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A New Role for Options

Published online by Cambridge University Press:  06 April 2009

Roger F. Murray
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Extract

During the explosive growth in options markets, from 18.1 million contracts traded in 1975 to 57.2 million in 1978, institutional participation has lagged. While precise measures are not available, informed estimates suggest that only 12 to 15 percent represents true institutional activity in spite of the fact that one by one, tax, regulatory, and conceptual barriers have been reduced or eliminated. In addition to such retarding factors as lethargy, prejudice, and unfamiliarity, there are still some fundamental characteristics of options which make questionable the prudence of their use by fiduciaries or asset managers in a fiduciary position.

Type
V. Financial Innovation: Securities and Markets
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 4 , November 1979 , pp. 895 - 899
Copyright
Copyright © School of Business Administration, University of Washington 1979

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References

1 An excellent development of the protective put concept is found in Pozen, Robert C., “The Purchase of Protective Puts by Financial Institutions,” Financial Analysts Journal(07/08 1978), pp. 3–16Google Scholar.

2 See Merton, Robert C., Scholes, Myron S., and Gladstein, Mathew L., “The Returns and Risk of Alternative Call Option Portfolio Investment Strategies,” Journal of Business, Vol. 51, No. 2 (04 1978), pp. 183–242CrossRefGoogle Scholar, for a study of possible results.

3 The authors listed in note 2 suprahave now made a similar analysis of puts, authenticating their role in adjusting the risk/return characteristics of portfolios (not yet published).