Retail trading has seen a significant increase in recent years, with Bloomberg Intelligence estimating that the retail community made up 24% of trading volume between Q4 2020 and Q1 2021, a historic high and a 10% increase over 2017.
This surge in retail trading was highlighted by the unprecedented heights reached by stocks such as Gamestop Corp. and AMC Entertainment Holdings Inc. However, the market turned increasingly hostile in 2022 and retail volume dropped to 17.5%.
Despite this setback, a report by Cboe Global Markets Inc. shows that the retail trading community has shouldered the bear market of 2022 with more resilience than other metrics suggest, particularly in the options contracts market. One of the most notable metrics in the report is the growth in volume for the Cboe index options based on the Standard & Poor 500 Index (SPX) .
Specifically, 1-lot SPX trades, a metric indicative of retail presence, now represent approximately 9% to 10% of SPX’s total trading volume as opposed to less than 2% in the middle of 2019. The average daily options volume between Q4 2019 and Q4 2022 has increased in stocks, exchange-traded funds (ETFs), and indices, with the volume of individual stock options and ETFs doubling and tripling respectively.
Cboe’s report 2023
In the long term, the results are even more promising. The average daily volume of options has been on a steady increase since 2019, indicating that traders are consistently engaging with the market via options contracts. The average execution size has decreased throughout this time and appears to have plateaued at roughly 7.5 contracts a trade, which is indicative of an increased retail presence.
The trading of index options has also seen significant growth, particularly with the introduction of Tuesday and Thursday expiration dates, which has attracted a flurry of retail investors and traders.
Specifically, 1-lot SPX trades, a metric indicative of retail presence, now represent approximately 9% to 10% of SPX’s total trading volume, as opposed to less than 2% in the middle of 2019. Additionally, 0 days-to-expiry (0DTE) trades, also indicative of retail presence, comprise nearly 40% of overall SPX volume compared to 20% in early 2022.
Cboe’s report confirms that the retail community has not simply folded in the face of a bear market, but has instead shown fortitude in the options department.
Despite the slump in volume between Sept. 2022 and Dec. 2022, Cboe recorded more than 1 million average daily volume for 0DTE options throughout that time period. Furthermore, the global trading hours (GTH) retail volume has become a meaningful portion of SPX average daily volumes, suggesting that SPX trades are becoming more common across the globe.