Antonio Goncalves on the State of the Options Industry

Antonio Goncalves, SVP of Sales and Business Development at Devexperts, discussed the State of the Options Industry at the 2022 Options Industry Conference speaking panel.

About the company

I define Devexperts’ role as something  between a priest and a barber. A priest, because we help you achieve miracles and sometimes atone for your sins. And a barber, not because we help you do or get haircuts, but because we listen. We have a broad spectrum of technology from the exchange, brokerage, educational, data, and crypto sides, giving us a good pulse on the state of the industry. 

Do you think option volumes will continue to rise? 

Yes, I think so. If you remember the movie, Planet of the Apes, and its sequel, Rise of the Planet of the Apes. Currently, we are living in the Rise of the Planet of the Apps. 

Thanks to apps coming into the market, we get startups completely automating options trading. That’s changing the state of the industry, especially for those older than 25, because this new generation doesn’t even need to learn. It has an app that automates everything for them. This enables the expansion of US retail business options. It also allows access to options for people in countries like Brazil and Chile who don’t have an options culture. It enables retailers in those countries to use those apps and trade options. 

These apps combine education with complete tool automation and data backtesting and rebalancing, allowing portfolio and indices creation. It’s a staggering dynamic in the market, so we’ll inevitably grow due to the rise of apps. 

This rise of the apps is funny. With the COVID-19 pandemic, we were locked up for two years. When the masks came down, it became very hard to recognize what the industry was. 

When you have a panel called The State of the Industry, my first question is: what industry are we talking about? 

If you look at the last two and a half years, we saw Robinhood emerge and go down the zero commission path that brought some dramatic shifts. We’re seeing various startups, investments, and venture capital investments for the younger generation. This new generation is mobile device-based with a strong inclination for games.

For instance, they can create an index on music genres and trade options and futures on it. This index is being approved by the CFTC and coming out soon. So, we’re seeing the rise in the classic options market, but also unique proprietary products that will greatly expand what we see as the industry. We’ve been very focused on the ETF option, the classic financial product industry, and that’s about to change dramatically.

When you see an option on an index for music or a movie genre, for instance, with which companies like Spotify can hedge their risk, it opens the whole industry to incredible new asset classes that we haven’t even considered. So, we’ll have more work next year to add something out-of-the-ordinary to our project portfolio.

So, you’re saying apps don’t care about us having more selection? 

It’s a chaotic, complex adaptive system that was fueled by sentiment, as was always the case in financial markets. Now, however, it’s very driven by a generation exceptionally attuned to social media and sentiment. Most of these apps are social media platforms. That puts the classic industry players in reactive mode, dealing with an unstoppable monster. The critical issue is how to monetize and control it.

Is there a paradigm shift brewing in the options industry?

We’ll see classic exchanges acquiring and transforming into an infrastructure model where they still have the classic exchange. Then,  APIs, connections, ancillary systems, custodians, etc., will effectively bridge to the other world. So, the infrastructure and the exchange side shift will be the exchange’s hybridization. 

At the retail level, it’s again about the rise of the apps, which is the rise of the active participant and the increased gamification of the whole process; the tool only tells you yes or no. It’s become very binary and instantaneous. That’s not ideal for people with years of experience. For example, when looking at crypto, the big thing is that you’re a holder. I’m a classic investor: if I had Bitcoin at USD10, I would’ve sold it for USD20. I wouldn’t have waited. So, it’s a very different mindset, a big paradigm shift.

Do you think the options industry is meeting educational needs? 

I’d urge everyone with a successful educational platform in the US to expand to places like Latin America, where they’re desperately trying to create options markets. 

But part of me thinks that the rise of that artificial intelligence data-driven app will eliminate the need for education because all you need to do is push the yes or no button and trust the app. So, education won’t be necessary. You don’t need to learn arithmetic anymore; you only need a calculator.