Significant Growth in Options Trading Volume and Its Implications

The volume of traded options skyrocketed during Covid.

Let’s break this topic down into three parts: the growing volumes, the ratio of Put and Call option trading, and an analysis of the profitability of options trades.

We will also examine the reasons behind this trend, its potential consequences, and how we could—or perhaps should—leverage the outcomes, statistical insights, and analytical findings.

Options Trading Volumes

The graph below illustrates the total number of traded options contracts per year, demonstrating a dramatic increase since 2019.

In 2020, there was a sharp surge in trading volume, reaching over 7.4 billion contracts, up from approximately 4.9 billion contracts in 2019.

Subsequently, 2021 set a new record with a volume of around 9.9 billion contracts, representing an increase of more than 30% compared to 2020 and more than double the volume of 2019.

In 2022 and 2023, trading volumes remained high and continued to grow moderately - around 10.3 billion contracts were traded in 2022 and over 11 billion in 2023. The overall trend remains significantly upward; for comparison, the annual options volume has grown from 4.9 billion in 2019 to 12.3 billion in 2024.

Factors Behind the Growing Popularity of Options

The key question is: what exactly has driven such a dramatic increase in the popularity of options in recent years?

• Global Pandemic:

Without a doubt, the pandemic played a significant role. Millions of people were stuck at home, unable to work, and turned to the stock market to grow their capital or replace lost income. Broker data shows that millions of new retail investors entered the market during this period.

At the same time, online communities and social media popularized speculative options strategies. Retail traders, often inspired by stories of quick profits, began massively buying call options on popular stocks. The viral nature of community-driven trading strategies turned options into a widespread phenomenon. For instance, Robinhood saw an enormous influx of users in 2021, it was estimated that Robinhood facilitated 4 - 5 million options contracts per day, accounting for approximately 12% of the total market volume.

• New Online Platforms, Accessibility, and Low Fees:

As recently as 2010, options trading was primarily the domain of experienced investors using specialized platforms. However, in recent years, the rise of online and mobile applications with user-friendly interfaces has changed this. Platforms like Tastyworks (now TastyTrade), Robinhood and Webull introduced options trading with low or even zero commission fees, making it more accessible to retail traders.

Traditional brokerage firms such as Schwab and Fidelity also lowered their fees to near-zero levels. As a result, trading options has become technically simpler and cheaper than ever before, removing previous barriers to entry for smaller investors.

• Low Interest Rates and Liquidity:

The period following the onset of the pandemic was characterized by exceptionally low interest rates and loose monetary policies. Cheap money and government stimulus packages created excess liquidity, which some investors used for speculation.

At the same time, low interest rates reduced the appeal of conservative investments like savings accounts or bonds, pushing investors to seek higher returns elsewhere. Options appeared to be an attractive alternative, especially during the pandemic, as they offered the potential for faster and higher profits than traditional stock investments. This environment of cheap money encouraged risk-taking, which fueled the growth of options trading.

• Rapid Market Growth After March 2020:

After a brief stock market crash at the start of the pandemic, equity indices entered one of the steepest rallies in history, fueled by massive central bank support. The bull market of 2020–2021 led many retail investors to believe that stocks only go up.

In such an environment, call options generated significant profits, and almost every options trade seemed to be a winning one. This illusion of easy money attracted even more traders.

Popular meme stocks experienced extreme price surges, partly driven by options buying, which forced market makers to purchase underlying stocks for hedging (a phenomenon known as a gamma squeeze). The media widely covered these stories, further promoting speculative options trading.

• The Rise of Short-Term Options:

In recent years, exchanges have expanded their expiration offerings. In addition to monthly options, weekly options have become standard, and more recently, even daily expiring options (zeroDTE options) have been introduced for indices like SPY and QQQ, allowing traders to speculate on intraday price movements.

The share of contracts with very short time-to-expiration has skyrocketed: by the end of 2021, options expiring within five days accounted for nearly 46% of all traded options, up from 20% in 2017.

These short-term speculations have further boosted overall trading volume and attracted new market participants who previously did not trade options.

