It's just almost this introduction of a new assetclass in a way, which is this very short datedoption trading has been where we've seen justexplosive growth.Rob, thanks for joining us today.It's always great to have you here.Yeah, thanks for having me excited to be here today.So Rob, the last time we chatted, you were, Ithink more specifically involved with product innovationin equity options.What's your role now within the company and justtalk a little bit about one of the main themes you're seeingin the world of options?Sure.Well, we recently introduced a new initiative for SIBO calledSIBO Labs.So it's our innovation hub for the exchange where Ilike to call it where the wacky scientiststhat go in and invent tradable products for people to use.And so we've kind of expanded our mandate,broadening it from not just equities to more or products,platforms, really anything of the like thatinvolves tradable product.And then we really, you know, speak closely with the customersnow, we have a little bit more of an externallyfacing role to where we go out, sit down with customers, talkto asset managers, talk to portfolio managers,find out where there's gaps and maybe our offeringfor products where they want to manage risk,where they can't fine tune risk today.And then we go back to the lab and we try to create productthat, you know, suits their needs.So that's, that's been an exciting kind of developmentsince last time we talked.So it sounds like product innovation is driven mainlyby client demand, but do you also kind of,as you say, sit back in your lab and just think, you know,what would be a cool product as if we,you know, got this straddle or whatever it is and do youdo some of that sort of innovative thinking yourself?Absolutely.There's a huge balance between the two answeringthe customer demand, which is alwaysfirst and foremost.But then a lot of times, maybe a customer doesn't knowexactly what they want.They see, you know, maybe a gap to fill,but doesn't know exactly how to do it.So to your point there, we sit back and we kindof analyze the landscape.The people that make up the lab have a very diverse background,different product sets.Some have been lifelong exchange members.Some have run their own companies.Some have sat on big desks at banks.And so we kind of take that collective knowledgeand try to think up the product, think up the solution,and then go back to that customer and say,what do you think?This is kind of what we came up with in the lab.And where the customer is willing, we involve themin the process the whole way.Some don't necessarily want to take that timeoff the desk, and just kind of say, hey,bring me a solution.Others will go lockstep with you and that can be fun.So Rob, I don't want to do a very long history of options,but I want to do a bit of a history of optionsbecause a lot of the area of options trading is changing,particularly in terms of duration.I mean, people are trading almost zero daysto expiry options, but also I want to talk aboutthe rise of the retail trader, because I think optionswere always such a scary product for so many people.There's always institutions and corporates trading.Are you seeing more retail traderstrading options?And how is that sort of duration changing?It's a great question.I think we've ebbed and flowed.You talked about a little bit about the historyand the duration side of it.So can you take us back at 10, 15 years?Exactly.So, over time, you know, we started with,you go all the way back, SIBO just celebrateda 50th anniversary, which is exciting.So, you know, 50 years of options trading.Along that way, we started with, you know, basic options,introduced broad-based index options.Then we, as to your point, started messing with duration.And where did people want to trade?How near-dated did people want to trade?In 2005, we introduced weekly options.So now that brought kind of the expiries down to weeklyin 2016.We introduced within weekly options,we introduced Monday and Wednesday expiries.So now, once again, even more granularity, we gotMonday, Wednesday and Friday every week.Then in the beginning of, I guess, April, May of 2022,we introduced Tuesday, Thursdays.Now you have daily expiries every day of the weekout to four or five weeks.So you can trade every little piece of granularity.That introduction of daily options really kindof changed the face of how people were using them to managemacro and volatility risk.So if you think about before, if you had a weekly optionand let's say you wanted to pinpoint an eventon a Wednesday, you would have the optionthat expired on the Friday before that Wednesdayand the option that would expire after thatevent on the Friday.And so you would do some form of buying the one,selling the other to try to minimize and pinpoint thatrisk.But you still had a few days gap.But you still had a few days gap and with optionality,you had to pay for that extra optionality.Think of it like an insurance policy.You own a one-day insurance policy,it'll cost you very