Options Market Experiences Significant Growth Amid Increased Retail Participation

Options trading, traditionally seen as the domain of sophisticated investors and wealth managers, is gaining traction among the general investing public. The growing adoption of trading, coupled with innovations in the options market, is contributing to this trend. Recent product iterations and enhancements in the industry have simplified the complexities that once held back individual investors, paving the way for increased adoption and usage of options.

The average daily volumes in US options have been on the rise, with reported volumes reaching 44 million contracts in 2023, up from 41 million in 2022, and more than double the levels seen in 2019, according to the Options Clearing Corporation (OCC). The COVID-19 pandemic and subsequent lockdowns are often cited as pivotal moments in the growth of options trading, as retail investors sought to better understand and utilize options during this period. However, the introduction of new industry enhancements and a wider range of options products have also played significant roles in expanding the options landscape.

Cboe Global Markets (BATS: CBOE), the leading derivatives and securities exchange network, has been at the forefront of this innovation. In 2005, Cboe introduced weekly SPX (ticker: SPXW) options that expire on Fridays. By 2016, the exchange had expanded its offerings to include SPX weeklies that expire on Wednesdays, and by 2022, Cboe had listed weekly options with expirations on every trading day of the week. This development allows qualified option traders to engage in SPX options trading every market day.

The availability of SPX Weekly options with expiration dates ranging from zero (0DTE) to five days has significantly contributed to the rise in 0DTE trading. A 0DTE option is an options contract set to expire at the end of the current trading day. According to the Financial Industry Regulatory Authority (FINRA), the number of opening 0DTE options positions increased by approximately 60% between January 2022 and January 2023, with a 75% increase among retail customers during the same period.

The rise in options trading can also be attributed to the increased familiarity and knowledge that retail investors are gaining through better access to data and tools. Social media platforms like Reddit have played a role in raising awareness about the utility of options, but education remains crucial. The rise in broker-provided educational resources is expanding options trading, giving individuals the confidence to incorporate options into their investment strategies.

Cboe’s The Options Institute serves as an educational platform for both beginners and professional traders, offering comprehensive courses and tools to equip investors with the knowledge needed to navigate the complexities of options trading. Responsible options trading is based on defining an investment objective and using informed decision-making rather than emotions. Understanding how options work and the associated risks is essential, much like any other financial asset.

As options become more accessible and the industry builds capacity to meet the growing demand, they will continue to be a valuable tool for enhancing and protecting investment portfolios, as well as speculating on market conditions.

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