Options Market Winners and Losers

The battle for options dominance continued unabated this month. Below is a breakdown of the overall market share numbers for July 2008:

July 2008 Total Options Market Share (% Increase/Decrease From June 2008)

1. CBOE: 34.44% (+1.3%)
2. ISE: 27.78% (+3.7%)
3. PHLX: 14.63% (-4.7%)
4. NYSE Arca: 11.43% (unchd.)
5. AMEX: 5.38% (-12.2%)
6. BOX: 5.28% (-2.9%)
7. NSDQ: 1.06% (+27.7%)

Data: OCC

The NASDAQ (NDAQ) Options Market continued its climb up the options ladder in July. The exchange added substantially to its June market share. This allowed NASDAQ to clear the dreaded 1% mark much earlier than expected.

As predicted, the CBOE (CME) added to its market share in July. With the market in turmoil and the VIX moving dramatically, many customers turned to SPX and VIX options. These are proprietary CBOE products, giving that exchange an edge during turbulent market conditions.

It is often stated that a rising tide lifts all boats. Unfortunately, that isn't the case in the options market. While options volume exploded in July, the American Stock Exchange continued its long slide into obscurity. During a critical month for the options market, customers continued to abandon this exchange in droves. The once-mighty AMEX is now virtually tied with BOX in terms of overall options presence.

Of course, exchanges don't measure profits by market share but instead by overall contract volume. In that sense, a smaller share of a larger market can still generate overall volume growth.

However, the long-term market share decrease at AMEX (see table below) is far too precipitous to ignore. At this rate, there won't be much of an options business left for NYSE Euronext (NYX) to acquire when the merger is finalized later this year.

Long-Term Trends

July 2008 Total Options Market Share (% Increase/Decrease From July 2007)

1. CBOE: 34.44% (+5%)
2. ISE: 27.78% (-1.6%)
3. PHLX: 14.63% (-6.5%)
4. NYSE Arca: 11.43% (+15.45)
5. AMEX: 5.38% (-56.4%)
6. BOX: 5.28% (+4.9%)
7. NSDQ: 1.06% [NA]

In a year that saw the VIX finally awaken from its long slumber, it's not surprising that the CBOE made such impressive gains in market share. As stated above, its proprietary index products always do well during troubled times.

Perhaps the most interesting long-term trend is the rise of NYSE Arca as a major force in the options market. This exchange has ridden its maker-taker pricing model to extraordinary heights. However, with maker-taker apparently reaching the apex of its market penetration, it remains to be seen whether NYSE Arca can continue this growth rate going forward.

PHLX remains a question mark on the long-term trend list. This exchange has surrendered a significant portion of the market share that it fought so hard to recapture in 2006 and 2007. With the NASDAQ acquisition complete, questions continue to linger about the future of this exchange. Will it thrive as part of the NASDAQ empire or will it lose key talent and surrender additional market share as a result of the merger?

Disclosure: None