Average daily volume in US options was 44 million in 2023, up from 41 million in 2022 and more than double 2019 levels, according to OCC data.
The industry has had a remarkable multi-year run, driven by retail adoption, improved brokerage platforms, and strong equity markets. The question now is, how can growth continue?
That was the topic discussed on the Volume Forecast: Is 10 Billion Your Bid or Offer? panel Wednesday morning at the Options Industry Conference in Asheville, North Carolina.
Steve Crutchfield, Head of Business Development at Chicago Trading Company and panel moderator, set the stage by noting the “incredible” recent run in the options industry, starting with a surge in trading interest during the pandemic and sustained growth since then. But he recalled the industry flatlining in the 2010s after a period of expansion in the early 2000s.
“How do we grow from there?” Crutchfield asked. “What are the drivers beyond adding expiries and just hoping growth continues?”
Greg Stevens, Vice President at Fidelity Investments, said the biggest growth opportunity is in his firm’s existing customer base. “Lots of equity traders still aren’t familiar with options,” he said.
Participation in Fidelity’s option education sessions, spanning fundamental analysis, technical analysis, product explainers and more, increased 38% in 2022 and 21% in 2023, and the brokerage firm is improving its products and adding tools across mobile and desktop.
Joe Mazzola, Director, of Trading & Education at Charles Schwab & Co, agreed that education is key for options industry growth, and “none to one” is an objective. “There are many people who hold shares of stock but haven’t made their first options trade,” he said. “Education will drive adoption, and then we are meeting clients where they want to be met, with the right products.”
Chris Larkin, Managing Director and Head of Trading and Investing at E*TRADE from Morgan Stanley, noted an untapped options user base in that only about 30% of his firm’s customers are enabled for options trading, and within that group “it’s a relatively small number of clients who are actively trading options.”
Broker-provided education is helping expand the options business, as is peer-to-peer education on Reddit and other similar information-sharing sites, Larkin said.
With regard to new products, panelists noted a mixed bag. Expanded trading hours is interesting but there’s not yet much demand among options traders. Fractional options and “mini” options haven’t realized their promise, at least partly because the industry hasn’t figured out how to add the products without complicating and weighing down the interface and by extension the customer experience. “There’s always a tradeoff between innovation and complexity,” Crutchfield said.
Also discussed was the rise in the shortest-term options, often known as zero days to expiration options, or 0DTEs. Panelists said it has been a success story to date, but further expansion, including possibly into single stocks, would need to be rolled out with extra care to minimize the chance of blowups. “It’s not an irresponsible idea, but we need to cover the risks,” Larkin said.
