GameStop And Robinhood And WallStreetBets, Oh My — Is The "Retail Renaissance" Here To Stay?

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The stars arguably aligned for the retail trading community in 2021.

Whether it was the rise of commission-free brokers, the attraction to unconventional income spurred by the pandemic, the meme stock phenomenon, and/or the combination of all, 2021 provided the right ingredients to spearhead the greatest rise in retail trading the world has ever seen.

The Retail Renaissance – as some like to call it – did more than just make for some fun on Reddit; it showed the prowess of the retail community and its effect on the financial markets. Aside from disrupting the stock price trajectories of Tesla Inc. TSLA, Bed Bath & Beyond Inc. BBBY, Wendy’s Co. WEN and numerous others, the retail community became an unexpected force against some trading institutions.

In an interview by Coalition Greenwich between June and September 2021, 42% of investing firms said retail investors had some negative impact on achieving their trading objectives. An examination of Cboe Global Markets Inc.’s CBOE 2021 Option Flow report describes the nuances of this larger finding. For example, the report notes that daily total option volumes records were set 17 times during the year, including 10 days of over 50 million traded contracts. 

Overall, 9.78 billion contracts traded over 252 sessions, 32% above the 2020 record of 7.47 billion contracts and more than double 2019’s total of 9.8 billion.

“Across product types, Index and ETF (exchange-traded fund) options saw moderate growth of 10% and 6%, respectively, while single stock options flow jumped more than 50%, building on the remarkable increase seen in 2020 when single stock options trading jumped 68%,” the report says.

“Notably, the 51% increase in single stock option volume greatly exceeds the volume increase in shares underlying those stocks for the year, which was approximately 5.2%.”

This last statistic may tell us something unique: The Retail Renaissance has been driven not just by stock purchases but also by options contracts. In fact, current levels of 1-lot flows – single contract option trades – are nearly six times the average seen five years ago and include a mix of retail, professional retail and institutional traders using algorithms to minimize market impact and optimize trading costs.

Statistics from other sources reflect the rise of options alongside retail investors. A report by the Alphacaution Research Conservatory, for example, stipulates that retail investors account for more than 25% of total options trading activity.

While retail numbers have decreased from their 2021 peak, the retail community remains alive, active and eager to learn. However, to posit an educated guess as to whether the good times keep rolling or not for the retail community, it could be valuable to look at newer tools aimed at retail traders.

As one of the largest options exchanges in the world, Cboe tracks the retail community’s progress and is creating what it hopes will be empowering instruments for the retail sector.

For 2022 and beyond, it has reported a host of products aimed at facilitating this community’s growth and leveling the playing field in the financial markets. 

Cboe: Minis, Nanos And Option Analyzers

To reportedly address affordability and complexity issues, Cboe created Mini and Nano Options.

Cboe’s Mini-SPX and Mini-Russell 2000 (MRUTSM) Index provides investors with access to S&P 500 and Russell 2000 options contracts – and all their benefits – at one-tenth the size. Aside from their affordability, these options can introduce tax benefits, decrease dividend risk and decrease risk arising from stock-settled options. You can read more about Cboe’s Minis and their potential benefits here. 

Cboe’s Nanos take it one step further. Addressing affordability concerns, Nanos trade on Cboe as a $1 multiplier option on the Mini-SPX Index, which is 1/10th the value of the S&P 500 Index. This is a contrast to the $100-multiplier that standard option contracts have. Altogether, this means investors will have a derivative that is a thousand times cheaper than its standard counterpart.

Cboe says it has attempted to reduce the complexity of standard options contracts with Nano contracts. Nanos℠, for example, will have fewer strike prices, shorter expiration cycles and will settle in cash instead of shares.

Working alongside Cboe’s Nanos and Minis, Cboe’s Options Trade Optimizer aims to further simplify the investment process by protecting an investor’s most valuable commodity: time. By leveraging its features to test and evaluate trading ideas, investors can identify actionable options strategies, trade probabilities and potential returns on investments.

Time will tell if other large financial institutions and market-makers will increasingly look to the retail sector, but the fact that a player such as Cboe, among others, is willing to invest in the long-term capabilities of retail traders could point to a trend of a longer renaissance than perhaps was expected ever before.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

Nanos trade on Cboe as a $1 multiplier option (versus a $100 multiplier for standard options) on the Mini-S&P 500 Index, which is 1/10th the value of the S&P 500 Index.

You should consult your personal tax advisor to understand potential tax consequences of trading Nanos.

There are important risks associated with transacting in any of the Cboe Company products discussed here. Before engaging in any transactions in those products, it is important for market participants to carefully review the disclosures and disclaimers contained at http://www.cboe.com/options_futures_disclaimers.

Readers should understand that the authors were compensated by Cboe for the preparation of this article, which is not intended to be used in connection with the offering for purchase or sale of any product. The information in this article is for informational purposes only and no statement within this article should be construed as investment advice or a recommendation to buy or sell a financial product. The authors and Cboe make no representation as to the appropriateness of XSP, MRUT or Nanos options for any investor. Neither the authors nor Cboe assume any responsibility for any losses you might suffer by reason of investing in XSP, MRUT  or Nanos options.