September 6, 2024 • 47 mins
In this final session of our summer Tales from the Road series, we welcome OIC friends Kevin Davitt of Nasdaq, Patty Schuler of the BOX Options Exchange, and Gary Franklin of Raymond James as they join host Mark Benzaquen for frank discussions about recent market trends, the experience of being a woman on the trading floor, and challenges going forward.
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Now here's your host, Mark Benzoquin.
Hello everyone and welcome to OIC's Wide World of Options.
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I'm your host, Mark Benzoquin.
For today's episode, we're going to finish up our conversations that we had with some
of the industry's biggest names at the recent Options Industry Conference in Asheville,
North Carolina.
And to close things out, we're going to listen in on visits that we had with education advocates
like Kevin David of the NASDAQ, Patty Schuler from the Box Exchange, and Gary Franklin from
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Raymond James.
For those interested in our webinar program and what OIC has in store for September, we're
following up our summer sessions to talk about hedging, whether it be stock specific or general
market risk, by looking at two hedging strategies, the protective put and the options caller.
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To register, please visit our optionseducation.org website and click on the events tab.
For our Wide World of Options podcast, however, we're excited to bring you the conclusion
of our extended Tales from the Road and the great conversations that we had about options.
We should note that as our guests are not affiliated with OIC or OCC, the opinions expressed
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are their own and not those of OCC, nor do we endorse, warrant, or guarantee the products,
services, or information discussed by our guests.
And with that out of the way, let's get started by listening into a conversation that we recently
had with NASDAQ's Head of Index Options content, Kevin David.
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I had the good fortune to catch up with Kevin and get his take on upcoming market trends,
the benefits of new exchanges, and the value of education.
Let's go ahead and listen in now.
All right, everyone.
Welcome.
Sitting down with me now is Kevin David representing the NASDAQ.
Kevin is the Head of Index Options content.
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A little bit of history on Kevin, kind of a this is your life.
Kevin started on the floor of the SIBO in 1999 as a market maker.
He worked his way around the industry and joined CBOE in 2015 to help lead CBOE's Options
Institute.
Kevin, you then joined NASDAQ in 2022 as the Head of Index Options content.
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And with that in mind and considering you've experienced options from both sides of the
coin meeting as a market maker and as an exchange rep, let me ask you this.
What do you see as the most significant trends in the industry today?
All right.
Well, first of all, Mark, thank you very much for having me on to discuss things like this,
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which I think we both believe are important.
Very much so.
Yes.
Thank you.
And thank you for that kind introduction.
So trends that I believe are sort of shaping our industry right now, to a certain extent,
depends on where you're coming from.
And to your point earlier about that, I've been exposed to this business from both sides,
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the market making liquidity providing side and now the exchange side.
I think I look at it through both lenses.
So my response would be from a big picture standpoint, and I expect this is something
that my friend and old colleague Henry Schwartz will focus on in the state of the industry
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later, is the move, the appetite for shorter maturities for shorter duration options.
Now I think that has taken some people by surprise.
Those have introduced essentially daily options, options that expire every day that the market's
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open.
Now, just to be clear, these options are not listed day of and expire day of.
They are listed five or six weeks in advance.
And at some point that becomes their day of expiration.
What we're talking about is the concentration of volume in these short dated options.
What it reminds me of big picture, again, the benefits of being in this industry for
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a long time, is 2006 and 2010 when in 2006 index options, weekly index options were rolled
out.
And then in 2010, when the industry broadened that to include some of the most actively
traded ETFs and listed non-standard.
So we're talking about weeklies being Friday expiries.
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What we've seen is an evolution, I think a natural evolution of that over the past handful
of years.
And the reaction has been positive.
I personally don't believe that that's an issue.
There has been considerable attention on the concentration of volume in these options.
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I think that people understand that they behave somewhat differently than a longer dated option.
But the marketplace is finding ways to use these systematically in strategies as well
as retail, finding ways to really customize their exposure, whether that's based on event
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risks like we're down here in Asheville.
And this week there will be another Fed meeting and interest rates have been such a driver
of positioning over the past couple of years, understandably.
And so the ability to customize your risk over shorter timeframes matters.
And that is certainly a trend that I expect will continue to shape our business beyond
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that more from the liquidity providing the market making side, the breadth of product
and the number of strikes and the data that that requires to process and move around is
something that I think the industry, the liquidity provider side has expressed some issues with.
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But so long as we're seeing activity in strikes, I think that's perfectly fine.
And the speed at which technology can improve and handle this stuff continues to be important.
Then the one other thing that comes to mind is that the demographic of newer options users
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from what we know is skewing younger.
Typically that means they have a smaller wallet size than say somebody our age, mid 40s plus.
Oh, I love you for thinking I'm mid 40s.
You're welcome.
I said mid 40s plus.
I'm leaving the plus part off.
So historically, it was more people at our point in life that were starting to use derivative
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products and now capital markets are being embraced by 20 somethings and even younger.
And that is interesting.
So one response to that has been growth in micro or mini products, which affords smaller
notional exposure.
And that's something we could talk about.
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But I know you have done from an education standpoint a great deal there.
And then this is broader sort of capital markets and industry talk.
But the ability for these younger people to get exposure with partial shares.
I know that's more on the equity side, but it's excellent because there's nothing better
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than getting getting started and learning from experience.
I think there is a very, very big important difference between theoretical application
and thinking I understand the sort of science behind calls and puts and then seeing it applied
practically and managing that with some emotional component, then it becomes very real.
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And so I love the fact that you don't need many thousands of dollars to get started now.
Well, and you bring up so you bring up several interesting points, I think, you know, talking
about this new investor, right, this younger demographic, they've got less dollars to invest,
you know, you were part of the CBOE's options institute, where does education come in for
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these people that are, you know, plunking down their hard earned dollars and not actually
understanding the mechanics of investing with options, you know, where do you see that standpoint
of education for them?
So my position would be that we're painting with a broad brush.
And I think it's a careful one because there is genuine risk in any area of the market.
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And people need to understand that to say that they're assuming, I think we're extrapolating
from events of a couple of years ago and some vocal, very online types, right?
The meme stocks about the degree of risk that the average new market participant is taking
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out.
No, okay.
So those have made headlines to say that that's representative of the growth and broader demographic
shifts that we've seen over the past few years, I think could be specious.
And I say that for a couple of reasons.
One, the growth that we've seen from just a pure volume standpoint has been sticky.
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And in my experience, if you talk about any consumer market, if you have a bad experience
or a couple bad experiences, chances are you don't continue to give them business.
Right, correct.
And so we have not seen a drop off from 2021 or 2022, some period over the past four or
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five years, where that real significant volume growth started.
Now, to the point on education, I am skewed by my age in this conversation.
And it is so available that I think to make an argument that you are not informed just
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shows a willful ignorance to a certain extent.
Because if we talk about joining this business 25 years ago, and the only exposure I had
at that point in time was very limited and in an academic setting.
And then I learned in the real world, like I kind of assume was the case for you.
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And the real world will teach you quickly.
But the availability of an updated OIC educational tools, the availability at the brokerage level,
no matter your account size, these tools to understand what I consider the science of
options markets, what calls and puts are how they are designed to work, what those inputs
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are what are influencing changes in the market, that is readily available to not avail yourself
of it and assume risk.
Maybe I'm a little cavalier here, but but that's on the end user.
Absolutely.
So we have it readily available.
And I think it is meeting new investors where they're at, meaning we have reshaped the way
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that we message about these tools with a younger demographic in mind.
And so I am absolutely apprehensive to paint this as younger people assuming greater risks
and and being cavalier.
