July 1 (Bloomberg) -- U.S. options trading rose 4.6 percent during the first half of the year and headed for a seventh consecutive annual record as investors embrace computer-driven strategies and shun private transactions.

About 1.82 billion contracts linked to stocks, indexes and exchange-traded funds have changed hands in 2009, according to the Options Clearing Corp., which tracks trading on U.S. exchanges. During all of 2008, 3.28 billion traded. Average daily volume has climbed 5.4 percent to 14.6 million this year.

“Volumes remain amazingly resilient,” said Andy Nybo, head of derivatives at financial services consultant Tabb Group in New York. “Electronic trading is a big part of it, and you also have quantitative strategies.”

Volume has risen to all-time highs for six straight years as fund managers rely on options to boost returns or hedge their stock investments. The current surge in volume has been fueled by computer-driven trading and investors’ reluctance to use privately negotiated contracts in the wake of the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. last year.

A third of daily volume now comes from brokerages using rapid-fire trading strategies to buy and sell contracts, according to Boston-based financial services consultant Aite Group LLC. While transactions have increased as brokers seek to profit from fleeting pricing discrepancies, the number of existing contracts -- known as open interest -- has fallen 5.6 percent from a year earlier to a daily average of 274.6 million contracts, data from Chicago-based Options Clearing show.

Shift From Private Trades

Investors are shifting to exchange-traded options, migrating from the over-the-counter market following the worst financial crisis since the Great Depression. Record price swings made it difficult, and sometimes impossible, for brokers to price the contracts, according to Tim Youssef, co-head of derivatives sales and trading at Lighthouse Financial Group LLC in New York. Investors are also shunning privately negotiated contracts on concern about the risk of brokerages defaulting.

“We’ve heard from a lot of people who said they never want to trade another OTC derivative,” he said. “With listed contracts, it’s not up to just one trader to tell you what a contract is worth.”

Average daily trading increased 24 percent to 15.7 million contracts in May, the biggest jump in seven months, as investors boosted the use of equity derivatives, Options Clearing data show. Volume had slowed last year after professional investors such as hedge funds sold positions to pay back clients. Forced sales and the highest prices on record cut trading by 7 percent in December from a year before. November volume fell 21 percent.

‘More Options’

U.S. options trading increased 25 percent to a record last year as the widest stock swings in eight decades prompted investors to boost the use of derivatives for protection. Trading surged 41 percent to 2.86 billion in 2007, the biggest annual gain since 2000.

“You’ve seen an explosion in institutional interest,’’ said Gary Katz, chief executive officer of the International Securities Exchange, the second-largest U.S. options market by volume. “There are pension funds that in the past their charters wouldn’t allow them to use the product, but after the dramatic drop in their portfolios, they realize they would have been able to hedge much more effectively.’’

The Chicago Board Options Exchange, the biggest U.S. market, accounted for 29 percent of trading last month, Options Clearing said. The International Securities Exchange, a unit of Frankfurt-based Eurex AG, was second with 27 percent.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

Last Updated: July 1, 2009 16:16 EDT