NEW YORK — The online options trading arena is rapidly expanding, as the cost to trade such investments has fallen significantly.
Chicago-based Options-House Inc., a flat-rate online options trading firm launched last month, will provide optionsXpress Inc. with some competition in the Windy City.
OptionsHouse, a subsidiary of Peak6 Investments LP, offers option and stock trades for $9.95 each — without charging extra for additional units — and provides clients with an array of tools to meet their trading needs.
“There has been a tremendous growth in options trading, and we see that continuing,” said John Hass, the co-chief executive of Options-House and a former partner at The
Goldman Sachs Group Inc. in New York. “The amount of information available is incredible, and it will continue to grow.”
Its established rival, optionsXpress Holdings Inc., was launched in 2001 and has 205,000 accounts, charging $14.95 a trade and $1.50 a contract starting with 10.
“We run a very profitable business that focuses on building a great product and helping investors be better at using options and stock products,” said David Kalt, chief executive of optionsXpress. “We have found many unique ways to add value and give our customers a better [investing] opportunity.”
“Our success is a byproduct of the attention we have given to the product,” Mr. Kalt added.
The company continued to grow last month when it acquired Chicago-based XpressTrade LLC, a futures and foreign exchange broker with 8,000 accounts, for about $37 million.
Big increases
The Options Clearing Corp. in Chicago, said the total annual options contract volume increased 35% last year to 2.03 billion, from 1.5 billion in 2005, and has surged 225%, from 907.8 million contracts in 2003.
Only 5% to 10% of financial advisers have ever used options, even for their own accounts, according to James Bittman, director of program development at the Chicago Board Options Exchange’s options institute.
“I believe that this [5% to 10%] number is higher than several years ago, because of competition from traditional brokers moving into
financial planning and because managements of the larger
financial planning firms have in-creased options-trading capabilities,” Mr. Bittman said. “I believe that the future trend of financial advisers using options is one of slow to moderate growth. As more and more financial advisers become aware of options, they will use them.”
Pricing less of an issue
“Prices have come down to where it is not a huge issue,” Mr. Hass said. “From the broker side, you have to be competitive, and price becomes a little more important. Brokerages have to be more sensitive to price, and trading frequency has increased.”
Stephen M. Horan, head of private wealth at the CFA Institute in Charlottesville, Va., said that the falling cost of trading options is giving advisers a hedging tool.
“Options are a small part of an adviser’s portfolio, but it is a growing part,” said Mr. Horan, a chartered financial analyst. “It is growing because the costs are going down dramatically and the trading platforms are growing. The open outcry system of trading is clearly languishing as a result.”
