Bull Market Hedging Was Boon for Exchange Volume in ?14: Options
By Sofia Horta e Costa and Inyoung Hwang
Three years without a correction in the Standard & Poor?s 500 Index is spurring enough anxiety to keep options volume marching higher.
More than 16.9 million puts and calls a day changed hands last year on U.S. exchanges, up 3.7 percent from 2013, according to data from the Chicago-based Options Clearing Corp. That?s the highest level after an all-time high in 2011. Traders snapped up contracts to hedge against losses or speculate on more gains as American stocks posted their third consecutive advance exceeding 10 percent. The average daily volume this year was 17.6 million through yesterday.
While overall volatility held below historical averages in 2014, bouts of turbulence in U.S. shares are getting more common. The S&P 500 on Jan. 6 completed its third decline of more than 4 percent since October before jumping 3 percent in two days. With oil plunging and the Federal Reserve set to raise interest rates, the trend is toward buying protection, according to Carsten Hilck at Union Investment Privatfonds GmbH.
?We?re heading into a pretty decisive year and, as an asset manager, you try to hedge the known unknowns,? said Frankfurt-based Hilck, who helps oversee about $4 billion. ?Options offer the best way to do this. Whenever there?s a hint of the Fed increasing interests rates, the market can have a selloff. You don?t want to be in a position where you have to explain to clients why you weren?t prepared.?
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