Options have become an increasingly popular way to trade the financial markets, and 2024 marked the fifth straight year that options volume on U.S. exchanges rose to a new all-time high. In 2024, the volume on equity options surged to nearly 11.2 billion contracts, according to the Options Clearing Corporation, a rise of about 10.7 percent year over year.
While options trading can be lucrative — and that’s a significant factor in their popularity — the growing interest is due to more. Here are key factors affecting the increasing popularity of options trading.
5 reasons options volume is rising
1. Options can multiply your money quickly
One of the biggest reasons that options are popular is that they allow you to multiply your money quickly, if you make the right wager. If you buy call options or put options and the price of the underlying stock moves favorably, your options could go up many times in value — and fast. So options can be a great place to make money if you know what you’re doing.
The flip side is that this type of options trading can be quite risky. If your trade doesn’t work out, you can wind up losing your whole investment — the definition of a high-risk, high-reward trade.
The best brokers for options trading offer tons of trading tools to help you place smart trades and model how trades will perform under specific conditions.
2. Low-cost or free options brokers
Options volumes really started to tick up in 2020 as individual investors homebound by COVID-19 discovered options trading amid a volatile and potentially lucrative market. One of the draws: the rise of brokers offering no-cost options trading, putting commissions on par with those of stocks.
Suddenly, the price of admission on options trading no longer needed to keep retail traders out.
Robinhood and Webull are two notable commission-free brokers, but a number of other brokers have joined them, including moomoo, a relatively newer player that’s moved aggressively to lower costs. They join a handful of other brokers that have lowered costs for individual investors.
While retail traders are more recent participants in the options market, it’s still highly populated with larger traders, says Justin Zacks, vice president of strategy, Moomoo Technologies.
“A balance of institutional and retail investors who use options for a variety of reasons has created a vibrant market that is likely to continue to grow,” says Zacks.
3. Tons of flexibility
Options can be much more flexible than stocks, or in the words of analysts, they allow traders “to express more opinions” about how a stock will move. So options allow traders to use many different strategies than the simple buy/sell of a straight stock trade.
“Investors have begun to catch on to the flexibility provided by options,” says Zacks. “Options can be used for hedging and risk mitigation. They also can be used for speculation, offering a lower-cost way to go long or short the market, although traders can lose their entire investment.”
Advanced options strategies can allow traders to “more finely tune” their opinion based on the stock’s direction, time and volatility, says Zacks.
4. The rise of “zero-day” options
Zero-day options — abbreviated 0DTE for zero days to expiration — offer the potential for high returns with a low investment, making them attractive for traders with a high risk tolerance. This kind of option is just like a regular option except the option expires at the end of the day. Regular options, whether weekly or monthly, eventually reach their final day before expiration. But zero-day options are also specifically created to have just one day of existence as well.
“Investors are often drawn to 0DTE options because they are potentially less expensive and there is not a worry about holding the position overnight,” says Zacks. “0DTE options can be risky though, as their value can change significantly even with a small move in the underlying stock.”
Of course, this risk is attractive to retail traders because they can potentially multiply their money by the end of the day, without paying a lot for the option.
5. More tradable options products
Finally, the options industry has also been following traders’ interest, developing new products such as purpose-built zero-day options that will draw demand. The advent of new zero-day options will likely increase overall options volume, says Zacks.
For example, in the past, options typically expired monthly, and then the Chicago Board Options Exchange (CBOE) introduced weekly options in 2005. As the market developed, in 2022 the CBOE created zero-day options on the S&P 500 index that were tradable five days a week. Subsequently, zero-day options on popular ETFs were launched.
This responsiveness and traders’ awareness of these products will help the market continue to grow.
Bottom line
While options trading has certainly grown in popularity, it’s vital to remember that options trading is highly risky and that you must understand how options work before you begin trading. And as always with risky trading, only wager money that you’re prepared to lose.
