Head of IG UK, Matt Brief explains the future of options at IG after the TastyTrade acquisition.

Welcome to Good Money Guide. Today we’re joined by Matt Brief, he’s the head of UK at IG. IG is one of the longest standing brokers and trading platforms in the UK. They’ve got a global footprint now they cover everything from CFDs, spread betting and investment products. More recently, they’ve had a push into the options market. We’re going to have a chat with Matt, find out a little bit more about what options IG has, who they try to offer them to, and find out a little bit more about Matt, and how he likes to trade and invest

How are things going at IG at the moment? 

They’re great, we’re really busy. We’re focused completely on delivering more products for our clients. That’s one of the reasons I’m here talking to you today, we recently launched a new options product. So very happy to chat about it.

For a while now you’ve been able to trade options on the platform, mainly in the major indices and some big US stocks. You’ve expanded that universe. Do you just want to tell us briefly about that? 

I’ll try and give you little bit of a history and maybe bring it up to date. I’ve been at IG over 20 years. When I joined in, I think it was February 2001, we had already offered options and we’ve offered them to the day, largely as a spread bet and a CFD. So, the OTC offering, as you mentioned, mainly focused on indices and commodities. We offered that OTC style as a tax-free spread bet wrap-up. That’s been particularly popular and grown very strongly over the last 20 years.

What we’ve done recently, we had an acquisition, as I’m sure you know, of Tasty a few years ago. They were a non-exchange options broker, and we bought them primarily to get a bit more of a footprint in the US. What we realized pretty quickly and we knew at the time, is they have a phenomenal options product. It’s on exchange, it’s low commission, it focuses exclusively on US products that are becoming increasingly popular. And where they really go big and where they’re winning in the US, and we’re hoping we can leverage that in the UK, is all around education and education on options. It’s really been our pleasure to introduce the brand to our UK customers over the last couple of years.

When you open an IG account now, you can trade tax-free spread bet options like you always could do. But you also have the option of going to the Tasty platform through your IG UK account, and trading on exchange options focused on US products, as I said. But then also really engaging and having exposure to an enormous amount of educational content, whether you’re a beginner and you want to learn a bit, or whether you’re an intermediate and you want to get an expert, or you’re an expert and you want to learn more. That’s really Tasty’s USP. We’re really proud and delighted post the acquisition, to be able to bring their proposition to the UK market.

They’ve grown stratospherically, of course, because of their social media presence on YouTube, I’ve seen a couple of videos. I’m not quite sure how they have the energy to do it, but I suppose options can become quite obsessive, particularly in America. 

They are absolutely obsessed with options. I ran the options desk in IG for quite a few years going back a bit, so I didn’t think I had that much to learn on options. But it turned out I had lots to learn, they take the educational angle to the next level. When you look at their proposition, and when you come to IG and open an account, and you look at the Tasty platform, you really can see very quickly why they’ve been so successful in the US.

They’re very engaging, they’re obsessed with options, and they’re obsessed with educating people. They’re obsessed with strategies and making sure that you understand the risk, and that you trade smaller and you’re profitable in your strategies when you’re trading. It’s been very proud for us to be able to introduce that to UK clients over the last few months.

Let’s just have a look at where IG’s option offering has been and where it’s going. Traditionally it’s just been the top 10 traded products. Where have you traditionally seen flow within the options trading at IG, and where is it going post this Tastytrade acquisition? 

Traditionally it will be on the major indices. In my time, I’d probably say traditionally that’s DOW, DAX, FTSE, but certainly obviously in the last few years, it’s got a bit more tech specific. Lots more on the indices and obviously oil was topical, is topical, probably will always be topical. So, loads of exposure on the oil. IG has always prided itself on 24-5 markets, we had lots of interest in people trading our tax-free, spread bet options products around the clock, which was really interesting. There’s also that tax element of it.