little amount of money.If you own a year-long insurance policy and you have thatoptionality every day of the week, now it costs more.So by trading that Friday to Friday,you were getting closer and closer before we hadthird Friday of the month.So you had month to month, now you have week to week.We kept getting closer, but you still hadextra optionality that you didn't necessarilywant or need.So now you introduce dailies and let's say that eventshappening on a Wednesday, you can now buy the Wednesdaythat expires that evening and you have the exact eventrisk that you want.And you can hedge out that macro volatility risk of that eventon that day.And what's driving that reduction in expires?It's almost sounds like options are becoming stocks.I mean, they're trading very lightly underlying.If you take out, if you get out the money options with verylittle days to expiry, it's almost like you're movingalmost one-to-one with the stock.There's some of that for sure.I think people just enjoy the granularity,even if you look at, I don't want to get toobroad here, but you look at just average consumer habits and it'slike people like knowing things right away,instant gratification, instant gratification, exactly.And so making short-term trades, knowing the results of thosetrades immediately and being able to reposition has becomesomething that the market has taken to and reallyenjoys kind of that granularity and understandingand repositioning.It also allows, you know, if you get something wrong,now you can quickly reposition that optionexpires and you're left with a clean slate so youcan reposition the next day and look to changeyour portfolio or however you want to balance your portfolio.For those who are not trading options yet but want to getinto it, is there a better marketenvironment for trading options and, you know, what levelshould the VIX be if they're wanting to tradeor is there always a good time to be trading?It depends on the strategy with the options.Really that's the beauty of the optionalityis that there's so many different strategiesyou can use at any given point, any different market condition.We always talk about when we're designing a lot of our productslike think of it as a toolkit.We have various products whether it's VIX options,futures, whether they're mini VIX futures.You look at the broader set and you have Russell 2k optionsand you have like when you break all of that down and youlook at the toolkit really there should be a productfor any market environment or at least that's what our goalis right and so I don't think we look at necessarily per se a VIXlevel but obviously some strategies are morepredominant in high vol environments some are morepredominant in low vol environments but really our goalis to always have the products available so that you can tradethrough any environment if you don't mind me asking about I'mnot asking you to predict the marketswrong but please don't I kind of market view right now Imean the VIX is I don't know where it is now 1450 somewherearound there are you kind of surprised coming into 2023that it has got that low?I mean over the past few years we were all expecting a lotof disruption and even now there's so many macro headwindsand uncertainties out there.Are you a little bit surprised where the VIX is?It's a great question.It does appear on the lower side just from where sentimenthas been set for now a few years since the pandemic.At the same point a lot of the unknowns Ithink are becoming more known and so if you think ofthe rise in inflation and the rise in rates well whenyou're starting at such a low base you have no ideawhere that end is going to be.And so now we've had a series of rate hikes.Inflation is high.People are making adjustments to those type of new regimes.Well, you're also runningout of runway to where they're just not going to keep raisingrates forever.So some of the unknowns are becoming more capped,so to speak.And then you start to look at just day-to-day environmentsand you realize like, okay, the debt ceiling looks like wehave a solution there.And now on the horizon, we're hitting summer.Things tend to be a little slower in summer.So a 14, 14 and a half VIX level,I think is not out of the questionand definitely makes sense.Some of the things that that we're excited about is obviouslywith this influx of zero DTE options, we just recentlyintroduced a one day VIX.So it takes a lot of the VIX methodology of the 30 daynumber.And just as a reminder, like 30 day VIX looks at it'sa forward implied number.Yeah, doesn't deal with anything in the rearview mirror.It's purely forward-looking, but it tells youwhat's the market's expectation for volatility 30 days from now?Well, obviously with Ithink it's we're north of 40% of our volume now in SPX tradingin The zero data expiry 40% 40% that much volumetrading near-term the market was asking for like What'sa volatility indicator that captures that piece?Yeah, because the VIX uses optionsthat are about basically 23 to 37 days