Retail Trading in Options and the Rise of the Big Three Wholesalers
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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.
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Option trading by retail investors has increased dramatically in recent years and now accounts for over 60% of U.S. option market volume.
“Option trading by retail investors has increased dramatically in recent years and now accounts for over 60% of U.S. option market volume (Bryzgalova, Pavlova, and Sikorskaya, 2023).”
From Striking Out: Biases and Losses of Retail Option Traders (2024) · cites this paper as Bryzgalova, Pavlova, and Sikorskaya, 2023
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Bai, Z. (2024) · Review of Behavioral Finance · doi:10.1108/rbf-06-2024-0179 · Cited by 2 · see citing works
A Bayesian Stochastic Discount Factor for the Cross-Section of Individual Equity Options
Käfer, N., Moerke, M., Weigert, F., & Wiest, T. (2025) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109025102251 · Cited by 2 · see citing works
Common Factors in Equity Option Returns
Horenstein, A. R., Vasquez, A., & Xiao, X. (2025) · Review of Financial Studies · doi:10.1093/rfs/hhaf060 · Cited by 2 · see citing works
Order Routing and Market Quality: Who Benefits From Internalization?
Çetın, U., & Danilova, A. (2025) · Mathematical Finance · doi:10.1111/mafi.70014 · Cited by 2 · see citing works
Option Trade ClassificationPreprint
Grauer, C., Schuster, P., & Uhrig‐Homburg, M. (2022) · SSRN Electronic Journal · doi:10.2139/ssrn.4098475 · Cited by 2 · see citing works
Information Processing in the Option Market Around Earnings and Macroeconomic AnnouncementsPreprint
Eberbach, J., Uhrig‐Homburg, M., & Yu, X. (2025) · SSRN Electronic Journal · doi:10.2139/ssrn.5265757 · Cited by 2 · see citing works
Who Wins and Who Loses In Prediction Markets? Evidence from PolymarketPreprint
Akey, P., Grégoire, V., Harvie, N., & Martineau, C. (2026) · SSRN Electronic Journal · doi:10.2139/ssrn.6443103 · Cited by 2 · see citing works
Striking Out: Biases and Losses of Retail Option Traders
Pitkäjärvi, A., & Vacca, M. (2024) · SSRN Working Paper · doi:10.2139/ssrn.4848713 · Cited by 1 · see citing works
Regulating Market Microstructure
Ernst, T. H., & Spatt, C. S. (2025) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-112923-112656 · Cited by 1 · see citing works
Option price asymmetry, speculation and stock short-sale cost
Ma, J., & Zhang, Y. (2025) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2025.107539 · Cited by 1 · see citing works
Overcoming Deceptive Evasions in Earnings Calls: The Role of Investor Suspicion
Barcellos, L. P. (2025) · Management Science · doi:10.1287/mnsc.2025.01197 · Cited by 1 · see citing works
The Crash Risk in Individual Stocks Embedded in Skewness Swap Returns
Pederzoli, P. (2026) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109025102445 · Cited by 1 · see citing works
Operational shorting and ETF liquidity provision
Evans, R. B., Moussawi, R., Pagano, M. S., & Sedunov, J. (2026) · Journal of Financial Economics · doi:10.1016/j.jfineco.2026.104241 · Cited by 1 · see citing works
The Efficiency of Weekly Option Prices around Earnings Announcements
Milian, J. A. (2023) · Journal of risk and financial management · doi:10.3390/jrfm16050270 · Cited by 1 · see citing works
The Price of Macroeconomic Uncertainty: Evidence from Daily Options
Londoño, J. M., & Samadi, M. (2023) · International Finance Discussion Paper · doi:10.17016/ifdp.2023.1376 · Cited by 1 · see citing works
Loewenstein, M., & Qin, Z. (2025) · Review of Financial Studies · doi:10.1093/rfs/hhaf023 · Cited by 1 · see citing works
Ex-Ante Risk Premia on Earnings Announcements: Evidence from the Options MarketPreprint
Liu, H., Mao, Y., Tang, X., & Zhou, G. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4342267 · Cited by 1 · see citing works
Social Network Sentiment and Markets: Evidence from the Wallstreetbets ForumPreprint
Huang, C., & Nolan, P. J. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4384743 · Cited by 1 · see citing works
A Market Maker of Two Markets: The Role of Options in ETF ArbitragePreprint
Moussawi, R., Xu, L., & Zhou, Z. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4395938 · Cited by 1 · see citing works
Manipulating Non-Fundamental InformationPreprint
Waters, B., Zhang, X., Zhou, W., & Santosh, S. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4638166 · Cited by 1 · see citing works
Execution Quality of Retail Trades on Exchanges: Evidence from the NYSE Retail Liquidity ProgramPreprint
Chung, K. H., Rösch, D. M., & Zhang, Y. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4669930 · Cited by 1 · see citing works
Mental Models of Information: The Role of Attention and MemoryPreprint
Bohren, J. A., Hascher, J., Imas, A., Ungeheuer, M., & Weber, M. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4731525 · Cited by 1 · see citing works
Equity Premium EventsPreprint
Knox, B., Londoño, J. M., Samadi, M., & Vissing‐Jørgensen, A. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4773692 · Cited by 1 · see citing works
