Animal spirits on steroids: Evidence from retail options trading in India

We analyze a market-wide panel dataset on retail options trading from India, a market with an 80% share in option contracts traded worldwide. Retail traders both concentrated in and dominate index options trading. They exhibit short-term speculative behavior with significant day trading, short- duration directional bets especially as options converge to 0DTE and make significant losses. Three natural experiments indicate that financial constraints and lottery-like preferences likely shape investor behavior. An exogenous increase in the supply of short-maturity options induces trading. Lot-size increases and delivery margins trying to curb speculation are offset by shifts to small ticket-size, riskier options. While financial market participation increases welfare in canonical household finance models, it can also entrench speculative behavior that is difficult to undo.