Advisors who used options in client portfolios tended to have larger practices, the OIC survey found: 11% of options-using advisors reported having a book size of more than $500 million, and 32% said they had a book size of $100 million-$500 million. For non-options using advisors in the survey, the numbers were 5% with more than $500 million, and 9% with book sizes from $100 million to $500 million.

The survey found that clients who were more inclined to use options had a higher education level and that the advisors who suggested them to clients tended to be more experienced, Cott said. He believes that this increase might have stemmed from an increase in education on options provided by “agnostic cooperatives” like the OIC but also by many wirehouses and RIA custodians. The survey found that despite the availability of education tools such as webinars, podcasts and other online courses, most advisors prefer to get their options education from their colleagues.

As to how they purchase options, the survey found that an equal number of respondents said they purchased options themselves or outsourced the process to third-party firms. “Options need maintenance,” Cott pointed out, “so the growth in using subadvisors is important.” 

For more on options and their use in client portfolios, see ThinkAdvisor blogger Eric Metz of RiverNorth on:

The Opportunity in the Market’s Small Cap/Large Cap Divergence

Expanding the Efficient Frontier: Options-Based Strategies in Portfolios 


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