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Option Advistor

The following is a reprint of the market commentary from the October edition of the Option Advisor, published on September 24. Prices and the chart are as of the close on September 24. For more information or to subscribe to the Option Advisor, click here.

I'm very pleased to have attended the 4th Annual FIA/OIC New York Equity Options Conference this week. After performing without a hitch during the worst of the financial crisis in 2008, the listed equity options industry is more vibrant than ever. According to Gina McFadden, President of the Options Industry Council, year-to-date equity options volume is now slightly higher than that of 2008, which is all the more remarkable because 2008 was itself a record volume year. In fact, according to Thomas Peterffy, one of three options industry pioneers honored at the conference, since their inception 36 years ago, listed equity options volume has grown at an annual compound rate of 36%!

Much of the foundation for this incredible growth can be attributed to the visionary thinking of two additional industry legends who were honored - William Brodsky, Chairman and CEO of the Chicago Board Options Exchange (CBOE), whose vast legacy includes stock index futures and options and numerous innovations such as volatility options, and David Krell, whose International Securities Exchange (ISE) was the first all-electronic exchange and who almost single-handedly moved the industry into an era of lower transaction costs and open competition and transparency across the various options exchanges.

The fact that equity options trading is very much mainstream in today's investment world is due in no small part to the visionary efforts of Thomas, Bill, and David, and, as Bill told the conference: "If anyone had said even 10 years ago that there would be a front page article in The Wall Street Journal (in September 2009) that featured the mechanics of selling equity option strangles, no one would have believed it!"

I consider myself to be extremely fortunate to have played a part in the equity options industry for well over 25 years, and to have developed strong relationships with such industry giants as Bill and David. Most recently, the success of our new magazine - SENTIMENT - Smart Options for Today's Investor - can be attributed in no small manner to the tireless efforts of the Options Industry Council over the past 20 years to teach options principles and concepts to investors.

Our industry continues to develop new ways to improve your experience in trading options, as evidenced by the announcement at the conference by Elizabeth King of the Securities and Exchange Commission that they have approved an expansion of the industry's "penny pilot program," whereby selected options classes trade in penny increments instead of nickels and dimes. This program, currently available for about 60 underlying stocks, greatly reduces the transaction costs for individual investors by reducing the "slippage" created by the difference between the "bid" and the "ask" prices on equity options. According to Ms. King, the program will now be expanded to over 300 option classes that account for more than 80% of total options volume.

You should also be cheered by the fact that those often very arcane and illogical symbols used to designate individual option series will be replaced in early 2010 with symbols that are much more intuitive and easy to understand. If for example "IKG JS" strikes you as insane as a descriptive symbol for the AIG October 45 call, help is on the way!

I'll close with a mild "horn toot" - the fact that our SchaeffersResearch.com site is consistently ranked as the highest traffic site for options traders, and as such I feel we have contributed in some tangible way to the growth and success of our industry. If you haven't visited our site recently, I invite you to so. I feel we're more adept than ever at teaching you the ins and outs of options trading, while at the same time pointing out stocks that may be worthy of your attention, based on our unique sentiment-based analysis, and option trading activity that should be on your radar.

Option Advistor

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