The opening afternoon of the annual Options Industry Conference is always good for a deep data dive, and Henry Schwartz, Vice President, Market Intelligence at Cboe Global markets didn’t disappoint.
Moderating the Tuesday afternoon “State of the Industry” panel at OIC in Palm Beach Gardens, Florida, Schwartz opened with a high-level look at options volume since 1973. The first 25 years showed mostly nothing happening in what was a sleepy monopoly-type business; options volumes meaningfully increased over the next dozen years before being largely flat in the 2010s; followed by exploding volume in the 2020s with annual double-digit growth rates.
Cboe, which operates its eponymous exchange and three others with a combined US options market share of more than 30%, has seen more new users of options, and the average trade size on its exchanges has more than quadrupled since 2020. The “size, scale, and velocity” of options trading are all higher, Schwartz said.
Arianne Adams, Chief Strategy Officer & Head of Derivatives at retail options brokerage Webull, said one driver of growth is that retail traders have become more comfortable with options as mobile phone technology has enabled market access more seamlessly and interactively.
Steve Sosnick, Chief Strategist at Interactive Brokers, cited an inflection point and said the options industry in a sense can thank the sports betting industry for getting users interested in speculating on outcome-based scenarios – because when the sports world temporarily shut down in 2020 amid the early days of the COVID pandemic, some sports bettors took to puts and calls and have stuck with it.
Sosnick described Interactive Brokers’ customer base as professional retail, or “protail.”
Matt Amberson, Principal at Options Research and Technology Services (ORATS), said technological advances over the years are “mind-blowing” in terms of the evolution from institutional traders using paper tickets, to now retail investors using smartphone apps with advanced functionalities.
Schwartz said that short-dated options have increased from about one-third of the market eight years ago to two-thirds today, a “paradigm shift.” Amberson said short-dated business really took off starting in 2022 when brokerages and exchanges realized they could make a business out of it.
With regard to market structure, the panel noted there are now 18 US options exchanges, with two more on the way. “Everyone is doing decent of volume – there are no exchanges there for absolutely no reason,” Schwartz said.
Panelists noted that the large exchange field presents operational, risk, and compliance challenges for market participants, and the liquidity fragmentation caused by the number of exchanges increasing out of proportion to the increase in liquidity providers. How many different exchange model tweaks are necessary?
Adams of Webull said there should be exchange consolidation, but “that argument has been put to the wayside with the growth we’ve seen in the industry.”