I say that because we have seen sticky volumes.
And I think that continues to be the case across demographics.
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And you simply don't continue to use something if there is not some real or perceived benefit.
Interesting.
Another point is that uncertainty is embedded in this business.
And people by nature are risk averse.
So you can misconstrue something not working out from a P&L standpoint.
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And if you're not learning from that, then that's kind of on you.
I'm talking about the availability of resources.
If I think about how much I didn't understand at 20 or 25.
And I continue to stress the point that I'm so much more comfortable talking about what
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I don't know these days than before.
And that's empowering.
So I understand the especially given the feedback that you get.
But I would argue that our industry has done exceptionally well at making the education
available.
Well, Kevin D'Avit from the NASDAQ, head of Indexed Options Content.
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I really appreciate you sitting down with us and talking.
Thank you so much.
Thank you for having me.
I loved it, Mark.
Thank you.
All right.
Thank you, Kevin.
And we're back.
We're back for taking the time to sit down with us and for the always great conversation.
Next up, we'll hear from another exchange rep and another close friend of OIC.
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This time, Patty Schuler from the Box Exchange.
Patty and I took some time to talk about recent record volume, market and exchange innovation
in the unique experience of being a woman on a trading floor.
Let's go ahead and listen in.
All right, everybody.
We are back and joining me now is Patty Schuler of Box Options Market, where she is a senior
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vice president of business development.
Patty got started back on the floor of the CBOE back in 1986.
She moved into the clearing side a little bit later, started with CBOE as a director
of business development in 2004.
And then she transitioned to the Box Options Market back in 2011, like I said, where she
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is now currently a senior vice president of business development.
Patty, I really appreciate you taking the time to sit with us today.
Thank you.
Well, thank you very much for having me.
I appreciate it.
Yeah, very good to see you.
Let me ask you, some of the panels that we've been listening to today and yesterday were
focused on options volume.
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Obviously, the explosion of options volume over the last decade or so and significantly
record trading volume over the last couple of years.
So more people are turning to options.
And my question to you, to get your opinion as somebody from the exchange side is, what
do you think that what is the impetus for this new levels of volume?
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What is attracting people to the market?
There's a few things.
And I think first and foremost is education.
Okay.
And when I first started in this industry, the only way to really learn about options
was to go down to the trading floor, have a broker or a market maker teach you the basics.
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And you kind of were trial by fire, essentially at that point in time.
As nowadays, individuals have the ability to utilize their clients or their firms tools
for education.
They have real time access to graphs, volumes, being able to see what the markets are doing.
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The best resource in my opinion is the options industry council.
They've been around for 30 plus years.
I've had the privilege of being on the OIC roundtable for my tenure at Box.
And I've just seen the huge amount of outreach in terms of getting the public educated on
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options and being able to trade the product responsibly.
And that to me is having the tools at your fingertips nowadays is tantamount in terms
of the growth, the understanding and the ability to trade responsibly.
Right.
So there's certainly more educational outlets out there for people to avail themselves of
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to learn about what they're doing, hopefully before they're actually doing it.
But also the accessibility of the markets.
People as you had mentioned, the technology, I remember back in the day you used to see
stock quotes in the newspaper.
Now obviously you can check out whatever you want on your phone.
So you think the markets are certainly more accessible nowadays.
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Yeah, the ability to get an instantaneous fill versus when I first started on the floor,
your turnaround time was an hour on a good day.
You'd send an order down, they'd get phoned to the floor, written up, handwritten.
You're sourcing liquidity from the market makers in the crowd and then you're getting
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your fill back.
Plus, I will say that nowadays investors can trade with zero commissions back then.
It cost you.
It was significant, right?
It was significant, but spreads were greater than.
We traded in fractions.
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Right.
And the tightest market could be what, a teeny?
So six and a quarter cents.
Yeah.
Yeah.
So and your commission could be $5.
Yeah, and it's funny that you mentioned the fractions.
I remember, I started on the floor in '97, took me a while to start to grasp adding and
subtracting those teenies.
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And then shortly thereafter the news was that we were going to decimalization.
Yeah, that was a big change.
Yeah, not only a big change, but I felt like, boy, I just wasted all my time and effort
learning how to add three sixteenths and one and three quarters or whatever that made.
Well, the real fun part in the early days was being able to do hand signals.
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Right.
So everything you did was hand signals.
You're buying, you're selling, eighth quarter, three A's, staff.
I remember the OEX back in the day, for example, was the largest trading pit I've ever seen.
Four hundred plus market makers in there, support staff, et cetera.
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So to speak to one of them on the other side to confirm a trade, yeah, you absolutely have
to do all the hand signals.
Yeah.
Out trades back then were just a dime a dozen.
Now in the electronic world, out trades are nonexistent for the most part.
Yeah, that's a good point.
So speaking of that, with the new technology, it certainly streamlined everything.
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In addition to technology, do you see other significant trends in the industry, something
that will boost growth or maybe make the markets more accessible to the public?
Yeah.
From the exchange standpoint, the main area that we've been focused on over the last year
and a half, two years, and we had looked at this previously in years past, is flex.
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Okay.
So we noticed a significant uptick in flex options trading over the last several years
from-
And for those of you that aren't familiar with flex trading, it's basically just a customized
option contract.
You can select your exact strike price, whether the settlement is going to be AM or PM based,
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et cetera.
Exactly.
So we've seen a lot more of that.
In fact, from 2022 to 2023, volume has essentially doubled in flex.
So we had started our efforts back then from a technology development standpoint at the
exchange, as well as writing the rules.
There hadn't been a flex rule approval in a very long time.
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Okay.
Excellent.
So we're looking forward to launching flex.
Obviously, there's been a lot of talk about the ETFs, all the new ETFs in the marketplace
and investors being able to trade those products.
The other trend that we've seen is obviously the move to shorter dated options, the weeklies,
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and now there's talks of potentially dailies moving into the listed names.
Right.
Right.
So that's another area.
I think there's challenges there, but it's something that everybody's looking at and
we've always been able to work through the challenges.
So I think that's something to look at as we move forward in our space.
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I was interested, Henry Schwartz, who I know you know, a good friend of yours, Henry gave
a presentation yesterday, the state of the market that everybody looks forward to.
And speaking of ETFs, the growth over the last several years in ETFs was really, really
remarkable.
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And at the round table meeting that we had the other day, he said something that didn't
really click before he had mentioned it, but some of these ETFs, for investors that maybe
don't want to trade options or maybe don't have the approval to trade options, some of
these ETFs actually act like an option itself.
Yeah.
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And that's another way for them to be able to trade and get their feet wet.
Right.
More accessibility.
Yep.
Yeah.
Interesting.
Exactly.
So back with technology from an exchange standpoint, how does that drive innovation, do you think?
So from an exchange standpoint, technology plays a huge role.
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Certainly.
Huge role in innovation, especially for us.
We talk to our clients all the time, so we are always asking them, hey, how can we do
things better?
How can we make, introduce a new product or optimize what we've currently got going on?
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We tend to do what I'll call superficial refresh of our matching engine and the network and
the technology in the background.
Three, five years.
So and even sooner on some certain segments.
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So that allows us to be able to manage risk in a better way for our participants.
Market makers need that risk management tools that the exchange has so that they can get
out of the way in case of some market event.
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There's a lot of geopolitical tensions.
Absolutely.
Huge market moves on single names.
From a tech standpoint, if you can't handle that, you're not going to be in business much
longer.
Right.
And we've been able to, in a testament to our industry overall, not just box, but all
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exchanges in the clearinghouse, we're all moving into better technology, better ways
of doing our business, and it's only going to get better and bigger, in my opinion.
