Stock Option Volume Reached New Levels in 2020

2020 Options Recap

As individual investors flooded the stock market in 2020, stock option volume exploded. Daily volume in single-stock options for the year was up 68% to 17.3 million from the 10.3 million daily average in 2019. In December that daily volume hit a record 23.4 million contracts.

A sizable portion of stock option activity in 2020 involved individual investors rather than larger institutions. Data compiled by Cboe Global Markets (CBOE) suggests that many of these investors were new to options trading, and they started out by buying or selling a single contract equivalent to 100 shares of stock. Popular stocks for options trading last year included Apple (AAPL), Tesla (TSLA), Advanced Micro Devices (AMD), NIO (NIO), and Microsoft (MSFT).

A Closer Look at Calls and Puts

Options are contracts that give holders the right, but not the obligation, to buy or sell an asset like shares of a company stock. Purchasers can exercise the option by or on a set date (depending on if they are European or American style options) and then buy or sell at a set price, while sellers have to deliver the underlying asset or cash. Investors can use options for many purposes, some common ones are if they think an asset’s price will go up or down, or to offset risk in their portfolio.

When purchased, call options give investors the right to buy an asset. Call buyers are essentially giving up some profit in exchange for the lower capital risk of not owning an asset outright, since the option premium is less than the purchase price of the underlying security.

Meanwhile, puts are options that give investors the right to sell an asset. Investors pay a premium to participate in a downward movement of an asset while the only risk is losing the premium paid.

Learn more with SoFi’s Guide to Options Trading

What Happens Next?

It is unclear whether the options boom will continue after the pandemic, as representatives from Cboe say it has largely been driven by smaller trades from individuals and could be tied to more people working from home. Homebound investors are now able to trade during the day with online brokers.

“One of the big questions I get is what happens when people go back [to the office]. Will it disappear?” said Henry Schwartz, Cboe’s Head of Product Intelligence. Schwartz suspects that while some individuals are experiencing good luck after the markets bounced back from their early-2020 slump, others have learned to manage risks and make money, and those new traders could stick around.

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