U.S. Option Volume Slows From Record Pace
By Doris Frankel
CHICAGO, Dec 1 (Reuters) – The options market suffered a? setback as U.S. exchange-listed volume last month fell 21.2 percent to 224.9 million contracts down from 310.8 million contracts for the same period last year, the Option Industry Council (OIC) said on Monday.
The drop in November volume comes as annual overall option volume stood at record levels of 3.4 billion contracts, up 28 percent from the 11 month period in 2007.
Trading fell for several reasons. Last month had fewer trading days. This year, November had two trading days less than November 2007.
Hedge funds, which had made the U.S. options market their favorite hunting ground for several years, pulled back in overall trading activity as they deleveraged and contracted in the mortgage-inspired stock market downturn.
And heightened volatility reflected by this year’s record rise in the options fear gauge, the so-called VIX, raised option premiums, making it more challenging for investors to manage their stock market risk.
“The options market was hit by a one-two punch in November,” said Mark Longo, founder of Chicago-based Web information site www.TheOptionsInsider.com. “With the price of portfolio insurance going through the roof, and the market swinging dramatically every day, many options investors decided that discretion was the better part of valor,” Longo said. “When you also factor in a shorter trading month, it is not surprising that options volume declined dramatically in November.”
Average daily volume for November was down 12.9 percent to 12.9 million contracts from 14.8 million contracts for the same period last year, according to the Options Clearing Corp, the world’s largest derivatives clearing organization…