Okay.
And so getting better and bigger, that also applies to trading platforms.
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How do you think that the evolution of trading platforms, again, it used to be you would
call your broker on your phone and you'd ask for a market, and as you had mentioned, it
may be 15 minutes or maybe a couple hours before you know if you're filled.
Now it's instant in the palm of your hand on your cell phone.
Obviously that's had an impact on market participants.
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It also, again, goes back to making things more accessible.
Yeah.
So tremendous uptick.
Yeah, right.
The evolution.
Night and day.
100% in the evolution of the technology, you know, the process was, as you, we both mentioned
and are familiar with, was handwritten.
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Things were not done electronically.
And I remember being on the floor of the CBOE, we were the first floor to have a handheld.
Not every market maker or trader had a handheld, and I at the time was doing stock layoff for
my firm, and that was, I was the clerk in the crowd for 10 market makers, and they needed
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to lay off their stock.
And that used to be a phone call down to the New York Stock Exchange or NASDAQ, whatever
the market was.
The handheld came out and I said, I want one of those.
I want one of those because then I can more efficiently manage these customers' stock
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orders, be able to get them into a system more efficiently in an execution back than
it was a game changer from that point on.
Yeah, certainly.
Things just magnified.
And you know, from the standpoint that when we do technology changes or when we look at
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technology, we look at it, how is it going to impact the future?
We don't really do so much.
It's the future growth is where we're generally going towards in terms of technology or new
product such as flex, you know, that's coming in the market for us.
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That was a super fun build, going through it and learning about it and hadn't really
been involved in flex previously.
So it is a learning experience for me also.
And you know, I think that just makes you more valuable.
Certainly.
Your team, your exchange and your clients where you can give them the knowledge that
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maybe they don't have either.
Right, right.
Okay, that sounds great.
Yeah, Patty, that's excellent.
Thank you.
Here's something that just popped into my head and I hope it's okay that I ask this.
1986, you started on the floor of the CBOE.
I started a decade later, but even a decade later when I started, there were very few
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women on the floor and the women that were on the floor at that time were more of a support
staff.
Vote reporters, clerks, runners, things like that, very few traders.
You started 10 years before that, so I would imagine it was even more skewed back then.
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If you don't mind my asking, what was your experience like?
Obviously, you know, even as a man on the training floor, you've got to have thick skin.
You know, you can't let things get to you.
As a woman, how did you deal with that every day?
Waking up every morning and thinking, oh my gosh, what am I getting myself into today?
Yeah, that is so when I started on the trading floor, you were right, there was very few
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women.
I started off as a runner, went to the phone clerk, went to the crowd clerk, then became
a floor manager, all in a very short timeframe.
Obviously, you have to have thick skin to being down there.
And you know, there were times where I felt like I was discriminated against.
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It wasn't easy.
The traders would, you know, get in your face.
Like they had no qualms about yelling at you in your face.
And sometimes, yeah, a little scary, but you know, you have to hold your own.
You had to stand there, take it, and then figure out how to deal with it after the fact.
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I will say that I had a very good mentor who was a woman at the time, and she was in a
senior position of leadership when I was at First Options of Chicago.
And she really helped me to get through some of those tough times and to not be afraid
to ask for a better or higher position.
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And I'll never forget, you know, how she would just mentor me and give me the confidence
to do what I could do.
And it's just led me to where I am today and what I'm doing at my current role.
I have a huge wealth of knowledge.
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Like I always wanted to learn about every little aspect of options trading, not just
to trade the product, but clearing is also a big behind the scenes effort.
And if you don't have that knowledge base, you know, you're kind of, you're at a disadvantage.
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Certainly, you're right.
So, yeah, we, I, I mean, now that I've been in the market, I'm not going to be able to
tell you that there's a lot more women in the business, but it's still, I'm always looking
to make sure that we have enough of those roles that either a man or a woman could fill.
Right, certainly.
And not be discriminated against.
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Right.
And then also just not only the culture of the industry, but just the culture of, you
know, being in the, you know, a new millennium, you know, 2020 plus.
A lot of swearing.
Right.
A lot of,
a lot of misogyny.
Yeah.
I, I've never heard so much disgusting stories in my whole life.
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You know, they had no qualms about saying things.
None whatsoever.
That they were talking with all their buddies about.
Right.
And the fact that a woman was standing next to them completely irrelevant.
If she doesn't want to hear it, she shouldn't be here.
That was the attitude.
Yeah.
There was no HR policy back then.
Oh, gosh.
At all in terms of anything.
Yeah.
So yeah, you had to stand there and listen to it or take it.
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You know, there were plenty of times where I would get upset and have to walk off and
maybe cry in the women's bathroom down there and then come back up.
But you came back up.
Yeah.
Came back up.
Yeah.
And yeah, that's the important thing.
So.
Excellent.
I appreciate you sharing that with me.
Thank you.
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Thank you, Patty, for that terrific discussion and for sharing your personal story.
And now to close things out, let's listen in on our talk with Gary Franklin, Vice President
and Head of Options Trading and Strategy at Raymond James, where he's been for more than
30 years.
Let's go ahead and listen in on what Gary has to say.
All right, everyone.
(34:14):
Thank you for joining us again.
I have the extreme fortune to sit down with Gary Franklin of Raymond James.
Gary is the VP and Head of Options Trading and Strategy at Raymond James, where he's
been for 33 plus years.
He's also a former OIC Roundtable member, member of the CBOE Retail Advisory Committee, and
(34:39):
a member of CIFMA Listed Options Trading Committee.
So Gary, obviously you've been around the industry for decades.
You've seen a lot of different comings and goings.
Certainly recent trading volume is something that we haven't seen before.
We're trading volume of 11 and change billion contracts a year exchanging hands.
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So let me ask you this with the obvious upswing in trading volume, to what do you attribute
that increase?
In other words, why are people turning to options?
So, you know, from my seat, I see that we're at new levels, right?
Looking through COVID, we saw that people had more time, even though they were supposed
(35:28):
to be working.
And they most likely were.
We'll just go with that.
But they discovered that the technology was at their fingertips, right?
So they had the ability to decide what they wanted to do and were educated in the strategies
that were available.
And I think that's really what's pushed the growth from the pure retail side.
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Now from the brokerage side, we've seen a massive growth in the asset management side
of the business.
They have a call writing programs.
Our parents, they need income.
They're in retirement.
Well, what better way to do it than overlaying options in their portfolio?
(36:13):
They can add another three, four, maybe five, six percent and potentially reduce their risk
as well.
So that's, we've seen dramatic growth within my firm.
>> Okay.
So people are turning to options, you think, because of the variety of products, the, you
know, what options, you know, helpless do in terms of objectives.
(36:33):
You know, you had mentioned income, you know, capturing that premium income.
And then technology.
I completely agree.
The markets seem to be much more accessible now than they ever have been before.
So with that in mind, what do you see going forward?
Significant trends, opportunities in the business, et cetera?
(36:54):
>> You know, for me, I think we were probably going to plateau a little bit, but plateau
with these amazing levels.
And then the next leg up will be hopefully more opportunities.
I'd like to see more stock splits.
>> Okay.
>> Right?
>> Why is that?
Let me interrupt you for a second.
(37:14):
Why do you think stock splits is important?
>> You know, you look at, let's take a stock like Walmart, right?
>> Okay.
>> Right?
But you think about Walmart versus Amazon.
Well, why is Walmart not in the same category?
They're trying to catch up.
But more recently, Walmart did a three for one split.
So if you're a small investor and you wanted to own Walmart, but you're like, wait a minute,
(37:38):
to buy 100 shares, I need $18,000.