We went into the equity options space with the spread bet and the CFD quite recently, and that’s quite popular. We offer quite a limited amount of US options via the CFD and the spread bet on the traditional IG platform. But that’s been very popular and that’s available online. What Tasty has allowed us to do, because it’s leveraging the on-exchange markets in the US, is completely open up that universe of markets. The most significant change there has been going from a handful of US equities that we offered on the tax-free spread betting side, to pretty much every listed equity that’s available in the US.

In terms of asset class, it’s probably more on the equity option side that it’s really just opened opportunities to being an IG client in the UK, in terms of us bringing on the Tasty proposition. At a high level, the two sit really well side by side. We’re always going to have clients that come to us and want to put it into a tax-free wrapper. But absolutely, we’re seeing lots of demand for people who want to trade on exchange listed options. We feel now that we’ve got Tasty in our offering, we’ve got the best options products in the UK market. With the Tasty stuff, I think the game changer there has been that they offer an enormous array of US equity options. They offer absolutely everything the commodities, the indices, the options on the futures, the options on the indices, the options on equities. If its exchange traded in the US, pretty much you’ll be able to trade it through the Tasty platform if you’re an IG client.

How do you open an account? I just went to tastytrade, tried to open an account and it said no, you’re in the UK, you’re not allowed to, fair enough. How would you trade on the Tasty platform from the UK? 

We’ve brought the Tasty proposition to the UK market via the IG account. All you’ve got to do is go to IG.com or download the IG app, open an IG account. As you open an account, you’ll see that you have quite a few options. You can spread bet, you can do CFDs, you can do ISIS, you can do smart portfolios, you can do cash equity, but you can also do listed options. One of the account types that you will be offered when you open an IG account is listed options. You can choose that, you can choose everything, it’s completely up to you. Obviously, if you do choose listed options when you go into our platform, then you’ll have the ability to use the Tasty platform. Then have access to all the array of markets that they offer. And just as importantly, have access to all their educational content that is second to none.

You spoke a lot about education and tastytrade, and there’s a big push for education, as there should be in all high-risk products. Options are really popular in the US because trading equities on a leverage basis, they don’t have spread betting, they don’t have CFDs, so it’s quite popular. In the UK, I’ve been an option broker myself, it’s quite a complex product to trade. Why do you think the UK hasn’t fully embraced options trading? Do you think the education that the US side of things bring transfers over to the UK?

I think the complexity side has absolutely been a barrier. You’re right to say that it’s the core product in the US because a lot of the other ways that people get it around the globe is not available in the US. Yes, it can be complex, that’s where the educational piece comes in. But you’ve really got to see it, I think, to believe how good their educational content is, and how engaging it is and how much you learn. I think everyone within the IG business in the UK has really learned a lot by talking and listening to our Tasty colleagues over the last few years. In terms of its future in the UK, I’m very optimistic. We’re getting lots of our longstanding clients who have spread bet and have used our investment products for years and years at IG. They’ve been asking for a listed options product. They’ve been asking for more exposure to the US market for a long time.

Since we’ve launched this a couple of months ago, the feedback has been great and we’re very happy with where it’s going. I think at a very high level, you can’t trade volatility on these traditional spread bet products, on these traditional CFD products. You can’t trade volatility in a traditional investment account. Having a view on volatility and being able to speculate, and being able to profit from your view of how volatile the market’s going to be in the next day, in the next week, in the next month, in the next year, is really interesting. I’m sure we’ll come on a little bit and talk about the US election. But lots of people will have views on how volatile the market will be if certain things happen or if certain things don’t happen. Sometimes people have stronger views on how volatile the market is going to be, than whether the market is going to go up or down. Now, that’s quite a significant amount of people.

I think what Tasty do really well is they join the two things up. I think we have lots of people who have an interest in volatility, they try and take advantage of that, or they try and express themselves by doing a directional trade. When actually, if they put the time into the educational content of Tasty, they can actually realise if they’ve got a view on volatility, they can be more suitable to trade an option than to trade a directional instrument. I think there’s a real core reason why, certainly if you’re interested in the volatility angle of it, that it’ll be worth engaging in the product.

