Retail trading has taken a gigantic leap in the last three years.
Bloomberg Intelligence estimates that the retail community constituted 24% of trading volume between Q4 of 2020 and Q1 of 2021, a historic high and a 10% increase over 2017’s numbers. The retail renaissance shone even brighter than the metrics would suggest when it came to certain stocks, taking Gamestop Corp. GME and AMC Entertainment Holdings Inc. AMC stocks to unprecedented heights.
Perhaps more importantly, the last three years have inspired a stronger belief that the self-directed retail trader can succeed in the markets. While this belief might sometimes be conducive to success, a bull run similar to 2021’s may have laid unrealistic expectations for the burgeoning trader. In 2022, the market turned increasingly hostile, and retail volume dropped from 24% to 17.5%.
Despite the reality check, a report by Cboe Global Markets Inc. CBOE shows the retail trading community has shouldered the 2022 bear market with more gusto than other metrics suggest, particularly in the options contracts market.
Cboe Option Trends In 2022
In a recent report, Cboe outlines a steady trend of improving average daily options volume driven by the retail investment community.
The average daily options volume between Q4 of 2019 and Q4 of 2022 has increased in stocks, exchange-traded funds (ETFs), and indices. In the case of individual stock options and ETFs, the volume has doubled and tripled in that time period respectively.
Compared to last year, however, single-stock options have retreated in volume, but ETF options volume has steadily increased. This suggests the use of these options for portfolio protection, hedging, and a lower risk appetite for trades.
In the long term, the results are even more promising. Options' average daily volume has been on a steady increase since 2019, meaning traders are consistently engaging with the market via options contracts. The average execution size has decreased throughout this time and appears to have plateaued at roughly 7.5 contracts a trade. The long-term trade size increase is indicative of increased retail presence.
SPX Shows Unprecedented Volume Growth
“SPX” is the ticker symbol for Cboe index options based on the Standard & Poor 500 Index.
Trading index options provide a host of benefits to retail traders, including favorable tax treatment, cash-settled trades, a European exercise style, and greater flexibility with smaller contracts. SPX’s volume growth suggests these benefits have attracted a flurry of retail investors and traders.
Specifically, 1-lot SPX trades, a metric indicative of retail presence, now represent approximately 9% to 10% of SPX’s total trading volume as opposed to less than 2% in the middle of 2019. Cboe tells Benzinga that the introduction of Tuesday and Thursday expiration dates fundamentally shifted the 2022 options contract landscape.
As a result of this addition, Cboe found that:
- 0 days-to-expiry (0DTE) trades, also indicative of retail presence, comprise nearly 40% of overall SPX volume compared to 20% in early 2022.
- Retail brokers comprise nearly 60% of overall SPX volume.
- SPX average daily volume (ADV) reached over 2.5 million for four straight months compared to the monthly high of 1.6 million in 2021.
0DTE options contracts appear to have a special hold on retail traders. Despite the slump in volume between Sept. 2022 and Dec. 2022, Cboe recorded more than 1 million ADV for 0DTE options throughout that time period. Additionally, 0DTE volume in SPX Weekly (SPXW) contracts reached a record high of 1.15 million contracts per day in October.
Finally, the graph above shows that global trading hours (GTH) retail volume has become a meaningful portion of SPX average daily volumes, suggesting that SPX trades are becoming more common across the globe.
These metrics should dispel speculation that the retail community has simply folded. Cboe’s report clearly shows that retail traders have shown fortitude in the options department.
If you’re curious to learn more about how options contracts could help your trading, click here.
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