To get, and then thinking about from our space with the option market, to have 100 shares,
you can only trade one contract.
Well, they did a three for one split that brought that price from 180 down to $60.
Now you can buy 100 shares more realistically, or you can trade those contracts.
(38:01):
Now obviously I should preface that we're not making any recommendations or commentary
on any of these specific stocks, other than just using common tickers that people might
be familiar with.
>> Yeah, I mean, historically, when a stock rose above $80, the studies say it's time
to split, right?
(38:21):
And the reason why they want to split, it doesn't change the value of the company per se.
But if a company says, believes in themselves and says, we think our future potential is
great, that's where they're encouraged to do it.
And then on the back end, it helps the small investor feel like they're more involved with
the company by having the shares.
>> And it opens that accessibility.
(38:42):
Like you said, buying 100 shares of a $3,000 stock, isn't attainable for most people.
>> Correct.
>> Yeah, I get that, thank you.
So that's one trend that you see, potential stock splits on the horizon for more expensive
shares.
What else do you see coming up?
>> I'm using AI for myself.
(39:04):
As someone that is more and more in my career, less about necessarily about the trading and
more about the education, and presenting on the road and learning how to write better
and think more efficiently, I think that's going to be a big lift for our industry as
well.
>> Yeah, it was interesting to hear some of the panelists today and yesterday as well
(39:27):
talking about how they've been using AI for years and years in certain back end situations.
But bringing that to the forefront going forward, yeah, I think it's a very exciting time to
see how that might transpire.
>> Yeah, and just thinking about from when I started trading myself, when I was in my
(39:51):
early 20s, and you didn't have access to research, the markets, you weren't sure how big the
market was.
First it was good for 10 contracts maybe, and if you're trading 50 or 100 contracts,
you just didn't know what was going to happen.
To make a profit, the spreads were 50 cents wide if you're lucky.
(40:14):
So you're buying at a dollar and then you got to pay commission and all that kind of
stuff on top of it, and then you got to get to the other side of the spread to even consider
making a profit.
The concept of very low or free commissionless trades, they access to all the technology
to make sound decisions.
(40:37):
It's just I'm envious of the next generation that's coming in.
>> You wish that you had all these tools at your disposal, way back ones.
>> Definitely.
And as of late for me, I've been on the road presenting for the last several weeks and
talking about different strategies.
(40:59):
For us it's more about the market has done very well the last fall, but keep in mind
if you didn't own the Magnificent Seven and a couple of those extras, you had a good year,
but you didn't have a great year last year.
But let's say you did, and maybe you should consider putting on a call and discussing
(41:20):
with the clients, okay, you've done really well.
The stock has tripled in the last year.
These are big name companies that have real earnings behind them, but don't you want to
go to sleep tonight knowing.
>> Protect some of that investment.
>> Yeah, the downside.
And understanding that concept of, okay, if you sell a call above the market, the negative
(41:43):
of it is you're giving up some upside.
But if you're more inclined to have peace of mind to go to sleep tonight, you could
take that money of selling that call and buying that put protection below the market, right?
And if you can do it at little cost or maybe a slight credit, and let's say it's a company
(42:03):
that doesn't pay a dividend, well, now you've kind of created a little dividend stream,
and you've reduced your premium that you're paying and having that deductible in place.
>> Yeah, so you raise a good point bringing up some of these more intermediate strategies,
for example.
I consider a collar an intermediate strategy.
(42:25):
With that in mind, do you see a change in the level of sophistication of your clients
or of just investors in general today versus when you and I got started in the business?
>> Oh, 100%.
The concept of what is an option isn't even...
It's like, I know what an option is.
(42:46):
What is a derivative?
No problem.
And I still, even though people are far more understanding and more sophisticated than
most people in the back office understand, it's a matter of just still keeping it simple,
I think is key for the long-term success.
(43:10):
>> Okay.
>> Okay.
>> Let's shift gears for a second.
So we talked about opportunities in the market.
On the flip side, challenges.
What roadblocks do you see going forward?
AI, for example, there certainly may be issues with that.
The thing I know is huge on everybody's lips and there's certainly regulatory issues.
(43:33):
Do you see challenges going forward from a regulatory standpoint or a technology standpoint
or just the market in general?
What do you think about that?
>> There's always going to be ebbs and flows in regulation.
Things get tighter, then they loosen up, and people take advantage of it, and then it gets
(43:53):
tighter again.
It's always going to be part of the conversation.
My main theme that I see from my career is technology has been freeing.
It's leveled the playing field.
It used to be if you weren't on the trading floor, you didn't have that edge.
>> Right, certainly.
>> Right?
>> Which is the reason that the traders were paying those exorbitant seat prices.
(44:18):
>> Exactly.
But now, in the palm of your hand, you have so much data.
You can make your own decisions and have informed decisions.
Now, I would say with technology, a lot of people, there's technology information overload.
I think the skill comes into the fact that you've got to identify what is maybe your
(44:45):
five things that you want to focus on, and then you trade from there.
If you are looking at every indicator, you're going to confuse yourself.
If you figure out what works best for you and whatever industry or company it is, and
you focus on that, you're going to be far ahead of everybody else.
(45:06):
>> Okay, excellent.
Great information.
Always terrific to see you, so thanks for sharing your time.
>> Thank you, thank you.
It's always great to be here.
That's going to do it for today's episode of Wide World of Options.
Special thanks to today's guests, Kevin Davitt, Patty Schuler, and Gary Franklin, and to all
of our guests that took the time to sit down with us and share their insights on all things
(45:28):
options.
We'll be back next time with a whole new show featuring more industry names, market concepts,
and of course, trusted options education.
In the meantime, please be sure to visit the events section of our website, optionseducation.org,
and register for our upcoming events, and feel free to explore the rest of what OIC
(45:49):
has to offer while you're there.
Thanks again to all of our listeners and supporters, and as always, please feel free to send us
your questions via email at options@theocc.com or live chat with us on our website.
Take care, everyone, and we'll be talking with you again very soon.
>> You've been listening to the Options Industry Council's Wide World of Options.
(46:13):
If you have questions about anything you've heard on today's show, email options@theocc.com
or visit www.optionseducation.org and chat with OIC's investor education team.
Interested in connecting with OIC on social media?
Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
(46:34):
options.edu, and follow their page on LinkedIn.
Thanks for listening, and be sure to tune in to the next episode of Wide World of Options.
>> You're listening to the Options Insider Radio Network, the home of the Options podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
(47:01):
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
and Google Play stores.
>> These programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
(47:24):
Don't forget to follow along with your favorite programs and submit your own questions for
the hosts at twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
at theoptionsinsider.com.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(00:22):
and Google Play stores.
Most programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(00:52):
at theoptionsinsider.com.
This is the Options Industry Council's Wide World of Options.
Before we start today's show, listeners should know that options involve risk and are not
suitable for all investors.
(01:14):
Individuals should not enter into an options transaction until they have read and understood
the disclosure document, characteristics and risks of standardized options, available by
visiting theocc.com or by contacting your broker, any exchange on which options are traded,
or the Options Clearing Corporation at 125 South Franklin Street, No. 1200, Chicago,
(01:34):
Illinois 60606.
The Options Industry Council is an industry resource provided by the Options Clearing
Corporation, collectively OCC.
These strategies discussed are strictly for illustrative and educational purposes only,
and are not to be construed as an endorsement or solicitation to buy or sell securities.
Commissions, fees, margins, interest and taxes have not been included in any of the examples
(01:58):
used in this show.
These costs impact the outcome of all stock and options transactions.
Consult your tax advisor about any potential consequences.
