Data drives the trading bus.
While very true and in practice in the equity markets, data is also helping options traders make sense of the derivative market. So much so, that OptionMetrics Chief Executive Officer David Hait is willing to stake his reputation on it. Hait took some time out to chat with Traders Magazine’s editor John D’Antona Jr. on the 20th anniversary of his firm and discuss his sojourn from consultant to analyst to founder.
TRADERS MAGAZINE: How did OptionMetrics get started? Who did it serve? Who does it serve now?
David Hait: In 1992, while consulting for J.P. Morgan and going to grad school, after working full-time at Paine Webber, I came to the realization that while theoretical research and new mathematical models were emerging, there was little empirical research on which to base it. As a graduate student in the mid 1990s, I had been spending endless hours scrubbing, preparing, and organizing options data. I kept thinking how useful it would be to have a readily accessible source of organized, clean, and easy-to-use options data for financial research. In 1999, I founded OptionMetrics with one goal in mind: to provide accurate, research-grade options data and analytic tools to allow investors and researchers to more efficiently analyze markets and determine risk.
Today, OptionMetrics tracks options on over 6,000 underlying stocks and indices worldwide, including U.S., Europe, Asia-Pacific, and Canada. Hundreds of institutions, including most of the top 50 business schools worldwide, and thousands of professionals in the financial services industry rely on OptionMetrics today to assess and analyze risk.
TM: Describe the firm’s philosophy?
Hait: OptionMetrics was founded with one mission in mind: to provide accurate, research-grade options data and analytic tools, to allow investors and researchers to more efficiently analyze markets and determine risk. Ensuring the highest quality of the data is a philosophy that has remained paramount to us over the past two decades.
TM: What is behind the increased volume in options trading? More savvy investors? Liquidity begetting liquidity?
Hait: It’s sort of a tenuous relationship, but there is more liquidity in the markets today due to electronic trading (starting in the 1970s and 80s). Today, you press a button and the stock gets traded. The liquidity and availability of orders has increased, making it infinitely easier to get in and out of the market and the dynamics of volatility more active. Where people might talk about the change in volatility over the course of a month or six months in the past, now, with increased market activity, they talk about it hour to hour, or minute to minute. With dynamic markets like that, options become even more interesting.
Simultaneously, investors have gotten more savvy, given opportunities for money to be made. We see interest in products pick up during volatile times, when the market has a correction, or there is a big movement. Advisors and investors are always trying to find the best and most interesting opportunities.
TM: Talk about the role of data now in Options trading compared to 5 or 10 years ago.
Hait: The role of options data has grown alongside the growth in options. From options being viewed with skepticism and being considered a “niche” investment in the “old days,” to today being used in everything from hedge funds and investment portfolios to pension plans. A record five billion option contracts were cleared by the OCC in 2018 in the U.S., not to mention emerging markets in Europe, Asia, and Canada.
Similarly, options data today is increasingly being used by sophisticated investors and savvy advisors to develop volatility and gamma-sensitive strategies. Today, there is more empirical research on options markets taking place than ever before. Where there were once very few published academic research papers using options data, now hundreds of researchers use options data annually—to assess everything from corporate innovation, to short-selling and stock returns, to insider trading—and the vast majority of this research is using OptionMetrics data.
As a result, terms like “volatility” and “VIX,” previously unheard of in the mainstream, are now familiar with the public and regularly talked about. And as options markets have emerged and grown in Europe, Asia, and Canada, even more data on markets is available.
TM: What’s the future look like for OptionMetrics? Greater employment of technology? Or something else?
Hait: With the markets changing day to day, there is still a lot that we, as an industry, do not yet know and need to explore. With options experiencing explosive growth and increased investor intelligence in leveraging them, OptionMetrics remains committed to providing the most comprehensive historical options database in the industry. You can expect us to maintain a focus on quality and service, while we continue to present new and innovative ways to make it even easier to access and use quality data as we move into our next 20+ years.