Is that what a lot of people trade, taking a position on volatility?

Absolutely it is. When you look at the educational content on Tasty, it’s very much aimed at limited risk, trading small, but ultimately having a view on volatility and being quite strict with yourself in terms of what a potential move might be, what you think is going to happen, what you think the right implied volatility is. They really go to town on getting you to the next level of understanding how you can take advantage of a view on volatility. There’s complex and there’s simple strategies. You can buy a call, your risk is limited, it’s relatively simple to understand. If the market goes up, you’ll make money. Again, there’s a simple directional element to that. But absolutely what Tasty will specialize in is walking you through the different strategies, the options you have when you trade options.

Looking at these strategies, option strategies are quite complex if you want to put on a volatility position. Are there any things that I should look at if I want to put on a position where I think the market is going to be a little bit more volatile over the next week or so. Do I have to put the individual legs in myself? Do I have to look at the educational material and figure out the individual legs? 

Definitely look at the educational content, form what your view is. But what they are specialists in is really talking you through that. They have lots of abilities to ask questions and to interact with them. I think you can structure your portfolio in any way to take advantage, and to position yourself to profit, obviously, if your view on volatility is correct. They’re definitely the experts. I’ve learned a lot from them over the last few years.

Ultimately, if you think volatility is going to go higher from where it is now, if you think volatility is going to go up coming into the US election relative to expectations, and largely speaking, your buying options, that’s what options are. They give you the ability to take a view on volatility. What Tasty specialise in has been a little bit more nuanced. So, if you think volatility is going to go up, but it’s not going to go up above a certain point, then you can profit even more from that.

Probably more importantly, if you’re looking to sell an option, if you’re looking to sell volatility, the downside of that is your risk is unlimited and Tasty again, they wrap around strategies that limit your risk. But also allow you to take advantage of your view that volatility is going to be quite low going forward. It can be almost as simple or as complicated as you want to make it. Tasty really is a door into the world of options trading, and the breadth and functionality it gives you. Speaking as someone who has dealt a lot with Delta One products over the years, and dealt very much with volatility products, it definitely gives you a different number of options. It definitely allows you to express your view probably in a more interesting way.

How sophisticated is it? Is there a strategy builder? If I say, I think this is going to happen, create a strategy around this?

You definitely can. There’s the ability to engage with really cool chat boxes, and really cool chat shows, and really cool workers at Tasty. You can talk to them about your strategy and how to optimize it. You can listen to people who’ve got probably similar views. There’s a real good community feel to it. You want to put a bit of time into it, it wouldn’t be necessarily five minutes. But I think the more you put into it, the more you put out of it. The feedback we’ve got so far from the offering has been really positive.

Do you trade options yourself?

I do. I probably do more the Delta One stuff. I probably do more of the directional stuff. But no, very often I do trade options. I ran the options desk at IG a while ago so, I’m definitely no stranger to trading options, but probably the majority of stuff I do is more on the Delta One directional stuff.

And Delta One for those that don’t know? 

Delta One really is just when the instrument and derivative you’re trading moves one for one with the underlying. For example, if you trade a future, if you trade a traditional CFD or spread bet, or even if you buy the underlying stock, your profit, your loss will be directly related point by point for how the underlying market moves. When you trade something that’s not Delta One, there’s more of a volatility element in play. It brings a different element to your portfolio. But it works for some people who’ve got more volatility views than directional views.

Do you have a favourite options trading strategy? I always quite like buying deeply out of the money things and seeing what happens.

I’m probably not particularly sophisticated when it comes to options, given somebody that’s run an options desk. I used to just do a little bit of buying the calls, maybe a little bit of counter trending. Buying puts when the market’s quite high and volatility is quite low so, the premium is quite cheap. But like I said, what I’ve learned since the Tasty acquisition, and since bringing Tasty to the UK a few months ago, is just the range of positions that you can bring up and how you can bring strategies into your trading.