OIC was created in 1992 to educate investors and their financial advisors about the benefits
and risks of exchange traded equity options, and the Wide World of Options radio show is
(02:18):
one of several resources investors can utilize to learn more about options.
Other resources OIC offers include webinars, articles and self-guided options related coursework.
For more information, check out www.optionseducation.org.
Now here's your host, Mark Benzoquin.
Hello everyone and welcome to OIC's Wide World of Options.
(02:47):
I'm your host, Mark Benzoquin.
For today's episode, we're going to finish up our conversations that we had with some
of the industry's biggest names at the recent Options Industry Conference in Asheville,
North Carolina.
And to close things out, we're going to listen in on visits that we had with education advocates
like Kevin David of the NASDAQ, Patty Schuler from the Box Exchange, and Gary Franklin from
(03:11):
Raymond James.
For those interested in our webinar program and what OIC has in store for September, we're
following up our summer sessions to talk about hedging, whether it be stock specific or general
market risk, by looking at two hedging strategies, the protective put and the options caller.
(03:31):
To register, please visit our optionseducation.org website and click on the events tab.
For our Wide World of Options podcast, however, we're excited to bring you the conclusion
of our extended Tales from the Road and the great conversations that we had about options.
We should note that as our guests are not affiliated with OIC or OCC, the opinions expressed
(03:56):
are their own and not those of OCC, nor do we endorse, warrant, or guarantee the products,
services, or information discussed by our guests.
And with that out of the way, let's get started by listening into a conversation that we recently
had with NASDAQ's Head of Index Options content, Kevin David.
(04:16):
I had the good fortune to catch up with Kevin and get his take on upcoming market trends,
the benefits of new exchanges, and the value of education.
Let's go ahead and listen in now.
All right, everyone.
Welcome.
Sitting down with me now is Kevin David representing the NASDAQ.
Kevin is the Head of Index Options content.
(04:39):
A little bit of history on Kevin, kind of a this is your life.
Kevin started on the floor of the SIBO in 1999 as a market maker.
He worked his way around the industry and joined CBOE in 2015 to help lead CBOE's Options
Institute.
Kevin, you then joined NASDAQ in 2022 as the Head of Index Options content.
(05:02):
And with that in mind and considering you've experienced options from both sides of the
coin meeting as a market maker and as an exchange rep, let me ask you this.
What do you see as the most significant trends in the industry today?
All right.
Well, first of all, Mark, thank you very much for having me on to discuss things like this,
(05:23):
which I think we both believe are important.
Very much so.
Yes.
Thank you.
And thank you for that kind introduction.
So trends that I believe are sort of shaping our industry right now, to a certain extent,
depends on where you're coming from.
And to your point earlier about that, I've been exposed to this business from both sides,
(05:44):
the market making liquidity providing side and now the exchange side.
I think I look at it through both lenses.
So my response would be from a big picture standpoint, and I expect this is something
that my friend and old colleague Henry Schwartz will focus on in the state of the industry
(06:04):
later, is the move, the appetite for shorter maturities for shorter duration options.
Now I think that has taken some people by surprise.
Those have introduced essentially daily options, options that expire every day that the market's
(06:25):
open.
Now, just to be clear, these options are not listed day of and expire day of.
They are listed five or six weeks in advance.
And at some point that becomes their day of expiration.
What we're talking about is the concentration of volume in these short dated options.
What it reminds me of big picture, again, the benefits of being in this industry for
(06:49):
a long time, is 2006 and 2010 when in 2006 index options, weekly index options were rolled
out.
And then in 2010, when the industry broadened that to include some of the most actively
traded ETFs and listed non-standard.
So we're talking about weeklies being Friday expiries.
(07:10):
What we've seen is an evolution, I think a natural evolution of that over the past handful
of years.
And the reaction has been positive.
I personally don't believe that that's an issue.
There has been considerable attention on the concentration of volume in these options.
(07:30):
I think that people understand that they behave somewhat differently than a longer dated option.
But the marketplace is finding ways to use these systematically in strategies as well
as retail, finding ways to really customize their exposure, whether that's based on event
(07:50):
risks like we're down here in Asheville.
And this week there will be another Fed meeting and interest rates have been such a driver
of positioning over the past couple of years, understandably.
And so the ability to customize your risk over shorter timeframes matters.
And that is certainly a trend that I expect will continue to shape our business beyond
(08:10):
that more from the liquidity providing the market making side, the breadth of product
and the number of strikes and the data that that requires to process and move around is
something that I think the industry, the liquidity provider side has expressed some issues with.
(08:31):
But so long as we're seeing activity in strikes, I think that's perfectly fine.
And the speed at which technology can improve and handle this stuff continues to be important.
Then the one other thing that comes to mind is that the demographic of newer options users
(08:53):
from what we know is skewing younger.
Typically that means they have a smaller wallet size than say somebody our age, mid 40s plus.
Oh, I love you for thinking I'm mid 40s.
You're welcome.
I said mid 40s plus.
I'm leaving the plus part off.
So historically, it was more people at our point in life that were starting to use derivative
(09:20):
products and now capital markets are being embraced by 20 somethings and even younger.
And that is interesting.
So one response to that has been growth in micro or mini products, which affords smaller
notional exposure.
And that's something we could talk about.
(09:41):
But I know you have done from an education standpoint a great deal there.
And then this is broader sort of capital markets and industry talk.
But the ability for these younger people to get exposure with partial shares.
I know that's more on the equity side, but it's excellent because there's nothing better
(10:03):
than getting getting started and learning from experience.
I think there is a very, very big important difference between theoretical application
and thinking I understand the sort of science behind calls and puts and then seeing it applied
practically and managing that with some emotional component, then it becomes very real.
(10:27):
And so I love the fact that you don't need many thousands of dollars to get started now.
Well, and you bring up so you bring up several interesting points, I think, you know, talking
about this new investor, right, this younger demographic, they've got less dollars to invest,
you know, you were part of the CBOE's options institute, where does education come in for
(10:50):
these people that are, you know, plunking down their hard earned dollars and not actually
understanding the mechanics of investing with options, you know, where do you see that standpoint
of education for them?
So my position would be that we're painting with a broad brush.
And I think it's a careful one because there is genuine risk in any area of the market.
(11:15):
And people need to understand that to say that they're assuming, I think we're extrapolating
from events of a couple of years ago and some vocal, very online types, right?
The meme stocks about the degree of risk that the average new market participant is taking
(11:37):
out.
No, okay.
So those have made headlines to say that that's representative of the growth and broader demographic
shifts that we've seen over the past few years, I think could be specious.
And I say that for a couple of reasons.
One, the growth that we've seen from just a pure volume standpoint has been sticky.
(12:03):
And in my experience, if you talk about any consumer market, if you have a bad experience
or a couple bad experiences, chances are you don't continue to give them business.
Right, correct.
And so we have not seen a drop off from 2021 or 2022, some period over the past four or
(12:26):
five years, where that real significant volume growth started.
Now, to the point on education, I am skewed by my age in this conversation.
And it is so available that I think to make an argument that you are not informed just
(12:50):
shows a willful ignorance to a certain extent.
Because if we talk about joining this business 25 years ago, and the only exposure I had
at that point in time was very limited and in an academic setting.
And then I learned in the real world, like I kind of assume was the case for you.
(13:11):
And the real world will teach you quickly.
But the availability of an updated OIC educational tools, the availability at the brokerage level,
no matter your account size, these tools to understand what I consider the science of
options markets, what calls and puts are how they are designed to work, what those inputs
(13:37):
are what are influencing changes in the market, that is readily available to not avail yourself
of it and assume risk.
