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

Author

Listed:
  • Bryzgalova, Svetlana
  • Pavlova, Anna
  • Sikorskaya, Taisiya

Abstract

We document a rapid increase in retail trading in options in the U.S. Facilitated by payment for order flow (PFOF) from wholesalers executing retail orders, retail trading recently reached over 60% of the 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 the average bid-ask spread of a whopping 12.6%, and lose money on average.

Suggested Citation

  • Bryzgalova, Svetlana & Pavlova, Anna & Sikorskaya, Taisiya, 2022. "Retail Trading in Options and the Rise of the Big Three Wholesalers," CEPR Discussion Papers 17688, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17688
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    2. Nina Klocke & Matthias Pelster, 2026. "Inside the mind of retail short sellers," Review of Derivatives Research, Springer, vol. 29(1), pages 1-49, December.
    3. Gordon, Kemar & Schneider, Mark & Strauss, Jack, 2025. "Stock market anomalies in the modern era," Finance Research Letters, Elsevier, vol. 86(PD).
    4. Ma, Jiantao & Zhang, Yuanyi, 2025. "Option price asymmetry, speculation and stock short-sale cost," Journal of Banking & Finance, Elsevier, vol. 180(C).
    5. Kim, Jinhwan & Cho, Hoon & Seok, Sangik, 2026. "How trading barriers in underlying markets impact ETF trading and characteristics," Research in International Business and Finance, Elsevier, vol. 81(C).
    6. Triki, Anis & Marquez-Illescas, Gilberto, 2025. "Do investors see the darkness in narcissism?," Advances in accounting, Elsevier, vol. 69(C).
    7. Babolmorad, N. & Bossaerts, P. & Massoud, N., 2025. "Viral but Vanishing: Investment Advisors, Social Media, and Regulation," Cambridge Working Papers in Economics 2576, Faculty of Economics, University of Cambridge.
    8. Galvani, Valentina & Razek, Noha A., 2026. "The U.S. shale energy sector navigating domestic policies in a fragmenting global economy," Energy Policy, Elsevier, vol. 210(C).

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    Keywords

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    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • G5 - Financial Economics - - Household Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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