Futures, Options Helped Ease Loss
CHICAGO (AP) _ Score one for the little guy: Three weeks after Dow Jones futures and options began trading for retail and individual investors to protect against sudden price swings on the stock market, the system proved it has a place as a risk management tool.
The Chicago Board of Trade and Chicago Board Options Exchange earlier this month began trading futures and options that gave investors the right to ``bet″ where the Dow Jones industrial average will stand on a given day. The benchmark index tracks 30 of the biggest U.S. companies, including General Motors Corp., AT&T Corp. and IBM.
Critics had argued that with much of the trading coming from small investors in an index that has a market value of $2 trillion, fraud and manipulation could exacerbate losses on the stock market and bankrupt unsophisticated investors.
But the Dow futures and options response to the largest point-drop ever on the New York Stock Exchange proved those critics wrong, exchange officials said Tuesday.
``The events of the last day or two showed that our Dow markets withstood the ultimate test,″ said Board of Trade spokesman Richard Myers. ``Clearly, we’ve never seen a market like this in the history of equities, and our futures markets were operated with efficiency and with order.″
Many investors had used Dow futures to hedge against losses such as those seen Monday, said Barry Lind of discount brokerage firm Lind-Waldock & Co.
``The majority of our customers today took a look at their stock portfolios, saw what they had lost and were very thankful that there are futures to cover them,″ Lind said. ``Nobody likes to see a day like (Monday). There was panic in the market, but I think the Dow (futures and options) worked real well.″