Put/Call Ratio

Once again, let’s refer to a graph that illustrates how the structure of the options market has changed significantly in recent years.

In 2021, call options dominated the market - the put/call ratio hovered around 0.5–0.7, meaning that for every put option traded, there were approximately 1.5–2 call options. This reflects the prevailing bullish speculation at the time.

In contrast, 2022 saw a sharp increase in the put/call ratio, approaching 1.0, indicating a nearly balanced ratio of put and call options. For example, the monthly put/call ratio jumped from 0.56 in November 2021 to 0.93 in June 2022. This shift suggests an increased use of put options—both as a hedge against market declines and as a tool for speculative short positions.

Historically, record-high put/call ratios have been observed during periods of market panic. On June 13, 2022, the ratio hit 1.75, marking the second-highest level since March 2020, alongside an extremely high trading volume.

Overall, 2022 saw a significantly higher proportion of put options compared to the previous year, aligning with the bear market and increased volatility. Meanwhile, 2021 was characterized by a dominance of call options trading, largely driven by retail speculation.

What Can Be Concluded from This Scenario?

It is evident that retail traders play a major role in “chasing” the market. This means that in bullish markets, they speculate through call option purchases, whereas in bearish markets, they turn to put options.

The implications of this trend will be discussed in the next section, where we will analyze the profitability and losses of retail traders.

From long-term options trading data, we know that directional speculation using options - requiring option purchases - is only profitable in strongly trending markets. However, over time, this approach mainly benefits option sellers (writers), as they consistently collect premiums.

Retail Traders’ Losses in Options Speculation

The data on retail trading losses comes from academic studies (MIT, University of Florida) and reports from regulatory and analytical institutions.

Available studies and statistics show that the vast majority of retail traders lose money on options trades.

• Analysis of brokerage accounts reveals that nearly 85% of new (mostly young) traders end up in losses within their first year of options trading. This is attributed to a lack of knowledge about options strategies and the influence of social media, which often promotes quick-profit opportunities.

• A study by MIT found that retail investors frequently make systematic mistakes when buying call options around earnings announcements. For example, they overpay due to high implied volatility, hold losing positions for too long, and lose 5–9% of their capital on average. For more volatile stocks, losses can reach 10–14%.

• University of Florida research on spread trading strategies showed that retail traders lose an average of 16% within just three days on typical trades. Around earnings announcements, these losses were three times higher than on normal trading days.

• Overall, it is estimated that retail traders have lost billions of dollars in options trading over the past decade. One study covering 2010–2021 quantified cumulative retail losses at $3 billion, with the main beneficiaries being market makers who collected option premiums.

These findings illustrate that speculative trading through call option purchases is mostly unprofitable for retail investors.

Regulators have tightened oversight in response to these issues. For example, in 2021, U.S. regulator FINRA fined Robinhood a record $70 million for various violations, including allowing inexperienced clients to trade risky options.

However, this action was largely triggered by the GameStop (GME) trading scandal. Robinhood, as a partner of market maker Citadel, allegedly helped prevent the hedge fund Melvin Capital from collapsing - though it ultimately failed. The controversy intensified when Robinhood restricted GME purchases in January 2021, effectively halting the short squeeze and contributing to the stock’s decline. This caused massive losses for retail traders and led to a congressional investigation into Robinhood’s actions.

That said, it is important to note that GameStop was in poor financial condition, and the retail speculation on a short squeeze was highly risky.

Final Takeaway

The interest of retail investors in options continues to grow year after year. Unfortunately, most of them lose money on short-term speculation - especially through option purchases. This results in a constant transfer of capital to option sellers, who profit from collecting premiums.

The main reasons for retail traders’ losses include:

• Lack of preparation

• Unwillingness to analyze statistics and market data

• Insufficient knowledge of how options work, their mechanics, and the factors affecting their pricing from initiation to expiration

• The appeal of speculation and the illusion of unlimited easy profits

If you want to learn how to systematically profit from options, check out how we trade options in our fund, explore the results of option writing strategies, and learn everything through our online courses.