Retail Trading in Options and the Rise of the Big Three Wholesalers

• 成果类型: Article
• 署名作者: Bryzgalova, Svetlana; Pavlova, Anna; Sikorskaya, Taisiya
• 署名单位: University of London; London Business School; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13285
• 发表日期: 2023
• 页码: 3465-3514
• 关键词: EARLY EXERCISE; cross-section; Order Flow; volatility; BIAS; illiquidity; direction; returns; stocks; COSTS

摘要

We document a rapid increase in retail trading in options in the United States. Facilitated by payment for order flow (PFOF) from wholesalers executing retail orders, retail trading recently reached over 60% of total market volume. Nearly 90% of PFOF comes from three wholesalers. Exploiting new flags in transaction-level data, we isolate wholesaler trades and build a novel measure of retail options trading. Our measure comoves with equity-based retail activity proxies and drops significantly during U.S. brokerage platform outages and trading restrictions. Retail investors prefer cheaper, weekly options with average bid-ask spread of 12.6%, and lose money on average.