The use of options by financial advisors is on the rise and the most commonly used options trading strategy is the covered call, according to a new study from The Options Industry Council (OIC).
Nearly half of financial advisors used options in the last year for their clients, and more than a third of financial advisors who use options increased their use of the product over the past few years, according to the study.
Financial advisors use options primarily for income generation and for hedging portfolios in response to market conditions, and they typically do so at the request of their clients.
The most commonly used option strategy is the covered call, where the investor owns a stock or exchange-trade fund and sells a call option against it to generate income. This strategy was implemented by 69% of the Financial Advisors who use options.
Nearly 60% of the FAs that use options use the product to hedge an existing portfolio. A little less than half the FAs said they used options to speculate.
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The Financial Advisor Benchmark Study was conducted by Bellomy Research and included interviews with more than 600 financial advisors nationwide. The study was released in conjunction with the start of the 29th Annual Options Industry Conference that began yesterday in Savannah, Ga.
Bellomy reports that advisors with larger books of business are significantly more likely to use options than those with smaller books. On the top end, 94% of advisors with $500 million or more under managements said they had bought or sold options in the preceding 12 months.
Of FAs with $100 million to $500 million under management, 78% had used options while about half the advisors with $50 million to $100 million under management had used options.
OIC is an industry cooperative funded by BATS Options, Boston Options Exchange, Chicago Board Options Exchange (NASDAQ: CBOE), International Securities Exchange, the NASDAQ OMX PHLX and NASDAQ Options Market divisions of the NASDAQ OMX Group (NASDAQ: NDAQ), the NYSE Amex Options and NYSE Arca Options divisions of the NYSE Euronext (NYSE: NYX), and The Options Clearing Corporation.
