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It’s amateur hour: how retail traders upended options market

September 13, 2022

“Retail investors may also be changing how they act. Data from OptionMetrics shows that the share of index option trading from retail investors rose from 20% to 30% of all volume between January and August. The data provider uses single-lot sized trades as a proxy for retail activity.

OptionMetrics’ head of quantitative research Garrett DeSimone says most of the activity is buying out-of-the-money index puts, which suggests retail traders are switching from bets on the good fortune of individual companies to broader bets on market-wide falls. He believes the uptick could be the start of a “new paradigm” in which a heightened presence of retail traders in index options would lead to elevated implied volatility in these types of instruments as well as in single-name options.”