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Banking

OIC Promotes Options To Managers

The Options Industry Council has stepped up its promotion of options trading to asset managers on the heels of sponsoring a study that proved that collaring PowerShares QQQ exchange-traded fund strategies with options optimized returns.

 The study, which was sponsored by the OIC and conducted by the University of Massachusetts, showed that in the last nine years, using a protective collar strategy of a six-month put purchase and consecutive one-month call writes cut volatility to one-third of the Nasdaq-100 Index’s volatility. Moreover, the strategy returned more than 150% cumulatively, compared to 12% losses holding an ETF on the index would have incurred.

"We are trying to convince pension managers and other buyside institutions that with returns like these, it’s their obligation to consider options as an investment," said Phil Gocke, managing director of OIC’s institutional division. Though institutional volume makes up about 60% of overall options order flow and has been growing, new entrants primarily include hedge funds, not traditional asset managers. The aversion to the options market crash in the late ‘80s resulted in the majority of large pensions prohibiting asset managers from investing in options, though the charters have been lifted in many places recently, Gocke said.

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