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Options Trading and Retail Investors — Today’s market rally was directly linked to M&A news over the weekend. Mostly of note was AT&T’s deal to acquire T-Mobile, there was also financial sector action when Charles Schwab Corp announced it has agreed to acquire OptionsXpress Holdings (NASDAQ:OXPS). OptionsXpress is an online retail brokerage firm providing trading platform services for investors who use options, stocks, futures, mutual funds and fixed-income investments.

Options trading has increased every year since 2002. According to the Options Clearing Corp. over 3.9 billion contracts were traded in 2010. Schwab is undoubtedly looking to compete more in the retail trading area, as derivatives access has become more important to small investors over the last ten years due to volatility spikes caused by globalized markets and the perceived growing frequency of black swan events. The acquisition can be seen as a direct response to TD Ameritrade’s  2009 purchase of Thinkorswim Group Inc., another derivative trading company. 

Average retail traders will enjoy being able to take advantage of Schwab’s more comprehensive services. Over the last few weeks, global unrest due to political problems and natural disasters caused the VIX to increase dramatically. Between March 14th and 16th the index rose almost 50%, showing not only that investors need option insurance, but it also demonstrated a unique opportunity to profit through speculative trading of options.

After Japan’s earthquake and the crisis in Libya, option contracts traded totaled over 122.4 million just last week according to the OCC. That is the highest number since the week Lehman Brothers filed for bankruptcy. Obviously retail investors will benefit from being able to trade and use derivatives, as long as they have the education and skill.