The Adrenaline-Fueled Trades Sweeping the Market Activity for stock options is headed for a record in 2023, with an average 44 million contracts changing hands daily ILLUSTRATION BY ALEXANDRA CITRIN-SAFADI/WSJ By Gunjan Banerji Dec. 10, 2023 5:30 am ET Oodles of risk. Bold bets on artificial intelligence. Round-the-clock activity. The options market is booming like never before. About 44 million options contracts have changed hands on an average day in 2023, on track for an annual record based on Options Clearing Corp. data going back to 1973 and more than double the figure from five years ago. Activity in contracts expiring the same day—among the market’s riskiest—has helped turbocharge a mania that began in 2020 during the depths of the Covid-19 pandemic. Volume has soared, hitting fresh highs in each of the following three years. Average daily options volumeSource: OCC '05'10'15'75'20'80'85'90'952000197305101520253035404550million contracts The explosion in activity suggests many traders are hungry to take big risks in markets, eager for fatter payouts than they think traditional buy-and-hold investments will offer. The flourishing trades also show how the lines between trading and gambling have further blurred. Some of the most popular trades this year resembled scratch-off lottery tickets. In exchange for a small upfront fee, a trader gets the chance at doubling or quadrupling returns—but is often left with a hole in his or her portfolio. Rookie and pro traders alike have looked for opportunities to profit from the market’s gyrations, from ups and downs in regional bank shares during the Silicon Valley Bank crisis (remember when banks became meme stocks?) to Nvidia’s ascent in the artificial-intelligence boom. The share of trading in contracts that expire in five or fewer days touched a record 59% in October and has remained elevated, according to figures from SpotGamma. Many traders are increasingly holding positions for hours, or even minutes, in a bid to rapidly juice their returns. The one-day trades, known by the hashtag #0dte, have gone viral, with tens of thousands of mentions swirling online that have helped draw even more people in. Others have piled into exchange-traded and mutual funds that track options, sending assets to a record $64 billion, according to Morningstar Direct, a nearly 50% jump from last year. Share of options volume that expire in five or fewer daysSource: SpotGammaNote: 20-day moving average 2019'20152025303540455055% Options give traders the right to buy or sell stocks at a specific price, by a stated date. Although some exercise their rights to do so, the contracts are often used as tools by those looking to magnify their bets. The price of an option contract tied to Tesla, for example, is highly sensitive to where the shares go and how volatile they are, making it a tempting way to play the big stock swings. The contracts can rapidly mushroom in value if a bet proves correct, an adrenaline-inducing rush that has hooked many traders. For example, call options tied to Robinhood ’s stock jumping to $11.50 changed hands for about $2 on Dec. 1. The brokerage’s shares soared in subsequent days, sending the value of the contracts to about $20 Thursday, according to Cboe Global Markets data. That return far exceeds the roughly 23% jump in the stock over the same period. Tom Sosnoff, co-founder of the retail brokerage Tastytrade, says people are looking to get the most bang for their buck. In the Robinhood example, each contract gave the trader the right to buy 100 shares of stock, offering a relatively cheaper way to play the moves in the shares. Sosnoff says he expects a zeal for betting on things such as sports to lead to even more interest. He tours the country hosting live tradingevents for individuals and says he plans to lead more events than ever next year to match the interest. “Everybody’s betting on everything,” Sosnoff said. The mania around one-day options at first reflected the uncertainty that many investors felt about the economy. Trading sessions featuring new economic data or the Federal Reserve’s interest-rate decisions sparked astonishing one-day moves in markets—and created prime conditions for traders who dip into one-day options. Four of the five top trading days for one-day S&P 500 options through November featured economic data such as the monthly inflation or jobs report. That unease about the economy, and the stock market, morphed into a fear of missing out on big market gains as the year wore on. Daily call options volumeSource: Cboe Global Markets 2020'23010203040million contracts Broader activity in calls—which give investors the right to buy shares—surged to one of the highest-ever levels in November when the S&P 500 logged its best one-month return since July 2022. Many traders have embraced bullish wagers on gold, Treasurys and stocks, wary of getting left behind during the recent “everything rally.” And the AI craze fueled intense interest in Nvidia options, sending volumes up about 60% from last year and making itone of the most popular trades. Tesla remains the favorite play among options traders who dished out more than half a trillion dollars on contracts tied to the stock this year. Those trades were even more popular than bets linked to an S&P 500 ETF, Cboe Global Markets data show. Options premium spent in 2023 on the most popular stocks and ETFsSource: Cboe Global Markets TeslaSPDR S&P 500 ETFInvesco QQQNvidiaiShares Russell 2000 ETFAmazonMetaAppleMicrosoftAlibabaNetflix$0 billion$100$200$300$400$500$600 Wall Street is racing to keep up with the demand—and profit from it, too. Interest in exchange-traded and mutual funds that sell options is sky-high. Sellers of options collect what is known as an options premium, and these funds often tap the strategy to generate regular income. Defiance ETFs launched a fund that sells one-day options this year. YieldMax ETFs launched an ETF in November 2022 that sells Tesla options. Nasdaq recentlyintroduced an additional weekly expiration date tied to a handful of ETFs, including the iShares 20+ Year Treasury Bond Exchange-Traded Fund, SPDR Gold Trust and the U.S. Oil Fund. Assets in derivative income fundsSource: Morningstar DirectNote: Figures for 2023 through Oct. 31 '05'10'15'20199620000102030405060$70billion Some industry executives have discussed offering options tied to individual stocks, such as those of the tech behemoths, that expire every day of the week, according to people familiar with the matter. The craze has extended to Europe, too. “I think this is just the beginning,” said Cem Karsan, founder of Kai Volatility Advisors, who has traded options for more than two decades. “This is not a flash in the pan.” https://www.wsj.com/finance/stocks/the-adrenaline-fueled-trades-sweeping-the-market-b66204fa Better graphics in the link
Nasdaq recentlyintroduced an additional weekly expiration date tied to a handful of ETFs Does anyone know the list of these ETF