The Options Clearing Corporation, which collates the volumes on all the US options exchanges, said that a new daily record was set on July 26 when 21.3m contracts were cleared. Figures for last week are expected to be even higher.
In Europe, combined volumes on Liffe and Eurex, the continent’s two main derivatives exchanges, have risen by 66 per cent since the beginning of July to the end of last week compared with the same period last year. Panic started to grip the markets in early July after Bear Stearns announced the closure of two hedge funds because of more than $20bn in subprime losses.
Over-the-counter volumes, which account for the lion’s share of equity derivatives business, are also surging, as hedge funds in particular enter complex contracts designed to hedge their exposure to underlying securities. However, these trades are difficult to measure because they are private bilateral deals, notes the FT.
Growing demand for protection against volatility has fuelled the use of more sophisticated OTC products, including dividend swaps, where investors can lock in a dividend price, and variance swaps, which isolate volatility and take away other attributes that are ordinarily factored in, such as interest rates, dividends and movements in the price of the underlying asset.
