CNBC “Options trading activity hits record, but most are playing a losing game”

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by cclagator

CNBC article link

This 1% stat is bonkers, I would have guessed closer to 10% (which is still really bad):

For example, 11% of Robinhood’s monthly active users made an options trade in the first three quarters of 2021. Meanwhile, fewer than 1% executed a multi-leg options trade, which involves two or more transactions at the same time.

“Everybody in the business knows that if you’re only buying out-the-money calls, then you’re likely going to lose money over time,” said John Foley, CEO of Options AI. “The question of democratization shouldn’t be ‘can I trade options?’ but ‘can I have straightforward access to the options strategies that Wall Street uses?’ The playing field is not level right now and no one is really focusing on that.”

That means very few options traders are “graduating” to level 3. They’re either going broke buying OTM calls (eventually) or going elsewhere to do smarter trades. I know Options AI’s focus on spreads means 80%+ trades are multi-leg. My guess is Tasty’s and ToS is more multi-leg than single but no clue what level. But RH’s 1% is mind-boggling.

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And options regulation is antiquated in that it encourages this behavior.

The fact that you have to do a bunch of dumb single-leg trades in order to get to the multi-leg spreads (and better yet credit spreads) for the same or better costs and higher probabilities, makes no sense.

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It guarantees that most people’s initial experience with options sucks. It’s like a casino saying “to graduate to playing odds on the craps table, or better yet a game of skill in the poker room… you first need to lose a bunch of money doing YOLO bets on single numbers on the roulette table.”

Institutional options flow is 75% of the market and it’s almost all multi-leg (and if single leg it is usually against an equity position). With RH being so much of the retail trading that other 25% would be like a mirror image of institutional flow, and not in a good way.

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