Trends in Options trading (2024)

Data Insights

Steven W. Poser

Director of Research

December 4, 2023

Retail participation in options market trading rose sharply during the pandemic, peaking at 48% in July 2022. While it has bounced around since then, it hit 45% in July 2023 (Chart 1). This data suggests that substantial retail options trading is here for the foreseeable future.

Estimating the amount of retail trading in options trading requires a different methodology than used to estimate retail equities trading. We recently authored two articles discussing retail trading activity on the U.S. equity market: one on low-priced stocks and the other on market breadth.

Unlike equities1, all options trading is executed on exchange and reported to the Options Price Reporting Authority (OPRA) - the options equivalent of the equity markets’ Security Information Processers (SIPs). However, there are several mechanisms that allow market makers to offer price improvement and/or receive allocations on orders that are sent to them. These features allow us to estimate retail traders’ share of the U.S. options market.

We use a modified version of the methodology presented in a recent London Business School research paper.2 We combine trading in price improvement auctions, such as NYSE American’s CUBE, along with small trades executed electronically.3

Trades that meet any of the following conditions are counted as retail: fully electronic trades up to 10 contracts4, all executions in non-ISO/AON/complex price improvement auctions (regardless of trade size) and electronic trades greater than 10 contracts, if the total notional size of the trade was not greater than $5,000. We use the 10-contract limit because multiple options exchanges offer the ability for market makers to interact with order flow they provide up to five contracts, which may encourage trades close to that size to be executed electronically.5 While this methodology is not perfect – we are basing the volume from trades reported to the OPRA SIP - which could be part of larger “parent” orders – without direct knowledge of what trades are truly from retail customers, this methodology should provide a reasonable estimate.6

As Chart 1 below shows, retail’s share of options market trading rose sharply during the pandemic. In late 2019, retail options volume ranged between 34% and 38% of total trading7, peaking near 48% in the second half of 2020. It recently slipped to near 38% in October 2022, but has risen again, reaching 45% in July. The chart separately shows how much of total volume is from price improving auctions. Price improvement auctions have remained steady near 15% of total volume, while electronic trades8 by retail accounts notched larger gains.

Chart 1: Retail Share of Options Trading

Short-dated Options trends

The launch of exchange-traded U.S. equity options in 1973 offered only quarterly expiration dates in March, June, September, and December. Later, longer-term options (LEAPS) and monthly expiration dates were introduced. In recent years, weekly options series, and now even daily options expiries9 in SPY and QQQ, have been added.

The shortest to expiry options have increased sharply as a share of the U.S. options market. In November 2019, options with zero or one day to expiration were just over 12% of volume. As of the end of September, these options volume reached nearly 31%, with 22% in short-dated options10. This is due to activity on the final day of options trading for weekly, monthly, and quarterly series. Chart 2 below shows this trend. Short-dated options share rose from 6.4% in November 2019 to 21.6% through September 2023.

Chart 2: Share of Options Volume Trading by Time to Expiration

The rise in retail trading happened at the same time as the rise in short-dated options. This trend is even more pronounced for trading we determine to be retail (Chart 3). Specifically, 56% of all retail options volume is now in options with five or fewer days to expiry, compared to about 35% in November 2019. Short-dated options share more than tripled to 26.3% from 7.8% over the same period.

Chart 3: Share of Retail Options Trading by Time to Expiration

It is also instructive to understand the retail share of options trading activity by days to expiry as shown in Chart 4. As we previously noted, currently, overall retail share of the options market is around 45%. However, retail is far more prevalent in shorter dated options than in options with greater time to expirations. For example, we estimate retail accounts for 34% of options trading of options with roughly 1-3 months to expiration, and about 31% for options with more than three months to expiration. Short-dated options are currently 51% retail. This number dipped to 41% at the onset of the heavy pandemic trading in March 2020, before trading approaching current levels from late 2020 until early 2022. It began to slip through 2022 before returning to pandemic-era levels, as options volume concentration has continued to rise in SPY and QQQ, which are heavily concentrated in short-dated options activity (see next sections).

Chart 4: Retail Share of Trading by Time to Expiration

Low-price Options Trends

One point that has often been mentioned is that retail traders are more likely to buy low priced options than institutions. We categorize low-priced options as any options contract traded at a price of $0.25 or less. While traders do not necessarily expect these options to ever finish in-the-money, their activity implies an expectation of a quick move in the direction of their trade, which can result in very large price changes. While the overall increase in short-dated options trading is likely to cause increased volume in low-priced options, we still find a substantial difference in the share of retail volume in such contracts, compared to non-retail volume. Recently, 28% of retail volume has been in low-priced options. This compares to 25% across all accounts (Chart 5).

Chart 5: Share of Volume in Low-price Options - Overall vs. Retail Accounts

Symbol Concentration

Much like notionally-weighted trading in the U.S. equity market, which has been dominated by passive trading via a few very large ETFs11 and a small group of mega-cap stocks, concentration in options trading volume has increased sharply in recent years. As Chart 7 below shows, more than half of all options contract volume is now in the ten largest symbols. Prior to the pandemic, retail trading was noticeably less heavily weighted to the top 10 securities, but over the last two years, the retail and overall trend have largely merged.

