Newspaper article THE JOURNAL RECORD

Options for Mutual Funds Disappoint Investors

Newspaper article THE JOURNAL RECORD

Options for Mutual Funds Disappoint Investors

Article excerpt

NEW YORK -- Mutual fund index options have proved to be a dud with investors, disappointing their inventors who'd expected wider acceptance than they've shown since their debut.

"The daily volume is less than what we hoped for," said Kenneth Farrar, managing director and co-head of global equity derivative sales at Salomon Smith Barney. "There are days when no options trade at all and that's clearly disappointing."

Salomon devised the options based on two mutual fund indexes created by Lipper Analytical Services. One of the options tracks 30 of the biggest U.S. "growth" stock funds and the other mimics 30 of the biggest U.S. "growth and income" funds. The index options started trading on the Chicago Board Options Exchange in December. Trading has been almost non-existent. Trading of the two Lipper/Salomon index products averaged just 65 contracts a day since Jan. 1, according to the CBOE. By contrast, about 89,000 index option contracts for the Standard & Poor's 500 Index changed hands on average each day this year. "So far, the fund options aren't a great financial success," said Michael Lipper, Lipper Analytical's president. Salomon's Farrar isn't giving up hope. "It's a unique enough product that there is an education process that must take place," Farrar said. In a broad sense, these index options are the antithesis of mutual funds because funds have traditionally been pitched as long-term investments. Index options can be used by investors who want to make fast profits by betting on short-term changes in market direction, either up or down. "I'm still optimistic that the product offers a unique way for investors to hedge their mutual fund exposure," Farrar said. The Lipper/Salomon index options give the investor a "call" to buy or a "put" to sell the notional value of the underlying index at a set price in a set period of time. …

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