Robinhood taps into the lucrative options market

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For financial services firm Robinhood, it’s very clear which of the two services it offers is the more lucrative.

In its third-quarter earnings call last Tuesday, the company announced that options trades grew by almost half of its net income, despite only accounting for 13% of its users’ trades. Now others are taking advantage of the options craze.

Go with the flow

Thanks to successful pay-to-order deals with high-speed trading firms such as Citadel and Susquehanna, retail brokerage firms like Robinhood are garnering more than twice as many put options as stocks. According to Bloomberg Intelligence, the disparity between the two is so great that the 11 largest US brokerage firms gained 60% on options between July 2020 and June 2021, raising $ 2.2 billion.

Traders are also increasingly turning to the options avenue: so far this year there have been over 38 million options trades every day, a record high. This is why it becomes an essential part of Robinhood’s activity:

  • In its third quarter, the company reported $ 164 million in revenue from put options order flow, three times more than stock trades.
  • Option payments made up 45% of Robinhood’s net income in the third quarter, while stocks and crypto, its other two payment streams for order flow, were around 14% each.

iStockNano: On Wednesday, Cboe announced plans to tap the day-trading options markets next year when it launches “nano” contracts, giving speculators the ability to place bets with less money.

At the level? Critics argue that such trading prompts companies to push inexperienced users into risky trades they don’t understand, which can lead to big losses, and in August SEC Chairman Gary Gensler said that he was considering banning this practice.


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