Top 10 non-ETP Symbols by Volume 2023:Q3

* - NIO ranks 12th overall and BABA ranks 12th for retail. RIVN is 11th on both lists.

Chart 6 below shows the increased concentration of single-name symbol volume. Concentration has grown steadily since 2019, with even greater concentration by retail accounts. More than 40% of single-name retail options volume is in the top 10 symbols compared 26% in November 2019. Overall growth is a bit less, rising to 37% from 23% during the same time.

Chart 6: Share of Volume in Low-price Options - Overall vs. Retail Accounts


Most estimates of retail trading in the U.S. stock market centers around 50% of total market volume. Using our estimate, retail share of U.S. equity markets options volume is slightly lower at 45%, although differing measurement techniques may account for the small disparity. The increase in retail options share was initially fueled by the pandemic in 2020 and has continued to grow as retail options traders have latched on to short-dated options to make bets on market direction. There has also been an increasing share of volume in low-priced options, further fueling overall options volumes, and especially retail trading. None of these trends appear to be in danger of reversing.

The continued increased concentration of trading in a few large ETFs has also reared its head in the options market. While we do not see this as a necessarily permanent shift, until investors broaden their focus to smaller cap issues, which have less coverage in the options market, this trend is not likely to reverse any time soon.

1 Most US equity retail activity is routed to “wholesale” market makers, executed off-exchange and reported to one of the FINRA Trade Reporting Facilities (TRFs).

2 Retail Trading in Options and the Rise of the Big Three Wholesalers, forthcoming Journal of Finance

3 We exclude complex multi-leg trades, trades executed on the various options trading floors, other auctions, and non-standard order types such as Intermarket Sweep Orders (ISOs), which retail accounts typically cannot access.

4 We make use of proprietary data to identify executions that are tagged as customer trades.

5 We look for trades that have a customer on one or both sides of the trade. We divide this measure by total options volume. This is like how retail activity is estimated in U.S. equities. However, in U.S. equities, retail orders rarely execute against other retail orders. There is greater opportunity for retail orders to trade with other retail orders in the options market because all orders execute on exchange. We can calculate a related retail value, which would measure all sides - buys and sells. This roughly halves the retail share we used for the article. We chose the single counted statistic because it is in more common usage.

6 The paper noted above (Retail Trading in Options and the Rise of the Big Three Wholesalers) attempts to eliminate the parent order issue by looking for trades executed on the same exchange at virtually the same moment to eliminate larger orders. While this may help, it may over filter, as there also may be many small trades broken up by algorithms that get captured in the five-contract limit. OPRA data does not indicate customer-type (Customer/Firm/Market Maker), which could help with this kind of filtering.

7 When we calculate share of volume, we consider both the buy and sell side (or equivalently, the liquidity providing and liquidity taking side). If reported volume is 100 contracts, then there were 200 contracts traded - 100 bought and 100 sold. Our estimates count one side of the simple price improvement auctions as retail and estimates both sides of OPRA auto trades.

8 Electronic trades are the difference between the total line (blue) and the price improvement auction line (black).

9 SPY and QQQ options series have expiries for each day of the week and are initially issued as options with two weeks to expiration. IWM has expiries on Monday, Wednesday and Friday, initially issued with a two-week life. USO, UNG, GLD, SLV and TLT have two-week options that expire on Wednesday and Friday.

10 Options expiring on the same day.

11 The top two options trading symbols are ETFs: SPY and QQQ. Their retail options volume was greater than the next nine options in September 2023, and the next 12 for all options trading.

As an expert in financial markets and trading, it's evident from the detailed analysis provided in Steven W. Poser's article, "Data Insights," that the author possesses a profound understanding of the dynamics within the options market. The depth of knowledge is demonstrated through the utilization of intricate methodologies, reliance on reputable sources such as the Options Price Reporting Authority (OPRA), and the incorporation of insights from a recent London Business School research paper.

Let's delve into the key concepts and insights presented in the article:

  1. Retail Participation in Options Trading:

    • Retail participation in the options market experienced a significant surge during the pandemic, reaching 48% in July 2022 and maintaining a notable presence at 45% in July 2023.
    • The methodology for estimating retail trading in options involves a modified version of the approach presented in a London Business School research paper, combining data from price improvement auctions and small electronically executed trades.
  2. Short-Dated Options Trends:

    • The article traces the evolution of options trading, noting that the options market initially offered quarterly expiration dates, later introducing longer-term options (LEAPS), monthly expirations, weekly options, and even daily options expiries.
    • Short-dated options, particularly those with zero or one day to expiration, have seen a sharp increase, constituting nearly 31% of options volume by the end of September 2023.
  3. Retail Share by Time to Expiration:

    • Retail trading is more prevalent in shorter-dated options, with 56% of all retail options volume concentrated in options with five or fewer days to expiry, compared to about 35% in November 2019.
  4. Low-Price Options Trends:

    • Retail traders are noted for their inclination to buy low-priced options, defined as options traded at $0.25 or less. Approximately 28% of retail volume is in low-priced options, compared to 25% across all accounts.
  5. Symbol Concentration:

    • Concentration in options trading volume has increased, with more than half of all options contract volume now concentrated in the top 10 symbols.
    • The concentration is even more pronounced in retail accounts, where over 40% of single-name options volume is in the top 10 symbols.
  6. Conclusion and Market Outlook:

    • The article concludes by estimating the retail share of U.S. equity markets options volume at around 45%, attributing the increase to the pandemic's impact and the growing preference for short-dated options.
    • The concentration trend in trading, similar to the equity market, is expected to continue, especially in a few large ETFs.

