Options trading didn’t really enter the limelight until the trading boom of 2020, when many retail investors entered the stock market. Due to its risky nature, investors started using the financial security to obtain more profit on trades as stocks were rising at unprecedented rates but taking on more losses too. If you don’t know what an option is, they are financial derivatives that give you the obligation to buy 100 shares at a certain price, although this depends on the contract itself. Long story short, it’s mostly used as a hedging instrument, but the fact that it can increase by hundreds of percent every day depending on its underlying stock’s performance make it a trading tool for investors with high-risk appetite. It’s not all sunshine either as contracts can lose all their value and leave you with a 100 percent loss.
Anyways, to many of us it feels like the number of options being traded in the market is starting to dwindle ever since the meme mania. However, this isn’t the case at all, with trading volumes hitting a record high. Bullish option volume broke January records this month, and half of these bets have been placed on the world’s two richest men and their businesses: Amazon and Tesla, although Bezos isn’t the CEO anymore. This represents an overall trend, with most of the bullish volume going towards the NASDAQ 100 names even though they’ve hit all-time highs recently. On October 29th, 890 billion dollars’ worth of stock options were traded, marking an all-time high according to Goldman Sachs. Tesla has been the hottest name of them all, with this recent surge correlating with the stock’s move to 1,000 dollars, and at times half of the money going into contracts went towards Tesla. Analysts say that this type of volume could amplify moves in the market, whether they are positive or negative, so let’s hope they stay on the positive side. Do you think this option trading surge is good for the market?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.