Once deemed only appropriate for sophisticated investors or wealth managers, options trading has become increasingly popular among the general investing public in recent years. While public adoption of trading, in general, is one contributing factor to the growth of the options market, innovation is another consideration, with product iterations and industry enhancements that have come to market in recent years. The complexity that once held individuals back from using options is dissipating, making way for their continued adoption and usage in the years to come.

A Growing, Evolving Landscape

The growth in average daily volumes in US options has been gradually increasing. The reported volume was 44 million contracts in 2023, up from 41 million in 2022 and more than double 2019 levels, according to the Options Clearing Corporation (OCC), the world’s largest equity derivatives clearing organization. 

While the COVID-19 pandemic and the ensuing lockdowns are often cited as an inflection point in options trading as retail investors increased their understanding and usage of options during this period, the introduction of new industry enhancements and the availability of more options products are also factors that have contributed to the growth of the options landscape.

Product Innovation: Weekly Index Options

Cboe Global Markets CBOE, the world’s leading derivatives and securities exchange network, introduced weekly SPX SPXW options that expire on Fridays, in 2005. In 2016, the exchange listed SPX weeklies that expire on Wednesdays. By 2022, Cboe had introduced weekly options with expirations on every trading day of the week. Now, qualified option traders can trade SPX options every market day.

The availability of SPX Weekly options with expiration dates ranging from zero (0DTE) to five days has contributed to the growth in 0DTE trading. A 0DTE option is an options contract set to expire at the end of the current trading day. Every options contract, whether it was issued a month ago or just last week, becomes a 0DTE on its expiration date.

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, and for retail customers, the number of opening 0DTE options positions during the same period was approximately 75%.

Increasing Retail Access And Knowledgeable Investors

The rise in options usage can be partially attributed to the familiarity and knowledge retail investors are gaining through better access to data and tools. Social media sites, such as Reddit, have brought awareness to the utility of options, but education remains key. The rise in broker-provided education is helping expand options trading, providing  individuals with the confidence and enthusiasm to use options in their investment strategies. Thus, as retail participants become more familiar with options and their value propositions, demand for them is expected to grow.

Cboe's The Options Institute is an educational platform that provides both beginners to options trading and professional traders a forum to familiarize themselves with foundational knowledge on options or learn new developments taking place within the investment derivatives landscape. The Options Institute provides comprehensive courses and tools, equipping investors with the knowledge needed to navigate the complexities of options trading effectively. It is important to remember that responsible options trading is based on defining an investment objective and using analysis and informed decision-making to determine the most appropriate trading strategy, not emotions. Understanding how options work and the associated risks is paramount, just like any other financial asset.  

Takeaway

Options are among the best financial tools for enhancing and protecting one's portfolio or even speculating about current events. As individuals increase their knowledge of these products and the industry gradually builds capacity to meet increased trade demand, options will continue to become an indispensable tool to help investors navigate all types of market conditions. 

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