Rising U.S. stock options to second highest level

Trading in U.S. stock options jumped to second highest level in nearly four decades of history yesterday, driven by investors with contracts for the capture of the dividends paid by the biggest funds traded.

Volume jumped to 30.7 million contracts on stocks, indices and ETFs, according to Chicago-based Options Clearing Corp., which clears and settles all trades in contracts traded. The S & P 500 SPDR Trust ETF, which follows the reference measure of U.S. stocks, represented about one-third of that volume. The record of 30.8 million set on May 6, when the U.S. moves lost $ 862 billion in value in less than 20 minutes.

Traders who bought options to receive the quarterly dividend ETFs led operations yesterday, said Henry Schwartz, president of Trade Alert LLC, a provider based in New York options market analysis. The S & P 500 ETF and others began trading today without the right to receive a dividend.

"The trading activity of dividends is how professionals in the cash crop that is at stake," said Schwartz. The owners of the call-money-are entitled to receive the underlying value of the contract seller, who must deliver the shares at the exercise price. Call the owners will exercise the options before the ex-dividend date for the dividend, and most do, he said.

Active Contracts

Yesterday alone most active contract was called December, the Financial Select Sector SPDR Fund $ 15, which traded 1.89 million times, a 15-fold increase over the four-week average for all calls of the Foundation. Monitor banks and agents ETF closed at $ 15.53 today.

The SPDR S & P 500, which is the fund's largest and most market-traded, will pay 65 cents per share on January 31 people who bought shares before today. The fund up 91.7 billion U.S. dollars of all 500 companies in the benchmark U.S. equity principal.

The majority of 8.38 million yesterday SPDR S & P 500 trades call focused on December 10 contracts, with exercise prices between 110 and 124, Schwartz wrote in a note to clients today. Open interest, or the number of existing contracts, of these options was reduced by 937,000, showing that about 94 percent of owners to exercise their call options, Schwartz wrote. The 55,000 contracts not exercised, adjusted to the values words, indicate traders dividends made nearly $ 2.6 million in revenue, he said.

Options began trading in the U.S. in the exchange when the Chicago Board Options Exchange began on April 26, 1973. There were 1.1 million contracts traded in that year. First volume exceeded 100 million contracts in 1981. Trade reached one billion in 2004 and $ 2 million in 2006.

Philadelphia volume

More than half of yesterday's volume in the nine U.S. options markets was held in Philadelphia Nasdaq OMX PHLX, the data show OCC. The Chicago Board Options Exchange was second with 14 percent, followed by the International Stock Exchange with 12 percent and the exchange of Euronext NYSE Arca in 11 percent.

"This trading strategy is made possible through the incentive fee is only available to a select group of market participants and not otherwise be economically viable," said Boris Ilyevsky, a CEO of ISE, a unit with Frankfurt-based Deutsche Boerse AG said in an e-mail. dividend trades accounted for more than 46 percent of the volume of yesterday, he said.

Nasdaq spokeswoman Silvia Davi did not immediately return a call seeking comment.

Operators using the dividend capture options often lead to the PHLX volume because its creator, the Nasdaq OMX Group Inc., is one of the places that cover the fees of the companies by making more profitable trades for initiating transactions.

Unclaimed Dividends

Unclaimed dividends are allocated to traders who sold stock options not exercised. The amount you receive depends on the number of contracts that are short and the percentage of total number of open contracts which are not exercised before the ex date. If 95 percent of the money options are exercised, the dividends for the remaining 5 percent would be distributed to the sellers of unexercised options.

At the same time buying and selling the same number of options back to the last possible day, a trader can increase the rate of allocation of calls of unclaimed dividends to 99.9 percent and receive more of the dividends claimed, "said Schwartz.

The strategy "takes advantage of how the allocation process works," said Schwartz. "And the merchants can earn dividends that otherwise would have been assigned to a rate of 95 percent."

ISE trades called dividend capture "objectionable" in a March report and said it is not compatible with the practice because it benefits the institutional investors at the expense of people.

"This strategy not only distort the market share with millions of contracts, but also takes advantage of the fact that individual options traders - that may sophistication lack of resources - can not exercise their depth in the money options purchase to pick up a corporate dividend payments, "said ISE.