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Regulators Eye Options Trading Boom, As New Players Arrive

A new audience has propelled the price of stocks like GameStop, AMC Entertainment and Bed Bath & Beyond.

Options trading has risen to nearly 39 million trades logged daily, as retail traders on Reddit message boards continue to dominate markets.

New numbers from Chicago-based equity derivatives clearing firm Options Clearing found trading at the highest it has ever been, up 35% year-over-year. 

That report cites data gathered during the 12-month period between June 2020 and June 2021.

Those new market players also have clout: New options traders propelled the price of stocks like GameStop GME, AMC Entertainment AMC and Bed Bath & Beyond BBBY during the height of the pandemic.

But any uptick in retail trading after last year's meme stock frenzy may lead to sharper regulatory scrutiny by the Securities and Exchange Commission, SEC Commissioner Caroline Crenshaw said in September.

"Given these changes in market access, it may be that the options account approval rules are due for a review," she said.

With the ability to trade options just a few clicks away in apps like Robinhood HOOD, investors can easily trade without direct contact with a licensed broker, Crenshaw noted.

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"While some options strategies can help hedge an investor’s portfolio against losses, other options strategies can be incredibly risky and expose an investor to sudden and severe losses," she said in a speech.

"And of note to me, many inexperienced investors — perhaps not well-positioned to jeopardize their savings — began options trading earlier this year," Crenshaw added.

Last week, there was "an explosion of trading in options" linked to tech giant Apple  (AAPL) - Get Apple Inc. Report, even as the market tumbled over concerns about the omicron variant, The Financial Times reports.

Apple was also the most discussed stock on popular message board r/WallStreetBets, according to data provider Breakout Point, the FT reports.

"Trading volumes in Apple have been impressive as mentions of the company have climbed up the ranks on Reddit message boards," the FT reports. 

According to separate data from research firm Alphacution, retail traders made up about 25% of all options activity in June, compared to 21% in January last year, the Journal report cited.

Until June of this year, the 11 largest U.S. retail brokerages collected $2.2 billion for selling customers’ options orders, according to Larry Tabb, head of market-structure research at Bloomberg Intelligence, by The Journal reported in October.