Arianne Adams at Webull speaks to Trader TV at this year’s Options Industry Conference (OIC) in Palm Beach, Florida about how retail and institutional traders are using derivatives in response to ongoing market volatility, including the rise in shorter-dated equity options in trading strategies.
Adams also unpacks the divergence between retail and institutional directional flow; the growing sophistication of use in derivatives to express investment views among the retail trading community, and where she is seeing demand for exposure to crypto derivatives.
Interview
Jo Gallagher There’s been no shortage of volatility this year. How are you seeing retail and institutional traders react and what are some of the emerging trends you’re starting to see in how they use derivatives?
Arianne Adams I’d say first and foremost, volatility at this speed that happened over the past 30 days was unprecedented. It’s just a surprise to all. So in any situation, all investor types will struggle in this type of market dynamic. From an institutional perspective, they tend to re-risk quickly. They’ve reduced their positions. They maybe are thinking more thoughtfully about the hedges on the downside, so using derivative products from a macro standpoint on how they are protecting their portfolio positions in the event that we’re seeing these massive volatility spikes up and down. And they have been pointing more towards a bearish dynamic, more put buying, selling of assets.
On the retail side of things, they’ve historically over the last couple of years have been very bullish up and to the right, buying calls. Really directionally positive in the overall macro, as well as micro dynamics of the marketplace. In this environment, they’ve slowed down their trading. They’re trading less and trading for smaller sizes. However, that bullish position or that long position still persisted and still maintained, which was very, very strong to see. And as we’ve made it through some of this volatility and as VIX has kind of come down a bit, although there’s still uncertainty in the tariff regime. We’ve seen the discretionary and systematic institutional communities start to dabble back to the upside again, starting to dip their toes back in the water.
Jo Gallagher So we’re seeing an uptick in the use of single stock options and short-dated options. Why is that?
Arianne Adams I think in this volatility environment, this market environment, these become very useful tools for investors, both institutional and retail. I wanted to be able to be smart about managing risk around very short-term moves, directional bets, downside hedges, the ability to spread trades, and the ability to actually overwrite and collect yield.
All of those have been reasons why people have used these shorter-dated options to be able manage the risk more effectively. 40 to 50 to 60 percent of the volume in SPX (S&P 500) and ETF (exchange-traded funds) options have been around zero DT or shorter than one-week options. Then you look at the single stock equity options where we do not have a shorter maturity than Fridays. You do not see the same volume profiles at this point. As you start to get closer and closer to a Thursday or a Friday expiry, volumes accelerate upwards of 30 to 40 percent higher. People are using that trade strategy. But they can’t do it as frequently as they might be able to do with SPI or SPX. So as NASDAQ has just put a filing out there to start to add more days, we’re gonna start to see similar trends emerge in single stock equity options, which is great. There’s a reason for it, and it’s very helpful to the user base.
Jo Gallagher Are you seeing a growing sophistication in the use of derivatives across the retail demographic?
Arianne Adams Yeah, without a doubt. I think multiple different venues like OIC provide excellent education, and the investors have consumed it. So what you’re seeing is you have very traditional buy and hold, long only, I’m going to trade a couple times a month or a couple of times a year, types of customer bases, and then you also start to see the discretionary or the active trader mitigate towards more of a systematic type of user base. So they’re looking for things like algorithms or API access. That varying degree of retail investor is starting to persist and look a little bit like the institutional community.
Jo Gallagher Crypto derivatives are another big topic in this industry, and the U.S. administration has also vocalized support for digital assets. So are you seeing an uptick in retail interest in gaining exposure to crypto assets?
Arianne Adams Without a doubt, at Webull we offer approved products, both on the SEC (US Securities Exchange Commission) and the CFTC Commodities Futures and Trading Commission) side. So that would be the ETFs, the index options, the ETF options, as well as the futures.
From a crypto spot perspective, in the prior administration we needed to remove that from our value proposition. Now as we enter the current administration, and signs are pointing toward a more favorable view of cryptocurrency, even though there’s some uncertainty on how the product is going to be regulated. We continue to see significant demand from our customer base who want to continue to use the traditional spot currency to invest. I also see an uptick both on institutional and retail interest in providing a portion of their portfolio allocated towards crypto assets. That might be from a long-term buy-and-hold perspective, as well as also discretionary trading. Both of those are present in our volume profiles today.
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