Gamification of Stock Trading: Losers and WinnersPreprint
Yelagin, E. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4851630 · Cited by 1 · see citing works
Some Anonymous Options Trades Are More Equal than OthersPreprint
Huang, X., Jorion, P., & Schwarz, C. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4951825 · Cited by 1 · see citing works
Risky Intraday Order Flow and Equity Option LiquidityPreprint
Pederzoli, P., Doshi, H., & Sert, S. A. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.5006194 · Cited by 1 · see citing works
How do Investors Trade Option Anomalies?Preprint
Hollstein, F., & Simen, C. W. (2025) · SSRN Electronic Journal · doi:10.2139/ssrn.5034623 · Cited by 1 · see citing works
Risk-Seeking Motives and Speculative InvestmentPreprint
Arkolakis, C., Kwon, S., Russel, D., Shi, C., & Yang, H. (2025) · SSRN Electronic Journal · doi:10.2139/ssrn.5761702 · Cited by 1 · see citing works
The Crash Risk in Individual Stocks Embedded in Skewness Swap ReturnsPreprint
Pederzoli, P. (2018) · SSRN Electronic Journal · doi:10.2139/ssrn.3151975
Hu, G. (2022) · SSRN Electronic Journal · doi:10.2139/ssrn.4039002
Fractional TradingPreprint
Da, Z., Fang, V. W., & Lin, W. (2021) · SSRN Electronic Journal · doi:10.2139/ssrn.3949697
What Drives Stock Prices in a Bubble?Preprint
Chen, W., Liang, S., Shi, D., & Shi, Z. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4449905
Trading Volume Shares and Market Quality: Pre- and Post- Zero CommissionsPreprint
Jain, P. K., Mishra, S., O'Donoghue, S., & Zhao, L. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4582972
Sanford, A., & Ma, Y. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4600474
Does Retail Order Flow Internalization Increase Information Acquisition?Preprint
García-Méndez, D. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4629902
Counting pennies, losing pounds: Biased learning about own trading abilityPreprint
Chague, F., Giovannetti, B., Guimarães, B., & Maciel, B. (2023) · SSRN Electronic Journal · doi:10.2139/ssrn.4636623
Expected Index Option Return: What Can We Learn From Macro and Anomalies ?Preprint
Beckmeyer, H., Tong, G., & Zhou, G. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4674294
A Cognitive Foundation for Perceiving UncertaintyPreprint
Bohren, J. A., Hascher, J., Imas, A., Ungeheuer, M., & Weber, M. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4706147
A Bayesian Stochastic Discount Factor for the Cross-Section of Individual Equity OptionsPreprint
Käfer, N., Moerke, M., Weigert, F., & Wiest, T. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4710335
Charming! Retail Option Volume and Delta Hedging Effects on Stock PricingPreprint
Flynn, M. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4733077
Revisiting Boehmer et al. (2021): Recent Period, Alternative Method, Different ConclusionsPreprint
Ardia, D., Aymard, C., & Cenesizoglu, T. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4703056
React Financial Analysis with Interactive Pay-Off Graph and Options Data
Amitha, S. K. (2024) · International Journal for Research in Applied Science and Engineering Technology · doi:10.22214/ijraset.2024.59442
Trading in Your Golden Years: The Effects of Early Pension Withdrawal on Individual InvestmentsPreprint
Hameed, A., Agarwal, S. D., Pan, Y., & Tan, C. A. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4800429
Synthetic long stock and option trading: Evidence from stock splits
Liu, Y., & Piccotti, L. R. (2024) · The Journal of Financial Research · doi:10.1111/jfir.12404
Do Retail Investors Exploit Predictive Information from Institutional Trading?Preprint
Sun, X., Li, T., & Zhu, J. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4820415
Why Do Trading Frenzies Motivate “locals” to Make Better Trading DecisionsPreprint
Lü, W., Swan, P. L., & Westerholm, P. J. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4836058
Low Risk, High Return: Improving Option Writing Performance with Put-Call RatiosPreprint
Lo, C.-L., & Liu, W.-R. (2024) · SSRN Electronic Journal · doi:10.2139/ssrn.4889026
- Authors
- BRYZGALOVA, S., PAVLOVA, A., & SIKORSKAYA, T.
- Affiliations
- University of Central Florida (US)
- Center for Economic and Policy Research (US)
- Corresponding author
- PAVLOVA, ANNA
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2023-10-13
- Volume
- 78
- Issue
- 6
- Pages
- 3465-3514
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W4387267959
- Cited by
- 160
- References
- 62
- Citations by year
- 2026: 33 · 2025: 53 · 2024: 33 · 2023: 23 · 2022: 10 · 2021: 3 · 2020: 1 · 2018: 2 · 2017: 1 · 2013: 1
- FWCI
- 29.99
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- Locations
- The Journal of Finance (publishedVersion, cc-by)
- SSRN Electronic Journal (acceptedVersion)
- London Business School Research Online (London Business School) (acceptedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Stochastic processes and financial applications
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- payment for order flow, retail investors, bid-ask spread, trade barriers
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