Options trading, traditionally the domain of sophisticated investors or wealth managers, is experiencing a surge in popularity among the general investing public. This trend is driven by both the broader adoption of trading and significant innovations within the market. These developments have simplified the complexities that previously deterred individual investors, signaling continued growth and usage in the coming years.
The landscape of options trading has evolved significantly, with average daily volumes in US options steadily increasing. According to the Options Clearing Corporation (OCC), the world's largest equity derivatives clearing organization, the reported volume reached 44 million contracts in 2023, up from 41 million in 2022, and more than double the levels seen in 2019.
The COVID-19 pandemic and subsequent lockdowns marked a pivotal moment for options trading. During this period, retail investors increased their understanding and engagement with options. The introduction of new industry enhancements and the availability of a broader range of options products have further contributed to the market's expansion.
Cboe Global Markets (BATS: CBOE), a leading derivatives and securities exchange network, has played a crucial role in this growth. Since introducing weekly SPX (ticker: SPXW) options that expire on Fridays in 2005, Cboe has continued to innovate. In 2016, the exchange listed SPX weeklies expiring on Wednesdays, and by 2022, they offered weekly options with expirations on every trading day of the week. This development allows qualified option traders to engage in SPX options trading daily.
The availability of SPX Weekly options with expiration dates ranging from zero (0DTE) to five days has significantly boosted 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 retail customers seeing an even higher increase of about 75%.
One of the key factors driving the rise in options usage is the increasing familiarity and knowledge among retail investors, facilitated by better access to data and tools. Social media platforms like Reddit have raised awareness about the utility of options, but education remains a critical component. Broker-provided education is expanding, equipping individuals with the confidence to incorporate options into their investment strategies.
Cboe’s The Options Institute offers an educational platform that caters to both beginners and professional traders. It provides comprehensive courses and tools designed to help investors navigate the complexities of options trading effectively. Understanding the risks and mechanics of options is essential for responsible trading, just as with any other financial asset.
Options trading is among the most effective financial tools for enhancing and protecting one's portfolio or speculating on current events. As individuals increase their knowledge and the industry builds capacity to meet growing demand, options are set to become an indispensable tool for navigating various market conditions.
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