The Data Dump in Options Trading

At a Glance

  • Options trading growing with the rise of analytics tools
  • QuikStrike offers dozens of options tools to customers in 70 countries

Two years ago, TABB Group produced a report stating that options on futures was a market primed for growth. It turned out to be prescient analysis. In just the last year, options volumes at CME Group have risen 18 percent. Stretch back five years, and the growth rate increases to 66 percent.

A variety of macro factors contribute to the rise in futures options activity, including overall levels of market volatility and uncertainty about Federal Reserve monetary policy.

But perhaps more critical are the technical changes. There is a wider range of relevant contracts than a few years ago, a more diverse pool of participants and, most importantly, greater electronic accessibility to the options market.

Democratizing Options

A natural outgrowth of electronification is the rise of data analysis tools offering traders the ability to analyze option pricing and implied volatility. The emergence of these tools has in many ways democratized the process for options trading, and made the products more accessible.

“For a long time, futures options trading platforms and analysis tools were inferior to the products created for stock options. Fortunately, that gap is closing, if not closed,” says David Fehlan, principal at Brighton Capital Management in Minneapolis. With better tools, new contracts — weekly and short-dated — and a marketplace that frequently offers better liquidity and leverage, I think futures options have become more attractive to a wider group of traders.”

Trading Floor Origins

It’s no surprise that sophisticated tools like these have their origins on the trading floor.

Nick Howard worked as a software developer for four years before heading to the CME Group trading pits. Pulled by an interest in the markets and trading he landed a job at O’Connor & Associates first as an option clerk and eventually a market maker and a local in the Eurodollar pit. He quickly found an opportunity to marry his two skills –trading and software development.

In 1991, a floor broker commissioned him to create an options pricing sheet in Excel that easily calculated and displayed options pricing, the Greeks and volatility curves. Howard’s option pricing spreadsheet quickly became popular in the floor broker community and he sold the Excel tool many times more.

“I built it for brokers and it enabled them to do their jobs better on the floor,” says Howard. “It gave them ready access to things and it was easy to use.”

In 2004, a customer asked Howard to build an online version of the options pricing tool and from there the technology continued to grow and expand into today’s version that offers dozens of tools to customers in over 70 countries across the globe.

Options_Top Electronic July 2016

Howard remained on the trading floor for seven years but gravitated back to his software roots, developing what became QuikStrike, one of the most widely used analytics platforms for options brokers and traders, for his Chicago-based Bantix Technologies, a software development and consulting company providing futures and options pricing and analysis tools.

Mike Riffice, director at Sigma Americas LLC, was one of the original users of Howard’s spreadsheet, and still uses QuikStrike today.  One of the big advantages of the software, he says, is that it allows users to calculate “what-if” scenarios in futures options markets.

“It creates a picture of what an option looks like now and how that could change over time. It allows you to evaluate different scenarios,” he explains.

Visualizing Options Trades

Another factor placing analytics tools front and center in today’s trading environment is the migration of trading volume from pits to screens. It is not just a matter of accessibility. Electronification has allowed traders to analyze markets in ways they had not previously.

“Successful options trading relies on the acute visibility of the options markets,” says Carrick Pierce, product manager at CME Group. “QuikStrike tools provide that visibility along with visualization of complex parameters that make up the futures options marketplace.”

In other words, the problem that QuikStrike solves is not lack-of-information. It is the collection and presentation of the right information.

“The information is out there, but not necessarily readily available to all people in a form that they can digest and benefit from using,” Howard says.

From his years on the trading floor, Howard developed a practical understanding of what traders need to know and created the software to deliver it in graphical form.

“Our goal over the next few years is to continue to present more information in a more visual format that will allow people to make trading decisions more easily,” he says.

Brighton Capital Management’s Fehlan has been a QuikStrike user for three years and his use of the tool has grown as the offerings expand.

“Initially, we used QuikStrike mostly as an end-of-day tool. Today, it’s a valuable resource that we turn to throughout the trading day and for after-hours analysis. We not only make better informed decisions, but we’ve eliminated the need to maintain an API that fed option data into spreadsheets,” Fehlan says.

  Quikstrike Tools

The CME Group-QuikStrike partnership has been in place for three years. It helped QuikStrike expand its reach, and helped CME Group add a valuable service to options market participants.  “We partnered with QuikStrike to offer powerful options analytics to our customers for free,” says Pierce. “It helps their confidence level in getting involved with a particular product, and helps break down a barrier to entry.”

 

QuikStrike Open Interest Profile

E-mini S&P 500 Volume Chart using QuikStrike’s Open Interest Profile Tool

The seamless and contextual integration with CME Group’s execution management system CME Direct creates quick and easy access to analysis. “If a user is looking at a crude oil future they can right click on it from CME Direct to pull up the QuikStrike visualization tools on crude options,” Pierce says.

Of the many catalysts behind growth in options trading, it is this kind of technology that stands out most, says Fehlan of Brighton Capital.

“Looking back three to five years, the exchanges have introduced new products and time frames, but I think the bigger changes are in FinTech. For the simplest strategies to the most complex, we now have better, more accessible tools to help plan, execute and manage trades. It’s a good time to be an options trader.”

View the QuikStrike Essentials pdf here.

Kira Brecht has been writing and analyzing the financial markets for 20 years. She is a contributor to the Dow Jones commodity newswire and Kitco News. She's also written for Active Trader magazine, Currency Trader magazine, and the Chicago Tribune. You can follow her on Twitter @KiraBrecht

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