Use of stock-options contracts climbs as investors seek hedge
ST. PETERSBURG, Fla. -- Use of stock-options contracts to hedge stock portfolios and speculate in the market is surging, pushing options trading to levels not seen since the 1987 stock-market crash.</br></br>Investor wariness as the Dow Jones Industrial Average continues to set records has helped bring new life to this previously moribund sector of the U.S. financial markets, as has the protracted takeover battle for Paramount Communications Inc.</br></br>"This long, drawn-out tender offer has proven to be very profitable for the options business," said Michael Schwartz, senior vice president at Oppenheimer & Co. "But there also has been a steady turnaround in the business, with an influx of new users and a change of direction from index options to equity options."</br></br>Many participants attending the Chicago Board Options Exchange convention here this weekend are wondering how long the nation's four major options exchanges can maintain their momentum.</br></br>Before last month, when these markets posted their highest daily and monthly volume totals in more than five years, the consensus in the U.S. options industry was that it had never really recovered from the crash. Thousands of overly aggressive investors, who used options contracts in risky, leveraged trading strategies, had been devastated in the 1987 cataclysm. And options trading fell sharply in the years that followed.