The Day Traders Are Back, Now Playing With Options – The Wall Street Journal

Individual investors can trade options on their mobile phones by using the apps of brokerages including E*Trade.


Andrew Harrer/Bloomberg News

Martin Rogers has been regularly trading options from his mobile phone since last summer, after dabbling in stocks and derivatives for years. A pharmaceutical representative based in Winter Garden, Fla., Mr. Rogers is often on the road and has been drawn to the ease of trading between meetings and the possibility of high returns.

“I could invest $100 and get 100% return on it,” Mr. Rogers said. When he first started trading options, he was blown away by the results. “Just looking at how powerful it was to make money … it was hard for me to sleep for a couple of days.”

Mr. Rogers is among the ranks of individual investors looking to magnify bets on stocks. U.S.-listed options volumes hit a record last year as market volatility roared back, a welcome boost to an industry that dealt with years of flatlining participation.

Brokerages, which typically generate higher profits from options trades than stocks, say individual activity is growing. The number of options trades at Charles Schwab Corp., one of the biggest online brokers, climbed 36% in 2018 from the prior year, with the number of households that had placed an options trades up 17%. At

E*Trade Financial

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, derivatives trades, most of which are options, were in the first quarter the third highest on record. Since the start of 2016, the share of accounts there that are approved to trade options has risen to about a quarter from 15%. Fidelity Investments says the number of households trading options there has grown in recent years, posting an 11% increase in 2018 from the prior year.

Options are contracts that give the right to buy or sell stock at a specific price later in time. Used by hedge funds and pension funds, they can be used to protect portfolios, generate income or bet on popular companies that have grown expensive in the stock market. But the appeal for some everyday investors can be the prospect of winning big quickly. The catch: The prospect of great returns is paired with high risk. When buying call or put options, investors risk losing all of the options premium paid. Selling options can also be treacherous if done improperly, leaving investors on the hook to buy shares of companies at unattractive prices if the contracts are exercised.

Mr. Rogers said that he was on his way to a profitable year trading options in 2018 before markets tanked in December.

Nevertheless, some new investors say they feel confident wading into options because of video tutorials and charting tools offered by brokerages. Meanwhile, social-media groups with newbie investors to swap stories with and self-described experts willing to share tips are easy to find.

Consumer advocates say brokerage clients should be cautious when getting in on options, especially as firms make it easier to do so. While brokerages can’t recommend certain types of products for self-directed clients, they are allowed to make that kind of investing possible, said Benjamin Edwards, a law professor at the University of Nevada, Las Vegas, who runs a free investor clinic.

“It’s sort of like, you come to Vegas and no one is recommending you drink and gamble, but it’s available,” Mr. Edwards said. He said he has seen more cases lately of investors losing considerable sums on options bets.


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Analysts say options trading is more lucrative for brokerage firms, which still collect relatively high commissions compared with stocks and exchange-traded funds. At E*Trade, buying 100 shares of Apple Inc. would cost $6.95 in trading fees, while buying a single options contract would cost $7.70.

“Options are more profitable” for the brokerages, said Steven Chubak, director of equity research at Wolfe Research. Commissions per trade can be higher, and because the contracts expire often weekly or monthly, people have to transact more often, he said.

Recent investments and acquisitions indicate that firms are increasingly interested in getting more customers to trade options. In 2011, Schwab bought the options platform optionsXpress, several years before E*Trade acquired OptionsHouse.

TD Ameritrade Holding

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purchased thinkorswim in 2009 and then Scottrade.

“Longer term, we want more futures and options trading,” TD Ameritrade Chief Executive Tim Hockey said.

E*Trade has been particularly active in boosting options trading, Mr. Chubak said. The firm has increased the share of trading from options and other derivatives to about a third of overall activity. Recently, it made a pitch to the masses by tweeting: “If you can figure out how to tackle your kid’s dorm room furniture, you can easily tackle options trading with E*TRADE.”

David Moadel, who teaches options through YouTube videos, says he encourages slow and steady income generation, rather than long-shot wagers that are unlikely to make a profit. It is not always successful, though. For beginners, he compares options trading to another kind of popular bet.

“What people are most interested in is the Lotto ticket plays,” Mr. Moadel said. “You might make $1,000, but what’s the probability?”

Mr. Edwards, the law professor, likens the rising participation in options to the run-up to the tech-bubble bust, when online trading became ubiquitous and brought Wall Street to Main Street. Then, many first-time investors flocked to E*Trade and other electronic brokers, chasing internet and biotechnology stocks higher until those companies went bust.

“This feels familiar,” he said.

Write to Lisa Beilfuss at and Gunjan Banerji at

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