But me personally, I probably do actually keep it quite simple. I like my limited risk when I trade options. I’ll probably buy a call if the market’s going up, or buy a put if I think the market’s going down, and keep it quite simple. That works for lots of people. If you want an additional level of complexity in your portfolio, then that’s where Tasty come in with their educational part.

Let’s just have a look at potentially the top three uses of options. For people who have never come across them, but are fairly sophisticated investors, perhaps with a portfolio, with some exposure to the market in currencies or industries. What would you say the top three actual uses of options are within the investing world from hedging to volatility? 

I think the top two will probably be the covered call and then buying a put to hedge your overall portfolio. So just maybe to cover them one at a time. Covered call, again, a really popular strategy in the US. So far from everything we can see, it’s going to become an increasingly popular strategy in the UK. That’s something that Tasty offer.

It’s all based on your view. But if you’re long in stock and you think it’s going to go to the moon tomorrow, then covered calls aren’t for you. If you’ve got a long-standing position on a company that you’re just generally bullish on, then what lots of people do is sell premium on a call. They just receive premium over the years as they constantly sell calls against their long position. They’re covered on the downside, and the only downside to a covered call strategy is if the market actually shoots up much more than you expect. It’s just a way of supplementing your income with your long equity portfolio.

It’s all depending on your view of volatility, and if you’re holding a stock and you think it’s going to go up 20 % tomorrow, then there’s no reason why you should be looking to sell a call against it. But very often, people obviously hold stocks for a long period of time. They’re very bullish on the company. They think it’s going to grow over a long period of time. And selling calls can be a good way of receiving regular income against that position.

Again, it’s a very popular strategy in the US and something that lots of our clients in the UK have started to do, and something that Tasty talk about in depth when you engage with their platform. Like I touched on before, there’s always going to be lots of UK clients who want their trading to be tax efficient. That’s completely understandable. I’m very much in the same boat, and the vast majority of traders that come to IG will prioritise tax efficient trading. The vast majority of them will always be doing the spread bets when they come to IG, or doing the investments in their ISA when they come to IG.  There are also reasons why you might want to engage with the on-exchange side of it.

What Tasty are particularly good at is the capital efficiency. So, you put on these strategies, you might be two legs, three legs, four legs, then the capital that you’ve got to put aside to that is kept very minimal. They’ve got very sophisticated portfolio management systems in the background working to make sure that you get the most out of your capital as possible. It’s different horses for courses, turn left if you prefer the tax efficiency, turn right if you prefer the extra functionality, and the extra exposure to all the markets that the Tasty offering gives you.

Just one more question on the covered calls. If you’re writing calls, do you have to have the stock lodged with you? 

When you have a covered call, yes, the whole point of the strategy is that you have the stock. Obviously, that’s where you get the margin offset. You have the long stock position and you have the short call position on the same account. That’s where you get the margin sufficiency. That’s why it’s so great with the capital efficiency and the regular income that the covered call premium gives you. That’s why it’s so popular in the US, and becoming increasingly popular in the UK.

If your question is, do you need to be longer stock to sell a call on a market, then absolutely not. You can go on to the Tasty account, you can sell a call on Tesla, you can sell a call on Nvidia. You don’t have to hold a stock. But you do need to know that obviously your risk on the upside is much higher. The margin will reflect that. Obviously, your risk appetite would also need to reflect that. I think in general; the covered call strategy would be a lot more popular, but then also a lot more measured from a risk perspective, then selling a naked call. But you can sell naked calls and puts on the Tasty account.

That’s one, what about the other two? 

The other one I’ve got in my head, is just buying puts to hedge your portfolio. This is probably what I used options for the most myself. You’ve got a portfolio, either with IG or it could be with somebody else, hopefully with IG. That might be a leverage portfolio, it might be an investments portfolio, but ultimately, you’re on the market over a long period of time. We all know that markets trend up over a long period of time historically, and that once you keep your portfolio through various ups and downs, you should receive a good growth over the long term.

