Although retail investors drove the initial interest in options, there is increased trading volume coming from institutional investors, especially hedge funds, as they use options to limit their risk and gain added leverage from their investments.
“It’s a very powerful product,” said Susan Milligan, executive director of the Options Industry Council, which was formed by the exchanges in 1992 to help educate the public about the benefits and risks of exchange-traded equity options.
"I think it is so flexible," Milligan said. "You can use it to speculate. You can use it to hedge or to protect yourself against downturns in the market, or improve a return on a stock you own."
The rise of electronic trading has helped increase the transparency of the options market, and that helped encouraged greater participation, according to Andrew Wilkinson, senior market analyst with Interactive Brokers.
“People are able to take more risk because they know how to offset risk in markets around the world,” Wilkinson said.
With this week’s pullback in stock market ratcheting up concerns that volatility will increase in the months ahead, it is possible there could be even greater growth in options volume in the months ahead.