An Anatomy of Retail Option Trading
55 Pages Posted: 25 Jan 2024 Last revised: 9 Feb 2025
Date Written: January 2, 2024
Abstract
The recent surge in retail option trading has sparked concerns about trading motives and large losses. We offer the first trader-level analysis of modern retail option trading by introducing a novel data set of $15 billion in retail stock and option trades. In our data, option trades constitute over one-third of all trades, concentrate in few underlyings, especially the S&P 500 index, and are dominated by short-term purchases with almost no covered calls or protective puts. Option trades incur modest losses compared to wide bid-ask spreads. Retail investors use options to participate in high-priced underlyings, with little leverage or skewness-seeking in realized trade returns. Our retail investors are relatively sophisticated on average but exhibit remarkable heterogeneity, with the main findings holding across investor styles.
Keywords: retail trading, options, investor behaviour, trading motives
JEL Classification: G10, G12, G14
Suggested Citation: 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
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