In The Wall Street Journal, Gunjan Banerji reports that soaring options volume in 2023 is on track for an annual record, doubling the volumes of just five years ago. He writes:
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.
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.
Action Line: Options trading has become the Mr. Hyde of many portfolios. When you’re ready to talk about balance, I’m here.
