Retail options trading hits near-record levels on Citadel platform

Retail investors are turning increasingly to options trading, with the activity accounting for 61 per cent of total volume on Citadel’s platform last week, close to a record high, according to figures shared in a recent market update.

The proportion has risen by 16 percentage points over the past 12 months. It is also 10 percentage points above the highest level recorded during the COVID-19 pandemic in 2020, the update said.

Index and exchange-traded fund (ETF) options made up most retail options activity on Thursday. Traders exchanged 1.7 index and ETF options contracts for every single-stock options contract, indicating a strong preference for instruments linked to broader market movements rather than individual companies.

The S&P 500 ETF, known by the ticker SPY, and the Nasdaq 100 ETF, QQQ, together accounted for 47 per cent of all retail options trades on Thursday, according to the figures. Both funds give investors exposure to groups of shares, allowing them to trade options linked to wider market indices.

The figures point to growing retail participation in options markets, although trading volumes alone do not reveal whether investors are making profits or taking on greater risk.

Options contracts give buyers the right, but not the obligation, to buy or sell an underlying asset at a specified price within a set period. They can be used to hedge existing investments or speculate on price movements, but can also lead to rapid losses. Buyers may lose the entire premium paid, while some strategies used by sellers can expose them to much larger losses. The US Securities and Exchange Commission warns investors to understand these risks before trading.