European investors have continued as active participants in US-listed equity options markets with directional and volatility strategies seeing significant growth in 2013, acording to a research by TABB Group.
The new research, "European Trading of US Listed Options 2014: Shifting Demand in a Changing Market Landscape," revealed that European investors are using US options for a diverse set of strategies including overwriting programs on underlying US equity assets, hedging of international equity portfolios and as part of directional strategies around corporate events.
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Andy Nybo, head of derivatives research, TABB and author of the study, said: "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."
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 favor of OTC products.
Nybo added: "As open interest and notional value traded continues rising, TABB expects demand from European investors to continue to grow."
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By GlobalDataEuropean investors accounted for an estimated 9% of total US options order flow in 2013.
Nybo said: "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. 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.
Interviews focused on the market environment during the preceding 12-month period, addressing the sources and factors influencing demand for US-listed equity options, the opportunity for expanding demand and how the industry, specifically US options exchanges, brokers and technology vendors, can address European investors’ needs for improved access and education.
