I realize that eventually the floor will shut down but I don't think its going to happen overnight.......it will take a decade or two to fully shut down the whole floor opporations. I talked with a women at liffe one time and she told me that in her opinion liffe really stunted its growth by going fully electronic (especially in their options markets). She said that they probably are only tapping into 30% of the volume they could be doing in options if they had an open outcry environment. In her opinion she said that options will be floor based for many years to come.
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Who has floor experience?
- Thread starter youngtrader
- Start date
I realize that eventually the floor will shut down but I don't think its going to happen overnight.......it will take a decade or two to fully shut down the whole floor opporations. I talked with a women at liffe one time and she told me that in her opinion liffe really stunted its growth by going fully electronic (especially in their options markets). She said that they probably are only tapping into 30% of the volume they could be doing in options if they had an open outcry environment. In her opinion she said that options will be floor based for many years to come.
Quote from youngtrader:
I realize that eventually the floor will shut down but I don't think its going to happen overnight.......it will take a decade or two to fully shut down the whole floor opporations. I talked with a women at liffe one time and she told me that in her opinion liffe really stunted its growth by going fully electronic (especially in their options markets). She said that they probably are only tapping into 30% of the volume they could be doing in options if they had an open outcry environment. In her opinion she said that options will be floor based for many years to come.
No offense but you're expereince to speculate on when or if or how the total transformation will take place is not all that relavant. I didnt say it would happen over night.
The business of exchanges is to put up as many contracts per session as possible, thats how the exchange gets paid. If they were missing out on 70% of the potential volume they could save themselves a fortune in expenses by going to old technology open outcry. Sorry but thats just not the case.
Look in the US at which equity options exchange is the volume leader, its the ISE with NO floor.
Thereâs actually a sound fundamental reason that futures option pits continue to thrive, and it goes beyond any political considerations or pressure by members. It has to do with the different style of trading in options on futures, which the electronic still has not adapted to.
Howâs that? In 1974 (I think) when options on stock began trading, it was difficult to execute an order in the stock to hedge options. The options traded in Chicago, the stock in New York, and electronic communications werenât what they are today. There were also barriers to shorting stock, such as the uptick rule and sometimes difficulty borrowing shares.
As a result, an âoptions-onlyâ style of trading developed, with strategies such as butterflies, back spreads, iron condors etc. Hedging against the underlying was usually not part of the game.
When options on futures began trading in 1982, the reality was completely different. The futures pit was always right next to the options pit, and it was the easiest thing in the world for an options trader to buy or sell any amount of the underlying in the blink of an eye. This reality bred a completely different style of trading, and ICâs, butterflies and the other ânamedâ option-only spreads were rarely mentioned. If you heard someone talking about âbackspreads,â on the CBOT floor, you could be sure he had come from the CBOE across the street.
Delta-neutral spread orders that came in were usually unique, custom spreads with many legs. There was always a back-and-forth negotiation that took place before any trade was done. Iâm sure thatâs true today â especially in Eurodollar options.
There is still no electronic technology that can replace that back-and-forth conversation/negotiation that gets a complex custom spread done. Yes, there is an RFQ (request for quote) system. Iâve tried to use it, but itâs clumsy and ponderous and doesnât begin to replace talking directly to a broker in the pit who is standing right next to the locals.
So yes, technology marches on and the pits wonât last forever. But until a nimble, convenient system comes along that allows easy back-and-forth communications between potential counterparties contemplating a complex spread transaction, the options on futures pits will continue to have a place.
Howâs that? In 1974 (I think) when options on stock began trading, it was difficult to execute an order in the stock to hedge options. The options traded in Chicago, the stock in New York, and electronic communications werenât what they are today. There were also barriers to shorting stock, such as the uptick rule and sometimes difficulty borrowing shares.
As a result, an âoptions-onlyâ style of trading developed, with strategies such as butterflies, back spreads, iron condors etc. Hedging against the underlying was usually not part of the game.
When options on futures began trading in 1982, the reality was completely different. The futures pit was always right next to the options pit, and it was the easiest thing in the world for an options trader to buy or sell any amount of the underlying in the blink of an eye. This reality bred a completely different style of trading, and ICâs, butterflies and the other ânamedâ option-only spreads were rarely mentioned. If you heard someone talking about âbackspreads,â on the CBOT floor, you could be sure he had come from the CBOE across the street.
Delta-neutral spread orders that came in were usually unique, custom spreads with many legs. There was always a back-and-forth negotiation that took place before any trade was done. Iâm sure thatâs true today â especially in Eurodollar options.
There is still no electronic technology that can replace that back-and-forth conversation/negotiation that gets a complex custom spread done. Yes, there is an RFQ (request for quote) system. Iâve tried to use it, but itâs clumsy and ponderous and doesnât begin to replace talking directly to a broker in the pit who is standing right next to the locals.
So yes, technology marches on and the pits wonât last forever. But until a nimble, convenient system comes along that allows easy back-and-forth communications between potential counterparties contemplating a complex spread transaction, the options on futures pits will continue to have a place.
dmo
very nice post
please check your pm
very nice post
please check your pm