to expirySo if you're trading 42% of your volume in same dayoptions, the VIX isn't capturing it.And so What then SIBO give us something that does capture itAnd so we used the VIX methodology and introduceda one-day number that looks at the zero dayoptions and One day options and kind of has a rollingbusiness time calculation that just pulls in and what'sthe market's expectation for that next business day.And it's been kind of exciting to watch.It has some nuances.It obviously has more volatility to it, both on the low endand the high end, depending on when an event hits.But it's just kind of that natural evolution of tryingto pull in some of the data points of this near termtrading.And what is that effect going to have on markets,if any, if that percentage of zero days to expiry optionsgoes from 40 to 60, 70, 80?What kind of effect could that have on the market?It's a great question because I think where we're mostexcited is the traditional volume that yousaw and maybe that third Friday or, you know, three monthoptions, six month options, those longer termhedging that you saw a lot of institutionsdoing, that volumes remained very constant.It hasn't gone down.It's just almost this introduction of a new assetclass in a way, which is this very short datedoption trading has been where we've seen justexplosive growth.So you know, if we had, let's say, an ADV of around 1.3million options before this whole phenomenon started,now we're at call it 2.6, that doubling of volumedidn't come at the expense of the options that usedto trade.Those are still trading.It's just it came in a completely new, new area.I've got a two part question about positioning.GameStop seems like a long time ago now, here we are in 2023,but a lot of the moves in those meme stocks were drivenby huge out of the money call options, people having to covertheir positions.So from where you're sitting, can you spot something like thathappening before it actually happens because you can seewhere positioning is in certain options?And then the second part is how can people who don't knowtoo much about options, how can they use informationabout read about options to show how the market's positionin certain securities?So with the meme stub, it's a great question.I think the Indici trading is very different.Sorry, that's single stock.Yeah, in the single stock, there was concentration risk.Everybody would kind of pile into a one-way positionall based on this idea of everybody communicatingand seeing and highlighting and then everybody piling in.What we're seeing with very short-dated tradingis there's no concentration risk there.And that's actually something we're very excited about isthe nature of so many different strategiesusing it in various different ways.Some people are coming in and buying,you know, a one-way directional tradein buying a put.So they benefit if the market, you know, goes down.We see upside call buying.Somebody just thinks, oh, we're going to see a one-day rally.So I'm going to buy some cheap calls to the upside, tryto take advantage of that.Another area we're seeing, which is almost completelydifferent, is spread trading.And In that spread trading, I think about 55% of that zeroDTE volume is found in spreads and predominantly creditspreads.So people are just selling spreads, they're capped risk,they know their max loss going in, but they're collectingthat kind of daily yield.That's a yield overlay type of strategy.So between all of those different strategies,and there's others, that you're seeing this kindof diversification of strike exposure.And with that, you're seeing a lot of what I like to call,it's a good two-way market, a lot of different opinionscoming in and out and people saying like, Oh, I want to buy,I want to sell, which creating a very robust,very, very liquid market.So Rob, just before we wrap up, and thanks again for your time,this has been great.Any kind of products you're working on in the futurethat we can look out for?Well there, there continues to be demandfor obviously in this short dated,short duration timeframe and from there we'll continueto look and answer that demand.I think another piece, as you mentioned, retail gettingmore involved in the product set, idea of introducing simplerproducts to your point like options can beintimidating and so the idea of developing products that thatprovide confidence to users and kind of bring themalong the product journey yeah start simple get confidenceunderstand the products educate them along the waywe have the options institute which is solely dedicatedto educating investors bothretail institutional around different strategiesdifferent products and bring them along the journeyso that they're comfortable and you actuallybuild an investor for the long-term and not justone that comes in and out of the market.So there's hope for me yet in options trading.Absolutely hope.We'll get you out there.Thank you.Rob, it's been so great chatting with you.Thanks for your time.Absolutely.Thanks for having me.