What lots of people do, during periods where they believe volatility is high, or they believe volatility is going to be high, or they feel there’s going to be a market correction, rather than close out your entire portfolio which can be quite expensive, it can be something you probably don’t want to be going in and out of all the time. It can also be tax inefficient to close these trades. You just buy a put, hold the put for a period of time knowing that you have some downside cover if the markets were to sell off and they were to go a bit lower. But also knowing that the premium that you’re paying is limited. Therefore, if the markets were to go significantly higher, you would still get that upside. But the cost of that position is obviously the premium you buy in the put. I think the covered call and then the buying of the put to hedge in the portfolio, are probably the two most popular strategies.

I think if I was to pick one more, it would just be a complete volatility play. So, either buying a call and buying a put on one side of it, or selling a call and selling a put on the other side. On the former one, when you buy a call and buy a put, you don’t really mind which way the market moves, but you’re going to be in profit if the market has a significant move, and you’re going to lose money if the market doesn’t do anything.

On the other side, if you sell the call and the put, then obviously you’re taking what we call a short volatility position. Certainly, from my experience, in the UK options trader, just having a pure view on volatility, whether it’s buying a call and a put, or selling a call and a put, is probably the most popular strategy, behind the covered call and behind buying a put to hedge your portfolio. That would be my attempt at the top three, whether that’s accurate or not.

For anybody getting started in the UK, top three tips, obviously not tips, not advice, just a bit of guidance. We don’t know anybody’s personal circumstances. What do you think people should be most mindful of when starting to trade options? 

They should definitely be mindful of whether their trade is limited risk or unlimited risk. Clearly that’s really significant. That’s really key. I would probably go a step further and say, make sure your trades are limited risk. Make sure that you have a defined risk on all your trades. Tasty are really good at going really big and teaching their clients to trade really small. That’s something that I’ve not always been great at in my trading past, but they really encourage you to trade small and trade often. Learn as you go, obviously. But even when you get more expert, also trade more on the small side.

What you don’t want, and what can be possible when you trade options, is that one big move can have a significant effect on your value of your portfolio. Trading small limits the downside risk when something does go wrong or when something does go against what you expect. I think understand whether your risk is limited. I think trade small. Ideally have a limited risk position. And of course, make sure you open an account with IG and then you can get exposure to the two different types of options products we have.

I’ll probably also say there’s an even easier way to access it. Stuff like Tasty on YouTube, if you Google Tasty options on YouTube, then I think you’ll see pretty quickly what they’re about and what options are about. You’ll work out pretty quickly whether it’s for you. There’s absolutely lots of people who will not want to trade options. Like you said, it is a little bit more complicated than your traditional spread bet. It’s definitely more complicated than an investment account, or putting stocks and shares into an ISA. It’s absolutely not for everybody, but it does give that added dimension to trading if it is something that you want to put a bit of time into.

Do you think options trading will ever become as popular as spread betting or CFD trading in the UK? 

I’m optimistic with what I see in terms of what our clients are telling us. I’m very optimistic in terms of what I see and the fact that IG now has the best options platform in the UK, in my opinion. I don’t think it will become as popular. I think spread betting is almost the established way of leverage trading in the UK. There are cultural reasons behind that, just like there’s cultural reasons why options are so big in the US. That’s not specific to the mechanics of the product, that’s much more specific to the evolution of the regulatory environment in those two locations. I don’t think that’s going to change anytime soon.

The vast majority of traders that come to IG, as well as coming to us for what we offer in terms of platform and range of markets, they’re really keen to put their trading within a tax-efficient vehicle. That’s the spread bet. That’s not the option. There are reasons to do both. At IG, we’re trying to, as much as we can, give all products to everybody. If you want to trade listed options, we’ve got the best listed options product here. But I think I’ll always expect to see the majority of people coming to us for a tax-free spread bet. Or just putting lots of different shares into their ISA on our investment account that we offer.