Stock Option Volume ‘Exploded’ in 2020

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Stock option volume took off in 2020 as individual investors piled into the market and gravitated to hot stocks like

Apple,

Tesla,

and

Nio,

the Chinese electric vehicle company.

Daily volume in single- stock options averaged 17.3 million contracts during 2020, up 68% from the 10.3 million daily average for 2019. Trading picked up late in the year, with December single- stock option volume averaging a record 23.4 million contracts a day, according to data compiled by

Cboe Global Markets

(ticker: CBOE), a leading options exchange.

Much of the increased activity in 2020 came from individual investors, many of them new to options trading and often buying and selling just a single contract. Each option contract covers 100 shares of stock.

Individual investors gravitated toward call options—which give holders the right to buy a stock and thus amount to a bullish bet. And most of those contracts were short-dated at less than a month until maturity.

All this reflects the bull run from the stock-market low in March and the growing popularity of options trading on online trading platforms like Robinhood. The five most popular stocks for options trading were Apple (ticker: AAPL), Tesla (TSLA),

Advanced Micro Devices (AMD),

NIO (NIO), and

Microsoft

(MSFT).

Daily call volume averaged 16.7 million contracts during December, more than double the daily average of 6.8 million for December 2019, while put volume averaged 6.6 million contracts a day in December, up 74% from December 2019’s average of 3.8 million a day, Cboe data show.

“Volume exploded and with that came decreasing order size which showed that new participants took up option trading,” says Henry Schwartz, senior director and head of product intelligence at the Cboe.

Schwartz notes that the number of option trades averaged four million a day during 2020, up from 1.7 million in 2019, driven by an increase in smaller-size trades. Much of that increase came from individuals, often trading a single contract, which accounted for 8% of option trades in December, up from 3% a year earlier.

Schwartz says the option trading boom reflected the work-from-home phenomenon, zero-cost trading, and the growth of online brokers.

“One of the big questions I get is what happens when people go back,” to the office, Schwartz says. “Will it disappear? You have to assume that customers are trading because they can make money. Some of it is luck with the great bounce from last spring. But some of them have figured out how to manage risk and those participants may be permanent.”

Write to Andrew Bary at andrew.bary@barrons.com