The evolution of options

September 16, 2017 10:00 AM

A year ago in our options issue (September 2016) we focused on the history and versatility of options. Here, we spend more time on their evolution and growth. When listed options were first launched, only calls existed and ordinary traders could only buy an option. Today, there are options listed on virtually every underlying, from equities to futures to exchange-traded funds. You can trade long-dated options, Leaps, or options with weekly expirations, and traders of all levels, from retail to institutional, use both long and short options positions.

Options can be used to create distinct trading strategies and those strategies are the basis for unique investment products. In “Options on ETFs & ETFs on options” (page 28), we discuss the intersection of options and ETFs, with listing agents creating investment products based on Chicago Board Options Exchange (CBOE) strategy benchmarks. “PUT a cap on drawdowns” (page 32), examines how these benchmarks have performed throughout
the years.

What has become clear is that traders of all stripes—for better or worse—are fully using all of the tools in the options toolbox, even option writing. In “Volatility as an asset class” (page 42), we discuss the evolution of managed options programs. While many professional options traders have evolved from pure naked option writing, the strategy has had a rebirth with both professional and retail traders thanks to historically low and continually shrinking volatility. This has some people worried about what will happen when volatility returns for an extended period. Also, in “Binary options are here to stay” (page 38), we discuss the evolution and growth of these unique products.

Last month we touched on the breadth of disruption caused by Amazon, as several experts we spoke to cited how the Amazon revolution has affected the restaurant sectors and even the live cattle market. In this issue, we take a deeper dive into this effect. In “How big of a risk is Amazon?” (page 47), Feature Editor Garrett Baldwin discusses how companies from various sectors view the Amazon threat. More than five dozen companies have identified Amazon as a threat to their business.

It is always hard to apply antitrust laws written before the digital age to innovative companies in newly evolving sectors. In “Breaking up Amazon … It’s not that simple” (page 45), Baldwin talks to Diana Moss, president of the American Antitrust Institute, about the chances Amazon will be targeted for antitrust violations.

What is clear is that the Amazon has shaken up the entire equity world and companies not even related to the broad retail sector are looking over their shoulders to see if Amazon has them in its sites.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.