European investors have continued as active participants in US-listed equity options markets with directional and volatility strategies seeing significant growth in 2013.
According to research from TABB Group – “European Trading of US Listed Options 2014: Shifting Demand in a Changing Market Landscape,” – European investors are using US options for a diverse set of strategies including overwriting programmes on underlying US equity assets, hedging of international equity portfolios and as part of directional strategies around corporate events.
“A broad range of European investors are actively trading in US options markets as deep liquidity and transparency coupled with ease of access enables a broad range of directional and hedging strategies,” says Andy Nybo, TABB’s head of derivatives research and author of the study.
European investors are quick to use US-listed options to hedge underlying portfolios of equity assets, with demand for index and exchange-traded fund (ETF) options surging in times of elevated market volatility.
Trading in listed-volatility products also saw a surge in interest, as investors expand the use of listed volatility options in favour of OTC products.
“As open interest and notional value traded continues rising, TABB expects demand from European investors to continue to grow,” adds Nybo.
European investors accounted for an estimated nine per cent of total US options order flow in 2013.
“Although the proportion of trading originating from European investors saw a small decline as investors reallocated global portfolios, our interviews clearly identified rising demand from many investor segments, including investment and private wealth managers embracing US options as a part of their activities, as well as a small but growing community of retail investors attracted to US options markets,” Nybo says. “We see a broadening of the investor base providing a solid foundation for continued growth in US options trading.”
The 35-page study with 31 detailed exhibits, commissioned by the Options Industry Council, is based on in-depth interviews during February 2014 with 31 US, UK and European options market participants representing 27 firms.
