Trump’s Bold Moves Trigger Explosive Options Frenzy: Retail Traders Break Records

Donald Trump’s presidency is expected to inject new volatility into the markets, amplifying a surge in options trading fueled by retail investors.

By Sheenu Gupta On Nov 23, 2024 Share with new partner:

Donald Trump’s presidency is anticipated to introduce a renewed wave of market volatility, creating fresh opportunities and risks for investors. This heightened uncertainty is expected to further energize the booming options market, which has already been experiencing significant growth driven by an influx of retail traders. With retail investors increasingly active in speculative trades, Trump’s influence on economic policies and market sentiment could serve as a catalyst, amplifying the already surging demand for options as a preferred tool for navigating and profiting from market fluctuations.

Rising tariffs, escalating geopolitical tensions, and uncertainty surrounding government policies are expected to fuel increased market volatility, making options trading more attractive to investors. These factors are likely to trigger sharper price swings, encouraging traders to seek out tools like options to hedge risks or capitalize on rapid market movements.

Retail investors, in particular, have been at the forefront of this trend, flocking to popular trading platforms such as Robinhood Markets Inc. and other app-based services. These platforms have made it easier than ever for individuals to participate in short-term options trading, focusing on equity indexes and exchange-traded funds (ETFs). The convenience and accessibility of these apps have played a significant role in driving the surge in retail participation, reshaping the landscape of options markets.

Several companies, including CQG and Trading Technologies International Inc. (TT), are positioning themselves to capitalize on the growing demand for options trading. Chicago-based TT is set to expand its offerings by providing clients with access to a range of products, including Cboe’s flagship S&P 500 options, starting early next year. This move is part of their strategy to tap into the expanding market driven by increased retail and institutional interest.

Similarly, CQG is preparing to enter the equity options space, planning to roll out these offerings by mid-2025. Later that year, CQG intends to enhance its platform further by introducing advanced tools and enabling traders to execute more sophisticated and complex transactions. These initiatives reflect a broader industry trend as trading platforms gear up to meet the evolving needs of a dynamic and rapidly growing options market.

Kevin Darby, Vice-president of execution technologies at CQG, said in an interview this week at the Futures industry Association Expo in Chicago, “You’re going to see more volatility spikes. When volatility goes up, volume goes up as well, so we’re going to see a lot of options volumes in 2025, in 2026.”

Zero-day-to-expiry (ODTE) options, which are contracts that expire within a single trading day, have been a significant driver of the 60% increase in overall options trading volume since 2020. These ultra-short-term contracts have rapidly gained popularity and now account for nearly half of the trading volume in S&P 500 options.

As their use continues to grow, there is increasing momentum toward expanding ODTE options to cover individual stocks, a move that could further reshape the market. However, during a recent industry conference, panelists highlighted the potential risks associated with this expansion, particularly for retail investors.

They emphasized the importance of implementing measures to safeguard individual traders, who may not fully understand the complexities and heightened risks of engaging with such short-term, high-stakes instruments. The discussion underscored the need for a balanced approach that supports market growth while prioritizing investor protection.

Henry Schwartz, the global head of client engagement, data, and access at Cboe Global Markets, emphasized the importance of education and awareness for all market participants when it comes to trading short-dated options. Speaking at a recent event, Schwartz pointed out that these complex financial instruments require a clear understanding to ensure a positive trading experience for everyone involved, including small retail investors. He stressed that it is crucial for traders to be fully informed about the risks and mechanics of short-dated options, regardless of whether they are making profits or incurring losses. Schwartz also highlighted the need for fairness in the market, stating that Cboe’s goal is to create an environment where participants are not only equipped with the knowledge to trade effectively but also have confidence in the system’s transparency and integrity.

Retail investors have become increasingly sophisticated in recent years, displaying a deeper understanding of trading strategies and market dynamics.

According to Keith Todd, the CEO of Trading Technologies International (TT), this growing expertise is particularly evident among younger traders, who are leveraging skills and strategies they’ve learned from gaming to navigate financial markets. In addition, many individuals in countries like the United States already have experience managing their own retirement accounts, which has provided them with a strong foundation in trading and investment principles.

This combination of practical knowledge and innovative thinking is empowering retail investors to engage more confidently and effectively in complex trading activities, including options and other derivatives. Todd highlighted this evolution as a testament to the adaptability and resourcefulness of modern retail traders.

CQG’s Darby said, “The retail customer base is able to digest more complexity. They’re able to digest more complex financial products like options or binaries or event contracts and stuff like that.”

The demand for options trading is expanding rapidly, not just in the United States but also in other regions, particularly in India and across Asia. This growth is driving the industry closer to the possibility of 24/7 trading. While around-the-clock trading may not happen immediately, extended exchange hours appear increasingly likely. This international expansion presents significant opportunities for companies like Trading Technologies (TT).

According to Alun Green, TT’s managing director of futures and options, the surge in interest is not limited to India. “We’re witnessing strong demand across Southeast Asia, including Taiwan and South Korea,” he noted. Green also highlighted the growing enthusiasm for new international products in these regions, signaling a broader appetite for innovation and expansion in global markets.