Conference Agenda

The recent surge in retail option trading has sparked concerns about gambling and significant losses. We study a novel trader-level dataset of about $20 billion in retail trades between 2020 and 2022 to show that these concerns may be exaggerated. We find that option trades account for nearly half of all trades in 2022, making them a vital part of retail trading. Despite wide bid-ask spreads, retail investors see minimal losses on option trades. Although options theoretically resemble lottery tickets, we find little evidence of positive skewness in realized dollar profits, contradicting gambling-driven trading. Many retail investors trade options because of high leverage and low option prices; indeed, option trades are concentrated in a few high-priced underlyings. A typical retail trade is the purchase of a one-day S&P 500 index call held for an hour. Overall, we provide the first comprehensive account of modern retail trading in the U.S. options market using trader-level data.

This paper examines employees' trading of own-company options. Using data from Finland, I show that employees' direct and indirect purchases of call options represent 4%-14% of aggregate retail option volume. These purchases contain price-relevant information: weekly returns on the underlying stocks are approximately 50 basis points. The informativeness is most evident before earnings announcements, extends to firms in the employer's supply chain, is not driven by industry knowledge, and disappears upon job separation. Consistent with prospect theory, employees who experience recent losses in their stock portfolios are more willing to exploit their information advantage by trading own-company options.