Blog updated 30 March 2023
As a result of the recent surge in U.S. options trading, many firms are struggling to obtain correct, timely data. This data is required for a wide range of options trading use cases across these firms. How can firms attain the data they require?
- Surging U.S. options trading volumes are leading to a data crisis, as firms struggle to cope with increased volumes and spiking peak message rates.
- Firms use options data to meet a wide variety of use cases, and so more than one data solution may be needed.
- Refinitiv provides a wide range of high-quality U.S. options data sources, from direct exchange feeds and OPRA data to normalised and enriched historical tick data.
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U.S. options trading is continuing to increase dramatically around the globe, creating a series of data challenges for trading operations.
In some cases, trading desks are not receiving the high quality and timely data they contracted for. In other cases, firms are having difficulty ingesting and storing these huge quantities of options trade data in their on-premises servers.
As a result, many financial firms may need to take a new strategic approach to managing their options data.
Spiralling data volumes
These data challenges are being driven by a surge in U.S. options trading over the past few years.
Data from Options Clearing Corp, reported by Reuters News, showed that options trading volumes topped 10 billion in 2022, after soaring 32.2 percent to a record 9.87 billion contracts in 2021. That was double 2019’s total, which was also a record.
For the first quarter of 2023, 1.8 billion contracts have traded, putting options on course for another strong year. The original surge was driven by the use of options by retail investors, although now professional investors are also trading more options, to capture the investment gains themselves.
Compounding the data challenge is the fact that an options trade contains many more data fields than a straight equity trade because they are more complex instruments. Additionally, strike price proliferation and new products with shorter expirations exacerbates the amount of data disseminated by options exchanges.
Information can include the contract month, the strike price, the settlement price, the theoretical price, days until maturity, the name of the underlying security, and more. This means that as options trades grow, the data demands increase much more rapidly.
These data volume issues are creating leaky data pipes for some firms; metaphorically, the data is making the ‘pipes burst’. This issue can result in firms not being able to trade with confidence. This sizeable operational risk can evolve into even more damaging market risk.
Reconsidering data possibilities
Trading desks that are facing the U.S. options data challenge need to rethink their market data strategy. This could involve engaging with different types of market data feeds and historical data, on their own or through third party services.
Requirements will depend on the specific use case, or cases, that the trading desk is seeking to apply, such as:
- Back testing and pre-trade analytics – assessing algorithms and performing best execution analytics.
- Price discovery – following accurate price movements to ensure the best trades.
- Automated & algorithmic trading – deploying exchange data for systematic trading.
- Smart order routing – ensuring the trading desk is transacting at the best venue, at the best price.
- Compliance – for example, making sure that trades meet best execution requirements.
- Transaction cost analysis – demonstrating success to customers, and fulfilling fiduciary duties to manage costs.
Trading desks, and the middle and back office teams that support them, may need to use more than one data option to ensure all of the relevant use cases are met.
Choosing new data sources
Refinitiv recognises the options market data challenge that confronts firms, and that each organisation will have its own mix of requirements. Refinitiv now offers broad and unique options coverage that includes all U.S. listed options depth of book feeds. Our full range of options and complex options market coverage can be found on our coverage list.
In addition to our coverage, Refinitiv provides a variety of options and data solutions to enable firms to meet their needs flexibly. These include:
1. Ultra-low latency – For the most latency sensitive use cases – requiring access to raw or lightly normalised Level 1, 2, and 3 data, and BBO/NBBO data from exchanges – Real-Time – Ultra Direct provides superior quality data for firms.
Real-Time – Ultra Direct is an in-process feed handler and ultra-low latency library that enables customers to access the data they need for trading, research, latency monitoring and compliance. Real-Time – Ultra-Direct feed handlers for OPRA and each of the U.S. options direct feeds let users power applications built in C++, Java or Python with real-time market data.
2. Low latency – The second possibility is Real-Time – Direct OPRA. This US options market data feed – delivered as a fully hosted managed service – is a non-conflated feed that provides the top of the book for all US options exchanges and NBBO across exchanges. This low latency feed provides data in the 1-2 millisecond range. The data is then normalised and aligned to the Refinitiv Data Model, so that firms can connect their market data across the entire trade lifecycle.
Refinitiv’s Real-Time – Direct OPRA solution handles the largest real time market data set in the world flawlessly, processing an all-time peak of 80+ million messages per second in June 2022 without dropping a single tick.
In May 2022, our OPRA direct feed handled OPRA’s all-time peak daily message rate of 156 billion messages in a day without a single service issue. Our capacity planning for the direct feed gives us headroom to process increased forecasted message rates reliably at low latencies for years to come.
3. Non-latency sensitive – For these use cases, where value-added data is required, Real-Time – Full Tick and Real-Time – Optimized are used by firms around the globe.
Real-Time – Full Tick delivers tick-by-tick OPRA market data, collected at source and then normalised to a consistent symbology and data model. Refinitiv proprietary data fields are added to compliment the venue data, and then the data is distributed over a world-class network to a firm’s on-premises location, co-lo or cloud provider of choice.
Real-Time – Optimized provides a consolidated OPRA feed for the top-of-book of each US options exchange, and the NBBO, in a conflated two-second format from the cloud.
These solutions are particularly good for use cases requiring value-add data that needs to be flexibly retrieved by any premises or via the cloud.
4. Raw historical data – For historical data captured in a PCAP format at the exchange primary or secondary data centre, Refinitiv now offers Tick History – PCAP.
This provides firms with ultra-high quality market data that is GPS time-stamped to nanosecond granularity. Data for OPRA and the direct feeds of each US options exchange are available in a raw PCAP format or normalised and formatted in Parquet, CSV or JSON. It supports use cases such as historical analysis, back-testing, and transaction cost analysis. Delivery options include push to client’s cloud, pull from our cloud, access our data directly using our shared storage model or have the data delivered on-premises.
Another option is Real-Time – PCAP OPRA Custom, which delivers OPRA data intra-day in five minutes chunks, delivered 15 minutes delayed. Price fields are normalized, while all the other fields have the raw values as provided on OPRA. The BBO quotes are split by exchanges for easier ingestion. The NBBO quote messages are not aggregated across venues and contain only the OPRA-generated NBBO quotes.
5. Enriched historical data – Historical data is available from Tick History, in the cloud. Tick History offers a comprehensive database of 87 trillion+ ticks, spanning 100million + instruments across 500 global exchanges and dating back 25 years. Data is normalised and enriched with Refinitiv reference data and normalised using the Refinitiv data model.
Refinitiv Tick History – Query enables quants and traders to work with Tick History data in the cloud, using Google BigQuery analytics. This combination transforms a query that would take hours or days of preparation and run-time into just minutes or even seconds.
In short, having robust options data is a non-negotiable essential for trading desks and the risk, compliance and back office teams that support them. Firms may need to take the current options market data challenges into account when considering their strategies for U.S. options – they need to be able to trust that the data they are receiving is correct and complete.
