US Stock Options Smash Record, Surpassing 10 Billion Contracts

(Bloomberg) — The boom in stock market options shows no sign of let up, as the number of traded US contracts surpassed the 10-billion mark in 2022 for the first time ever, playing a role in the biggest equity rout in over a decade

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For the third straight year, contracts in US single-stock and index options set a record, more than doubling from the level three years ago.

The options frenzy was a major feature in a year when the Nasdaq 100 Index fell 33% and the S&P 500 shed 20%.

As the mood soured, trading in “puts” — contracts allowing holders to sell — soared by more than 30% compared to 2021, while that in bullish “call” options declined 12%.

Another feature was the explosive growth in very short-term contracts, sometimes maturing within 24 hours. Pinpointing exact volumes can be tricky but S&P 500 options expiring within one day comprised more than 40% of total volume over the third quarter, almost doubling from six months before, Goldman Sachs estimated.

This short-dated option market is increasingly drawing professional traders and algorithmic-powered institutions, especially around crucial data releases or central bank press conferences. With holders going in and out in a flash, such options are seen by many as contributing to volatility.

However, despite the overall record, year-on-year growth in options trading slowed, after rising by a third in 2021 and by a whopping 50% the year before.

The outsize increases of 2021 and 2020 are attributed to small-fry retail traders whose interest in tech shares and so-called meme stocks such as GameStop Corp. sparked huge demand for leveraged investments such as options and other derivatives. But during a year of steep equity losses, many of those participants were likely put to flight.