How John Foley, CEO of Options AI, is Empowering Options Traders to Convert Great Ideas Into Smarter Trades
While we may not know exactly how FinTech will impact our future, we have an idea as to who will be leading the charge. Our latest blog series, “The New Faces of FinTech”, spotlights some of the emerging leaders in the FinTech world to get their thoughts on what the future of the industry will look like. Their origin stories are different, their paths to entrepreneurship are unique, but their impacts on their respective industries are significant. No one truly knows what the future of FinTech holds, but these industry leaders may have an inkling as to what we can expect.
With over ten years of experience running an institutional-based broker dealer, John knows a thing or two about institutional options trading. Having witnessed firsthand the option strategies used by institutional investors and seen the resources at their disposal, John questioned the barriers limiting retail traders from being able to benefit from a similar approach to trading. Approaching the options trading space from an institutional investor’s perspective led John and his partners to found Options AI, a technology-driven brokerage which turns the traditional approach to options on its head and provides retail traders with the freedom to choose between stock, options and spreads, all from one chart.
This is part 8 in the 2020 edition of our “The New Faces of FinTech” series created in partnership with growth marketing agency Ideometry. Thanks to all the interviewees for participating, and thanks to you for reading!
Can you tell us a bit about Options AI?
John: Options AI is an entirely new kind of brokerage firm. Built around unique technology designed to remove barriers to advanced options trading and put the benefits of option spread trades at the fingertips of retail investors. While our focus is on smarter trading through innovative technology, we also pride ourselves on providing high-touch customer support.
Obviously the overriding conversation in the brokerage world is about the so-called ‘democratization’ of financial markets. Making it simple for first-time investors to do their first trade with the incentive of zero commission. We actually believe there’s a different conversation to be had. It involves leveling the playing field for retail investors by improving access to smarter trading strategies and providing better risk and trade management tooling. Our focus is on helping our customers get to the right trade, not just any trade.
Having co-founded and run an institutional brokerage firm for the last 10 years, a key observation is that it’s rare to see a professional trader execute an outright single leg option trade, unless it’s part of a broader hedging strategy. That’s because there’s typically a smarter, more cost-effective way to trade any view using a spread. The problem with option trading is that finding the right advanced strategy isn’t always easy.
We started Options AI with that perspective in mind. We wanted to build an incredibly simple and intuitive user interface that made option spreads as accessible as stock and single leg option trades and at the same time reflected a more institutional approach to trading. So retail traders could enjoy the same tools and methods available to professional traders.
On Options AI you select a stock or ETF and start by seeing its future expected move chart which is derived from real-time options prices. It’s essentially a visualization of the options chain and can be used for idea generation and market insight. It also provides an interactive platform for a user to select an informed price target. From there, the Options AI engine generates multiple alternative strategies to reflect that view — from stock and single leg options to both debit and credit spreads.
So not only can a trader get to spread trades much faster by-passing the options chain, you no longer need to start with a predetermined idea of what strategy that you want to trade — so we’ve really turned the traditional brokerage platform on its head.
What can you tell me about your team and the milestones your company has achieved thus far?
John: We’re four founding partners, each with a unique background spanning institutional options trading, market-making, technology and brokerage operations. A fifth partner runs our engineering team. Personally, I co-founded an institutional brokerage almost 10 years ago — a business that I still oversee today. My partners have similar entrepreneurial backgrounds in both finance and technology start-ups. Our diverse skill sets have meant we’ve managed to remain a relatively small and lean team as we’ve taken the company from idea to launch.
Our first major milestone was solving the problem of removing the options chain from the process of creating multi-leg options trades. We did this by creating what is essentially a visualization of the option market. Turning the chain into a forward-looking chart.
We then realized we had something truly unique that could form the backbone of an entire trading platform. A process that could help take users from idea to execution, in seconds. So, our next major milestone was designing a trading platform that was really simple and intuitive yet robust enough to stand up to scrutiny from sophisticated traders and regulators alike.
