It's still the second best year in history for the options market, says Steve Crutchfield, even though options market volume is down 5% year-to-date as of June 2012. Here, Crutchfield tells contributor Michelle Lodge why he believes options enhance any portfolio, and talks about the challenges facing the industry.

1. How can a financial advisor learn more about options and stay up to date on any changes affecting them?
We, as an industry, need to help them understand options. They can also check out the Options Industry Council's (OIC) website. The OIC's role is to teach investors and their financial advisors about exchange-traded equity options. The site offers a wealth of material, from the basics of options and options trading to information presented on podcasts and videos to courses geared to everyone from rank beginners to experienced [financial advisors]. No information is too basic for the site visitor: It even defines puts and calls and, of course, options as "a contract to buy or sell a specific financial product officially known as the option's underlying instrument or underlying interest. For equity options, the underlying instrument is a stock, exchange-traded fund (ETF), or similar product."

2. What are the benefits of including options in a portfolio?
We have been in a low-volatility environment. Writing a call option against a long stock, selling a call option can increase a portfolio's income in a climate where the market might not be going up every month. It also allows for a little more sophistication and gives investors more choices on how to structure their portfolios. Among the new products we're offering are weekly options. As the name implies, these options expire in a week. As a shorter-term investment, it costs less and trades for lower premium amounts.

3. Options can have a bad name. Aren't they risky investments?
They get lumped in the broader sense with derivatives, which can make investors shy away from options. That's unfortunate because options can actually reduce risk. For example, financial advisors could recommend purchasing a protective put option, which acts like an insurance policy on a house: Worst-case, you lose what you paid for the option upfront, and if the market turns down, the put option will kick in and protect against further downside losses.

4. How has the Dodd-Frank Act affected the options market?
Dodd-Frank and the post-financial crisis have drawn attention to institutions trading in centrally cleared markets as opposed to over-the-counter. There are nine option exchanges in the United States. All exchanges' trades are cleared by the Options Clearing Corporation (OCC), making it the counterparty for all transactions. Dodd-Frank has shined the light on benefits of central clearing, and that's a positive. The negative is that the so-called Volcker rule, a part of Dodd-Frank, could lead to reduced liquidity and price transparency and an increase in the cost for investors.

5. What are the latest trends?
We are adding new products, such as weekly options, that we believe are attractive to the investor. [Weekly options are] a shorter-term investment. It costs less and trades for lower premium amounts. Although not new, we don't charge retail customers a fee. We bill the professionals instead. Our goal has been to cater to retail customers. We give price priority to those customers. Many exchanges use time priority, in that the first one who says they will trade gets the trade. If a retail customer comes in at the same price as an institution, we give it to the retail customer, not the institution.

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