Maybe I'm a little cavalier here, but but that's on the end user.
Absolutely.
So we have it readily available.
And I think it is meeting new investors where they're at, meaning we have reshaped the way
(14:01):
that we message about these tools with a younger demographic in mind.
And so I am absolutely apprehensive to paint this as younger people assuming greater risks
and and being cavalier.
I say that because we have seen sticky volumes.
And I think that continues to be the case across demographics.
(14:24):
And you simply don't continue to use something if there is not some real or perceived benefit.
Interesting.
Another point is that uncertainty is embedded in this business.
And people by nature are risk averse.
So you can misconstrue something not working out from a P&L standpoint.
(14:50):
And if you're not learning from that, then that's kind of on you.
I'm talking about the availability of resources.
If I think about how much I didn't understand at 20 or 25.
And I continue to stress the point that I'm so much more comfortable talking about what
(15:11):
I don't know these days than before.
And that's empowering.
So I understand the especially given the feedback that you get.
But I would argue that our industry has done exceptionally well at making the education
available.
Well, Kevin D'Avit from the NASDAQ, head of Indexed Options Content.
(15:35):
I really appreciate you sitting down with us and talking.
Thank you so much.
Thank you for having me.
I loved it, Mark.
Thank you.
All right.
Thank you, Kevin.
And we're back.
We're back for taking the time to sit down with us and for the always great conversation.
Next up, we'll hear from another exchange rep and another close friend of OIC.
(15:55):
This time, Patty Schuler from the Box Exchange.
Patty and I took some time to talk about recent record volume, market and exchange innovation
in the unique experience of being a woman on a trading floor.
Let's go ahead and listen in.
All right, everybody.
We are back and joining me now is Patty Schuler of Box Options Market, where she is a senior
(16:19):
vice president of business development.
Patty got started back on the floor of the CBOE back in 1986.
She moved into the clearing side a little bit later, started with CBOE as a director
of business development in 2004.
And then she transitioned to the Box Options Market back in 2011, like I said, where she
(16:40):
is now currently a senior vice president of business development.
Patty, I really appreciate you taking the time to sit with us today.
Thank you.
Well, thank you very much for having me.
I appreciate it.
Yeah, very good to see you.
Let me ask you, some of the panels that we've been listening to today and yesterday were
focused on options volume.
(17:02):
Obviously, the explosion of options volume over the last decade or so and significantly
record trading volume over the last couple of years.
So more people are turning to options.
And my question to you, to get your opinion as somebody from the exchange side is, what
do you think that what is the impetus for this new levels of volume?
(17:28):
What is attracting people to the market?
There's a few things.
And I think first and foremost is education.
Okay.
And when I first started in this industry, the only way to really learn about options
was to go down to the trading floor, have a broker or a market maker teach you the basics.
(17:49):
And you kind of were trial by fire, essentially at that point in time.
As nowadays, individuals have the ability to utilize their clients or their firms tools
for education.
They have real time access to graphs, volumes, being able to see what the markets are doing.
(18:16):
The best resource in my opinion is the options industry council.
They've been around for 30 plus years.
I've had the privilege of being on the OIC roundtable for my tenure at Box.
And I've just seen the huge amount of outreach in terms of getting the public educated on
(18:42):
options and being able to trade the product responsibly.
And that to me is having the tools at your fingertips nowadays is tantamount in terms
of the growth, the understanding and the ability to trade responsibly.
Right.
So there's certainly more educational outlets out there for people to avail themselves of
(19:06):
to learn about what they're doing, hopefully before they're actually doing it.
But also the accessibility of the markets.
People as you had mentioned, the technology, I remember back in the day you used to see
stock quotes in the newspaper.
Now obviously you can check out whatever you want on your phone.
So you think the markets are certainly more accessible nowadays.
(19:28):
Yeah, the ability to get an instantaneous fill versus when I first started on the floor,
your turnaround time was an hour on a good day.
You'd send an order down, they'd get phoned to the floor, written up, handwritten.
You're sourcing liquidity from the market makers in the crowd and then you're getting
(19:52):
your fill back.
Plus, I will say that nowadays investors can trade with zero commissions back then.
It cost you.
It was significant, right?
It was significant, but spreads were greater than.
We traded in fractions.
(20:12):
Right.
And the tightest market could be what, a teeny?
So six and a quarter cents.
Yeah.
Yeah.
So and your commission could be $5.
Yeah, and it's funny that you mentioned the fractions.
I remember, I started on the floor in '97, took me a while to start to grasp adding and
subtracting those teenies.
(20:37):
And then shortly thereafter the news was that we were going to decimalization.
Yeah, that was a big change.
Yeah, not only a big change, but I felt like, boy, I just wasted all my time and effort
learning how to add three sixteenths and one and three quarters or whatever that made.
Well, the real fun part in the early days was being able to do hand signals.
(20:57):
Right.
So everything you did was hand signals.
You're buying, you're selling, eighth quarter, three A's, staff.
I remember the OEX back in the day, for example, was the largest trading pit I've ever seen.
Four hundred plus market makers in there, support staff, et cetera.
(21:18):
So to speak to one of them on the other side to confirm a trade, yeah, you absolutely have
to do all the hand signals.
Yeah.
Out trades back then were just a dime a dozen.
Now in the electronic world, out trades are nonexistent for the most part.
Yeah, that's a good point.
So speaking of that, with the new technology, it certainly streamlined everything.
(21:45):
In addition to technology, do you see other significant trends in the industry, something
that will boost growth or maybe make the markets more accessible to the public?
Yeah.
From the exchange standpoint, the main area that we've been focused on over the last year
and a half, two years, and we had looked at this previously in years past, is flex.
(22:10):
Okay.
So we noticed a significant uptick in flex options trading over the last several years
from-
And for those of you that aren't familiar with flex trading, it's basically just a customized
option contract.
You can select your exact strike price, whether the settlement is going to be AM or PM based,
(22:31):
et cetera.
Exactly.
So we've seen a lot more of that.
In fact, from 2022 to 2023, volume has essentially doubled in flex.
So we had started our efforts back then from a technology development standpoint at the
exchange, as well as writing the rules.
There hadn't been a flex rule approval in a very long time.
(22:57):
Okay.
Excellent.
So we're looking forward to launching flex.
Obviously, there's been a lot of talk about the ETFs, all the new ETFs in the marketplace
and investors being able to trade those products.
The other trend that we've seen is obviously the move to shorter dated options, the weeklies,
(23:21):
and now there's talks of potentially dailies moving into the listed names.
Right.
Right.
So that's another area.
I think there's challenges there, but it's something that everybody's looking at and
we've always been able to work through the challenges.
So I think that's something to look at as we move forward in our space.
(23:47):
I was interested, Henry Schwartz, who I know you know, a good friend of yours, Henry gave
a presentation yesterday, the state of the market that everybody looks forward to.
And speaking of ETFs, the growth over the last several years in ETFs was really, really
remarkable.
(24:07):
And at the round table meeting that we had the other day, he said something that didn't
really click before he had mentioned it, but some of these ETFs, for investors that maybe
don't want to trade options or maybe don't have the approval to trade options, some of
these ETFs actually act like an option itself.
Yeah.
(24:28):
And that's another way for them to be able to trade and get their feet wet.
Right.
More accessibility.
Yep.
Yeah.
Interesting.
Exactly.
So back with technology from an exchange standpoint, how does that drive innovation, do you think?
So from an exchange standpoint, technology plays a huge role.
(24:48):
Certainly.
Huge role in innovation, especially for us.
We talk to our clients all the time, so we are always asking them, hey, how can we do
things better?