Our third key milestone was launching the brokerage business itself. We went live in February of this year, initially to a cohort of friends and family. Since then we’ve launched to the public and are squarely focused on setting our milestones around customer acquisition and related options volume. We’re pleased to report that, to date, the business continues to grow beyond our early expectations.
What is the origin story behind Options AI?
John: From the vantage point of running an institutional brokerage firm, the disconnect between the types of trading strategies typically used by professional traders and those used by retail, was blindingly apparent. This was against a backdrop of fundamental change in retail brokerage. Disruptors opening the door to millions of first-time investors through commission cutting and simplified user interfaces. Meanwhile, there had been no discernible innovation in advanced option trading technology in decades.
We saw this as an incredible opportunity. To innovate in a space that had been largely overlooked. To put the same trades that institutional traders enjoy, at the fingertips of retail traders. Our belief was that a simplified platform for advanced trading would appeal to both existing sophisticated traders who wanted speed and efficiency and to newer traders looking to take their trading to the next level.
This became the genesis of Options AI. Figuring out a technology product that simplified something inherently complex and solved the problems retail traders face when trading advanced options. We are fortunate enough to have a successful institutional brokerage business that has allowed us to self-fund the entire journey from idea to launch. It has also allowed us to stay entirely focused on growing the business to date.
Who’s currently using Options AI? Are you seeing any emerging trends in terms of how the platform is being used?
John: In just a few months, we’ve developed a highly active and engaged customer base and we continue to add features based upon their feedback. Our typical customer right now is someone with existing options experience who either wants to advance their trading from single leg options to spreads, or who was trading spreads elsewhere and finds the Options AI approach much faster and more efficient.
It’s the platforms’ ability to help instill the confidence for traders to transition from single leg options to spreads that we’re most excited about. In fact over 90% of our trading volume is in multi-leg strategies. Another emerging trend is that our customers are increasingly trading credit spreads. In other words selling options rather than buying them. We see this as another key value proposition and differentiator of our platform.
How are you driving growth for the company?
John: A few months in, we’re obviously early in our growth strategy but have been really encouraged and excited by what we’ve seen so far. Rather than spending heavily on marketing and promotions, to date we’ve acquired customers through product demonstrations and referrals. We’ve also picked up some early press coverage — recognizing that amongst a sea of product catering to younger first-time investors, we’re coming at things from a unique angle. Now that we believe we’ve proven the concept and have the volumes to show for it, we’re gearing up for our next phase of growth.
How has the ongoing pandemic affected the growth of your company, if at all, and how has it been navigating this new reality that we live in?
John: There’s obviously been a lot of media attention on stock and option trading during the pandemic. Whether good or bad, there’s no doubt that it has put a spotlight on the market, on options, and on brokerage in general. Retail trading volume, particularly in options, has grown dramatically.
So, no one in retail brokerage is complaining about the business impact of more people working from home and looking at the stock market more. Launching our business in the middle of that has helped with visibility and customer acquisition. That said, we’re a brokerage built for more advanced, level 3 option spreads. We maintain high suitability standards and a focus on defined-risk trading. The situation has brought a wave of first-time traders looking for leveraged products. We found ourselves in the highly unique position of being an early stage company looking to grow and actually rejecting a lot of customer applications. We decided that we’re ok with our stance that options trading isn’t for everyone and that maintaining focus on delivering a unique brokerage proposition to our target customer base, will build a business that lasts way beyond the pandemic.
What was it like to be apart of the FinTech Sandbox community?
John: Being apart of FinTech Sandbox was absolutely pivotal in terms of getting us to where we are today. Market data is expensive. Given the volume of data that goes into an options chain, without support from the Fintech Sandbox community, the cost burden to go from idea to working product would likely have been prohibitively high. So, there’s no doubt that working with FinTech Sandbox was instrumental in giving us the breathing space to build Options AI.
We’re thrilled to feature some of the incredible companies that have participated in the FinTech Sandbox program. You can contact Options AI here. If you’d like to connect with any of the other companies we’ve featured, you can find them all here.
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