A new TABB Group research report has been released with the latest topic, ?Options on Futures: A Market Primed for Further Expansion.? ?This disclosed that options on futures trading volume is expected to remain strong this year, expanding 15%, as fiscal policy shifts and greater volatility drives market activity.?
Investors are also seen as increasing their use of these instruments for hedging and volatility strategies, especially as they have anticipated changes from the slowing of the US Federal Reserve?s quantitative easing (QE) program, prompting strong growth in interest rate derivatives markets.
Matt Simon, TABB?s head of futures derivatives research?and the report’s author, said of the findings,??Leveraging growing liquidity, investors are turning to options on futures as part of their volatility and hedging strategies.? ?
Since their launch 30-plus years ago, options on futures (OOFs), have undergone steady volume growth and according to Simon, futures options contract volumes from 1999 to 2014 (estimated) indicate a 15-year CAGR (compound annual growth rate) of 13%.
Simon added, ?Despite their steady growth ? options on futures markets are still in their relative infancy when compared to other derivatives markets ? TABB Group sees rising volumes in 2014 and beyond as investors seek out new sources of alpha in their trading strategies. As investor demand has focused on new trading opportunities in options on futures, they are looking for electronic tools that can support direct access and more complex capabilities.?
He also noted that with increasing global equity trading volumes, it is his belief that this will drive growth in the equity-options segment. This comes as improving economies globally will expand international trade and cross-border investment. An increasing demand for options on currency futures to hedge FX risk will ensue.
Simon said, ?The futures options markets are poised to become much larger. As interest rate policies change, alternative energy sources emerge and underlying reference futures markets appeal to a wider audience, rising demand from institutions, electronification and improved market access will drive future volume growth.?