An Anatomy of Retail Option Trading

43 Pages Posted: 25 Jan 2024 Last revised: 8 Feb 2024

See all articles by Vincent Bogousslavsky

Vincent Bogousslavsky

Boston College - Department of Finance

Dmitriy Muravyev

Michigan State University - Department of Finance; Canadian Derivatives Institute

Date Written: January 2, 2024

Abstract

The recent surge in retail option trading has sparked concerns about gambling and significant losses. We show that these concerns may be exaggerated using a novel trader-level dataset of about $20 billion in retail stock and option trades between 2020 and 2022. Option trades account for nearly half of all trades in 2022, making them a vital part of retail trading. Moreover, many investors trade only options. Despite wide bid-ask spreads, retail option trades incur relatively small losses. Although options theoretically resemble lottery tickets, we find little evidence of positive skewness in realized dollar profits, contradicting gambling-driven trading. A typical retail trade is the purchase of a one-day S&P 500 index call held for an hour. Retail investors tend to trade options to affordably participate in high-priced underlyings and to obtain leverage. Overall, we offer the first thorough trader-level analysis of current retail option trading.

Keywords: retail trading, options, gambling, investor behaviour, trading motives

JEL Classification: G10, G12, G14

Suggested Citation

Bogousslavsky, Vincent and Muravyev, Dmitriy, An Anatomy of Retail Option Trading (January 2, 2024). Available at SSRN: https://ssrn.com/abstract=4682388 or http://dx.doi.org/10.2139/ssrn.4682388

Vincent Bogousslavsky

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Dmitriy Muravyev (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

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