How can we make, introduce a new product or optimize what we've currently got going on?
(25:11):
We tend to do what I'll call superficial refresh of our matching engine and the network and
the technology in the background.
Three, five years.
So and even sooner on some certain segments.
(25:32):
So that allows us to be able to manage risk in a better way for our participants.
Market makers need that risk management tools that the exchange has so that they can get
out of the way in case of some market event.
(25:54):
There's a lot of geopolitical tensions.
Absolutely.
Huge market moves on single names.
From a tech standpoint, if you can't handle that, you're not going to be in business much
longer.
Right.
And we've been able to, in a testament to our industry overall, not just box, but all
(26:16):
exchanges in the clearinghouse, we're all moving into better technology, better ways
of doing our business, and it's only going to get better and bigger, in my opinion.
Okay.
And so getting better and bigger, that also applies to trading platforms.
(26:39):
How do you think that the evolution of trading platforms, again, it used to be you would
call your broker on your phone and you'd ask for a market, and as you had mentioned, it
may be 15 minutes or maybe a couple hours before you know if you're filled.
Now it's instant in the palm of your hand on your cell phone.
Obviously that's had an impact on market participants.
(27:03):
It also, again, goes back to making things more accessible.
Yeah.
So tremendous uptick.
Yeah, right.
The evolution.
Night and day.
100% in the evolution of the technology, you know, the process was, as you, we both mentioned
and are familiar with, was handwritten.
(27:25):
Things were not done electronically.
And I remember being on the floor of the CBOE, we were the first floor to have a handheld.
Not every market maker or trader had a handheld, and I at the time was doing stock layoff for
my firm, and that was, I was the clerk in the crowd for 10 market makers, and they needed
(27:51):
to lay off their stock.
And that used to be a phone call down to the New York Stock Exchange or NASDAQ, whatever
the market was.
The handheld came out and I said, I want one of those.
I want one of those because then I can more efficiently manage these customers' stock
(28:11):
orders, be able to get them into a system more efficiently in an execution back than
it was a game changer from that point on.
Yeah, certainly.
Things just magnified.
And you know, from the standpoint that when we do technology changes or when we look at
(28:33):
technology, we look at it, how is it going to impact the future?
We don't really do so much.
It's the future growth is where we're generally going towards in terms of technology or new
product such as flex, you know, that's coming in the market for us.
(28:59):
That was a super fun build, going through it and learning about it and hadn't really
been involved in flex previously.
So it is a learning experience for me also.
And you know, I think that just makes you more valuable.
Certainly.
Your team, your exchange and your clients where you can give them the knowledge that
(29:22):
maybe they don't have either.
Right, right.
Okay, that sounds great.
Yeah, Patty, that's excellent.
Thank you.
Here's something that just popped into my head and I hope it's okay that I ask this.
1986, you started on the floor of the CBOE.
I started a decade later, but even a decade later when I started, there were very few
(29:46):
women on the floor and the women that were on the floor at that time were more of a support
staff.
Vote reporters, clerks, runners, things like that, very few traders.
You started 10 years before that, so I would imagine it was even more skewed back then.
(30:07):
If you don't mind my asking, what was your experience like?
Obviously, you know, even as a man on the training floor, you've got to have thick skin.
You know, you can't let things get to you.
As a woman, how did you deal with that every day?
Waking up every morning and thinking, oh my gosh, what am I getting myself into today?
Yeah, that is so when I started on the trading floor, you were right, there was very few
(30:32):
women.
I started off as a runner, went to the phone clerk, went to the crowd clerk, then became
a floor manager, all in a very short timeframe.
Obviously, you have to have thick skin to being down there.
And you know, there were times where I felt like I was discriminated against.
(30:57):
It wasn't easy.
The traders would, you know, get in your face.
Like they had no qualms about yelling at you in your face.
And sometimes, yeah, a little scary, but you know, you have to hold your own.
You had to stand there, take it, and then figure out how to deal with it after the fact.
(31:19):
I will say that I had a very good mentor who was a woman at the time, and she was in a
senior position of leadership when I was at First Options of Chicago.
And she really helped me to get through some of those tough times and to not be afraid
to ask for a better or higher position.
(31:48):
And I'll never forget, you know, how she would just mentor me and give me the confidence
to do what I could do.
And it's just led me to where I am today and what I'm doing at my current role.
I have a huge wealth of knowledge.
(32:09):
Like I always wanted to learn about every little aspect of options trading, not just
to trade the product, but clearing is also a big behind the scenes effort.
And if you don't have that knowledge base, you know, you're kind of, you're at a disadvantage.
(32:30):
Certainly, you're right.
So, yeah, we, I, I mean, now that I've been in the market, I'm not going to be able to
tell you that there's a lot more women in the business, but it's still, I'm always looking
to make sure that we have enough of those roles that either a man or a woman could fill.
Right, certainly.
And not be discriminated against.
(32:51):
Right.
And then also just not only the culture of the industry, but just the culture of, you
know, being in the, you know, a new millennium, you know, 2020 plus.
A lot of swearing.
Right.
A lot of,
a lot of misogyny.
Yeah.
I, I've never heard so much disgusting stories in my whole life.
(33:11):
You know, they had no qualms about saying things.
None whatsoever.
That they were talking with all their buddies about.
Right.
And the fact that a woman was standing next to them completely irrelevant.
If she doesn't want to hear it, she shouldn't be here.
That was the attitude.
Yeah.
There was no HR policy back then.
Oh, gosh.
At all in terms of anything.
Yeah.
So yeah, you had to stand there and listen to it or take it.
(33:33):
You know, there were plenty of times where I would get upset and have to walk off and
maybe cry in the women's bathroom down there and then come back up.
But you came back up.
Yeah.
Came back up.
Yeah.
And yeah, that's the important thing.
So.
Excellent.
I appreciate you sharing that with me.
Thank you.
(33:54):
Thank you, Patty, for that terrific discussion and for sharing your personal story.
And now to close things out, let's listen in on our talk with Gary Franklin, Vice President
and Head of Options Trading and Strategy at Raymond James, where he's been for more than
30 years.
Let's go ahead and listen in on what Gary has to say.
All right, everyone.
(34:14):
Thank you for joining us again.
I have the extreme fortune to sit down with Gary Franklin of Raymond James.
Gary is the VP and Head of Options Trading and Strategy at Raymond James, where he's
been for 33 plus years.
He's also a former OIC Roundtable member, member of the CBOE Retail Advisory Committee, and
(34:39):
a member of CIFMA Listed Options Trading Committee.
So Gary, obviously you've been around the industry for decades.
You've seen a lot of different comings and goings.
Certainly recent trading volume is something that we haven't seen before.
We're trading volume of 11 and change billion contracts a year exchanging hands.
(35:02):
So let me ask you this with the obvious upswing in trading volume, to what do you attribute
that increase?
In other words, why are people turning to options?
So, you know, from my seat, I see that we're at new levels, right?
Looking through COVID, we saw that people had more time, even though they were supposed
(35:28):
to be working.
And they most likely were.
We'll just go with that.
But they discovered that the technology was at their fingertips, right?
So they had the ability to decide what they wanted to do and were educated in the strategies
that were available.
And I think that's really what's pushed the growth from the pure retail side.
(35:52):
Now from the brokerage side, we've seen a massive growth in the asset management side
of the business.
They have a call writing programs.
Our parents, they need income.
They're in retirement.
Well, what better way to do it than overlaying options in their portfolio?
(36:13):
They can add another three, four, maybe five, six percent and potentially reduce their risk
as well.
So that's, we've seen dramatic growth within my firm.
>> Okay.