Overall, the insights provided in this article offer a comprehensive understanding of the trends, dynamics, and factors influencing retail participation in the options market, showcasing the author's expertise in the field.

Trends in Options trading (2024)


What is trend following in option trading? ›

Trend following achieves positive returns because long-term (1-12 months) trends occur in virtually all markets some of the time. Trend followers create quantitative models to capture these long-term trends while limiting the cost.

How do you identify a trend in option trading? ›

An uptrend has successively higher peaks and higher troughs. A downtrend has successively lower peaks and lower troughs. A sideways trend is a period with no clear direction in prices. Consider bullish options strategies i.e., buy calls or sell puts.

What is the trick for option trading? ›

Avoid options with low liquidity; verify volume at specific strike prices. calls grant the right to buy, while puts grant the right to sell an asset before expiration. Utilise different strategies based on market conditions; explore various options trading approaches.

What is the easiest way to explain options trading? ›

A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. Think of a call option as a down payment on a future purchase. Options involve risks and are not suitable for everyone. Options trading can be speculative in nature and carry a substantial risk of loss.

What is an example of trend trading? ›

A trend trader would enter a short position when the asset is falling to lower price points. For example, if a stock decreases in price by 200p, then increases by 100p, falls again by 300p and rises by 50p, it would be in a downtrend. This is because it is falling to lower lows and lower highs.

What are the stages of trend trading? ›

Primary or major trends consist of three phases: accumulation, trending, and distribution. During the accumulation phase, prices are generally rising slowly as buyers gradually accumulate more assets. This phase can be a great time for informed market participants to start accumulating shares at a discounted price.

What is the best indicator for trend trading? ›

10 most popular indicators for trading
  1. Moving Average. ...
  2. Exponential Moving Average (EMA) ...
  3. Moving Average Convergence Divergence (MACD) ...
  4. Stochastic Oscillator. ...
  5. Bollinger Bands. ...
  6. Relative Strength Index (RSI) ...
  7. Fibonacci Retracement. ...
  8. Standard Deviation.

Which indicator has highest accuracy? ›

Which is one of the most accurate trading indicators? The most accurate for trading is the Relative Strength Index. It is considered one of the best momentum indicators for intraday trading. It helps investors identify the shares which are bought and sold in the market.

How do you never lose in option trading? ›

The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.

Why do people fail in option trading? ›

Lack of a clear strategy: Options trading requires a well-defined strategy. If options buyers do not have a clear plan, exit strategy or risk management in place, they may make impulsive decisions that lead to losses.

Why do most options traders fail? ›

Lack of knowledge and experience can lead to costly mistakes. 2. Speculative Nature: Options can be highly speculative and leveraged, which means that traders can lose a significant portion of their capital quickly if the market doesn't move as expected.

How should a beginner start options trading? ›

You start with your thesis on a given asset, deciding whether its price will increase or decrease over a certain period of time. Then, you use your preferred trading platform to take your position in the relevant option.

What is the safest option strategy? ›

The safest option strategy is one that involves limited risk, such as buying protective puts or employing conservative covered call writing. Selling cash-secured puts stands as the most secure strategy in options trading, offering a clear risk profile and prospects for income while keeping overall risk to a minimum.

How to learn options trading basics? ›

How are Trade Options Using Four Easy Steps?
  1. Step 1- Open An Options Trading Account. To start trading in options is not the endgame. ...
  2. Step 2- Pick The Options To Buy Or Sell. ...
  3. Step 3- Predict The Options Strike Price. ...
  4. Step 4- Analyse The Time Frame Of The Option.
Mar 12, 2024

What is trend-following indicator? ›

Trend-following indicators are tools that help traders identify and follow the direction of the dominant market trend. They can also provide signals for entry and exit points, as well as potential trend reversals. However, not all signals are equally reliable, and some may be false or misleading.

What are the benefits of trend-following? ›

The benefits of trend following include the potential for higher returns during market uptrends, as well as reduced risk during market downtrends. Trend following also helps investors avoid emotional decision-making by relying on objective technical indicators.

What is trend-following strategy vs mean reversion? ›

Trend-following and mean reversion operate on different premises. The objective of trend-following is to capitalize on assets moving strongly in a particular direction. The objective of mean reversion is to capitalize on price deviations from an established mean or average.

What is the difference between swing trading and trend-following? ›

Trend traders tend to focus on broader economic news, while swing traders focus on short-term price changes. Relative to trend traders, swing traders trade more frequently and for a shorter time period, while also taking larger positions and being more precise with their position timing.


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