Many IROs don’t know what they’re missing when it comes to options surveillance, says Oxford Intelligence Partners
For IROs trying to understand how their stock is traded, the market has become markedly more complicated over the years. Buying and selling has fragmented among a proliferation of new venues, while high-frequency trading now accounts for the majority of US stock orders.
A further factor is the rise of the options market: options are now traded daily that offer the right to buy or sell nearly 2 bn shares, according to market estimates. This is where investors increasingly go to hedge positions and make bets on future market movements. Some also use options to quietly build stakes in listed companies.
Given the light this area can shine on investor sentiment, a new firm is making options analysis a key part of its offering. Oxford Intelligence Partners, which launched at the start of this year, thinks IROs are missing a trick if they don’t incorporate insight from the options market into their communications plans and investor monitoring.
As an example, the Oxford team points to the resignation of Mattel’s CEO Bryan Stockton on Monday, which was accompanied by the early release of disappointing holiday sales. In the run-up to the announcement, investors made bets in the options market that showed they were expecting the stock to fall markedly. Following the announcement, Mattel’s shares plunged 11 percent.
Options analysis gives IROs ‘the opportunity to be proactive,’ says Adam Frederick, CEO and managing partner at Oxford, who previously worked at NASDAQ OMX and Bloom Partners (bought by NASDAQ in 2008). ‘So many times when you’re an IRO or senior management you’re being reactive: news comes out and then you react to [it] based on what the market does.’
With shareholder activism up considerably in recent years, particularly for companies in North America, Oxford is also keen to highlight the role options analysis can play in spotting activist activity. Through different types of options contracts, an investor can build stakes more quickly and quietly than by buying the shares outright. Activist monitoring needs to look at all aspects of the market and options analysis is key to that process, says Frederick.
The new firm has 15 employees, including many with long-standing experience in market intelligence and IR services. The core members of the team left NASDAQ OMX last year, after the stock exchange operator bought Thomson Reuters' IR unit, making it the world’s biggest provider of IR services. Oxford’s managing partners Mike Coffey and Jeff Myers, like Frederick, both worked at Bloom and then NASDAQ. President and COO John Vogt also worked for NASDAQ, following stints at Thomson Financial and early surveillance firm Grabill-Bloom.
One of the initial challenges for the firm is to inform IROs about the insight they can glean from the options market. ‘Many don’t know this intelligence is available to them,’ says Frederick. ‘Oxford is shining a light on a dark market.’