So people are turning to options, you think, because of the variety of products, the, you
know, what options, you know, helpless do in terms of objectives.
(36:33):
You know, you had mentioned income, you know, capturing that premium income.
And then technology.
I completely agree.
The markets seem to be much more accessible now than they ever have been before.
So with that in mind, what do you see going forward?
Significant trends, opportunities in the business, et cetera?
(36:54):
>> You know, for me, I think we were probably going to plateau a little bit, but plateau
with these amazing levels.
And then the next leg up will be hopefully more opportunities.
I'd like to see more stock splits.
>> Okay.
>> Right?
>> Why is that?
Let me interrupt you for a second.
(37:14):
Why do you think stock splits is important?
>> You know, you look at, let's take a stock like Walmart, right?
>> Okay.
>> Right?
But you think about Walmart versus Amazon.
Well, why is Walmart not in the same category?
They're trying to catch up.
But more recently, Walmart did a three for one split.
So if you're a small investor and you wanted to own Walmart, but you're like, wait a minute,
(37:38):
to buy 100 shares, I need $18,000.
To get, and then thinking about from our space with the option market, to have 100 shares,
you can only trade one contract.
Well, they did a three for one split that brought that price from 180 down to $60.
Now you can buy 100 shares more realistically, or you can trade those contracts.
(38:01):
Now obviously I should preface that we're not making any recommendations or commentary
on any of these specific stocks, other than just using common tickers that people might
be familiar with.
>> Yeah, I mean, historically, when a stock rose above $80, the studies say it's time
to split, right?
(38:21):
And the reason why they want to split, it doesn't change the value of the company per se.
But if a company says, believes in themselves and says, we think our future potential is
great, that's where they're encouraged to do it.
And then on the back end, it helps the small investor feel like they're more involved with
the company by having the shares.
>> And it opens that accessibility.
(38:42):
Like you said, buying 100 shares of a $3,000 stock, isn't attainable for most people.
>> Correct.
>> Yeah, I get that, thank you.
So that's one trend that you see, potential stock splits on the horizon for more expensive
shares.
What else do you see coming up?
>> I'm using AI for myself.
(39:04):
As someone that is more and more in my career, less about necessarily about the trading and
more about the education, and presenting on the road and learning how to write better
and think more efficiently, I think that's going to be a big lift for our industry as
well.
>> Yeah, it was interesting to hear some of the panelists today and yesterday as well
(39:27):
talking about how they've been using AI for years and years in certain back end situations.
But bringing that to the forefront going forward, yeah, I think it's a very exciting time to
see how that might transpire.
>> Yeah, and just thinking about from when I started trading myself, when I was in my
(39:51):
early 20s, and you didn't have access to research, the markets, you weren't sure how big the
market was.
First it was good for 10 contracts maybe, and if you're trading 50 or 100 contracts,
you just didn't know what was going to happen.
To make a profit, the spreads were 50 cents wide if you're lucky.
(40:14):
So you're buying at a dollar and then you got to pay commission and all that kind of
stuff on top of it, and then you got to get to the other side of the spread to even consider
making a profit.
The concept of very low or free commissionless trades, they access to all the technology
to make sound decisions.
(40:37):
It's just I'm envious of the next generation that's coming in.
>> You wish that you had all these tools at your disposal, way back ones.
>> Definitely.
And as of late for me, I've been on the road presenting for the last several weeks and
talking about different strategies.
(40:59):
For us it's more about the market has done very well the last fall, but keep in mind
if you didn't own the Magnificent Seven and a couple of those extras, you had a good year,
but you didn't have a great year last year.
But let's say you did, and maybe you should consider putting on a call and discussing
(41:20):
with the clients, okay, you've done really well.
The stock has tripled in the last year.
These are big name companies that have real earnings behind them, but don't you want to
go to sleep tonight knowing.
>> Protect some of that investment.
>> Yeah, the downside.
And understanding that concept of, okay, if you sell a call above the market, the negative
(41:43):
of it is you're giving up some upside.
But if you're more inclined to have peace of mind to go to sleep tonight, you could
take that money of selling that call and buying that put protection below the market, right?
And if you can do it at little cost or maybe a slight credit, and let's say it's a company
(42:03):
that doesn't pay a dividend, well, now you've kind of created a little dividend stream,
and you've reduced your premium that you're paying and having that deductible in place.
>> Yeah, so you raise a good point bringing up some of these more intermediate strategies,
for example.
I consider a collar an intermediate strategy.
(42:25):
With that in mind, do you see a change in the level of sophistication of your clients
or of just investors in general today versus when you and I got started in the business?
>> Oh, 100%.
The concept of what is an option isn't even...
It's like, I know what an option is.
(42:46):
What is a derivative?
No problem.
And I still, even though people are far more understanding and more sophisticated than
most people in the back office understand, it's a matter of just still keeping it simple,
I think is key for the long-term success.
(43:10):
>> Okay.
>> Okay.
>> Let's shift gears for a second.
So we talked about opportunities in the market.
On the flip side, challenges.
What roadblocks do you see going forward?
AI, for example, there certainly may be issues with that.
The thing I know is huge on everybody's lips and there's certainly regulatory issues.
(43:33):
Do you see challenges going forward from a regulatory standpoint or a technology standpoint
or just the market in general?
What do you think about that?
>> There's always going to be ebbs and flows in regulation.
Things get tighter, then they loosen up, and people take advantage of it, and then it gets
(43:53):
tighter again.
It's always going to be part of the conversation.
My main theme that I see from my career is technology has been freeing.
It's leveled the playing field.
It used to be if you weren't on the trading floor, you didn't have that edge.
>> Right, certainly.
>> Right?
>> Which is the reason that the traders were paying those exorbitant seat prices.
(44:18):
>> Exactly.
But now, in the palm of your hand, you have so much data.
You can make your own decisions and have informed decisions.
Now, I would say with technology, a lot of people, there's technology information overload.
I think the skill comes into the fact that you've got to identify what is maybe your
(44:45):
five things that you want to focus on, and then you trade from there.
If you are looking at every indicator, you're going to confuse yourself.
If you figure out what works best for you and whatever industry or company it is, and
you focus on that, you're going to be far ahead of everybody else.
(45:06):
>> Okay, excellent.
Great information.
Always terrific to see you, so thanks for sharing your time.
>> Thank you, thank you.
It's always great to be here.
That's going to do it for today's episode of Wide World of Options.
Special thanks to today's guests, Kevin Davitt, Patty Schuler, and Gary Franklin, and to all
of our guests that took the time to sit down with us and share their insights on all things
(45:28):
options.
We'll be back next time with a whole new show featuring more industry names, market concepts,
and of course, trusted options education.
In the meantime, please be sure to visit the events section of our website, optionseducation.org,
and register for our upcoming events, and feel free to explore the rest of what OIC
(45:49):
has to offer while you're there.
Thanks again to all of our listeners and supporters, and as always, please feel free to send us
your questions via email at options@theocc.com or live chat with us on our website.
Take care, everyone, and we'll be talking with you again very soon.
>> You've been listening to the Options Industry Council's Wide World of Options.
(46:13):
If you have questions about anything you've heard on today's show, email options@theocc.com
or visit www.optionseducation.org and chat with OIC's investor education team.
Interested in connecting with OIC on social media?
Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
(46:34):
options.edu, and follow their page on LinkedIn.
Thanks for listening, and be sure to tune in to the next episode of Wide World of Options.
>> You're listening to the Options Insider Radio Network, the home of the Options podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
(47:01):
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
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>> These programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
(47:24):
Don't forget to follow along with your favorite programs and submit your own questions for
the hosts at twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
at theoptionsinsider.com.
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