Chain-Based Options Market Enters Blue Ocean; Battle for Retail Users Intensifies

Written by: Marlon

Compiled by Saoirse, Foresight News

The on-chain options sector is currently the largest untapped market in the crypto space and the most promising opportunity to invest in.

If you calculate its total addressable market (TAM), it’s clear that options becoming the market’s core is merely a matter of time—not if it will happen. All mature financial markets eventually evolve toward options, and the crypto market is now at this turning point.

In traditional financial markets, retail demand for options has already been thoroughly validated. In the on-chain context, the current bottleneck is no longer regulation or underlying infrastructure. Market maker liquidity continues to improve, and the request-for-quote (RFQ) mechanism can handle large orders, with an increasing number of participants entering the space.

However, this sector is still in its early stages (on-chain options trading volume currently accounts for only 6.9% of Deribit’s options volume), and interest is rising rapidly. The most critical challenge it faces right now is establishing effective user distribution channels.

To achieve explosive growth, it is essential to continuously attract retail (benign buyer) order flow. Historically, the primary driver behind every rapidly expanding options market has been retail participants.

In the Crypto Twitter (CT) community, the most widely circulated yet least credible statement is: "Retail investors don't understand options, so they'll never trade options on-chain."

This claim is completely unfounded; all empirical evidence points to the opposite conclusion. While understanding Greeks and payoff structures requires a learning investment, the complexity of pricing logic has never dampened strong user demand for such products.

Retail traders are willing to trade options because their profit potential is easy to understand. No one meticulously calculates theta time decay.

By lowering trading barriers and offering a simple, user-friendly interface, retail options trading volume can be substantial. The "convexity" of options is precisely their core appeal—essentially, it means unlimited upside potential.

In fact, options are the most popular derivatives among retail investors. Those who disagree can refer to the following examples:

The U.S. market is the best example. Between 2014 and 2017, the options market was dominated by institutions, with growth stagnating and annual contract volume stabilizing at around 4 billion, while retail participation was virtually negligible.

In December 2017, Robinhood launched commission-free options trading, prompting a wave of other brokers to follow suit. Shortly thereafter, the COVID-19 pandemic struck, creating a confluence of multiple contributing factors.

At the time, everyone was under home isolation, waiting for the market to return to normal. In the early stages of the pandemic, asset prices plummeted, prompting a surge of retail investors to enter the market. Ongoing market promotion, combined with growing public interest in financial investing, fueled this wave of enthusiasm. Vast numbers of retail investors flooded financial apps, causing options trading volumes to skyrocket.

Since Robinhood launched commission-free options trading in December 2017, the annual volume of listed options contracts in the U.S. has increased from 4.19 billion to 15.21 billion, a 263% rise, with daily average trading volume rising accordingly.

From 2017 to 2025, annual options contract volume increased by 263%, rising from 4.19 billion to 15.2 billion contracts. As trading activity surged, institutional trading volumes also rose, prompting market makers to seek more hedging tools, with all market participants pursuing convexity returns. However, the primary driver behind this growth has been retail investors.

The surge in retail participation is also reflected in the rise of short-term options trading. Retail investors favor convexity, as shorter-dated options offer higher potential upside gains when volatility spikes.

The highest-risk category in options is 0DTE (same-day expiration options): they expire and cease trading before the close of the same trading day. (Note: Any option on its final trading day is considered 0DTE.)

Over the past decade, retail demand has continuously accelerated, accompanied by a growing supply of options contracts. Retail trading behavior globally exhibits strong consistency: contracts expiring within 0 to 3 days show the highest trading activity.

Institutions rarely participate in lottery-like speculative trading, so the trading volume of short-term contracts is a good indicator of retail investor participation.

Over the past decade, the share of 0DTE (same-day expiration) options trading volume for the S&P 500 (SPX) has surged from 5% to 62%, a trend further accelerated by exchanges continuously adding new expiration dates and Robinhood enabling index options trading.

Over the past decade, the daily trading volume of SPX options has increased more than twelvefold, rising from 5% to over 60% of total SPX options volume.

SPX options have expired every Friday since 2005. Cboe added Monday and Wednesday expirations in 2016, and further introduced Tuesday and Thursday expirations in 2022, ensuring options expire every trading day.

Each new addition of expiring contracts further stimulates demand.

In January 2025, Robinhood opened index options trading to all customers. Cboe data showed that the following month, the share of same-day options surged to a then-record 56%. The global market pattern is highly consistent: when retail investors are given access to low-cost, short-term options contracts, they participate in large numbers.

Between 2016 and 2023, the trading structure of S&P 500 (SPX) options underwent a complete reversal, with the share of ultra-short-term options expiring in 0–7 days significantly increasing; by 2023, same-day (0DTE) options accounted for 43% of total volume, while trading in medium- and long-term options continued to decline.

This shift is not limited to weekly options; the entire S&P 500 options market is moving toward shorter-dated contracts.

2016 data: Options expiring within one week accounted for 29% of SPX volume; those expiring between one week and one month represented the highest share at 30%; options expiring after one month accounted for 41%.

By 2023, the market landscape had completely reversed:

• Expiring within one week: accounts for 68% of trading volume, with same-day options making up 43%.
• One week to one month remaining: dropped to 12%
• Expiring in more than one month: Revert to 20%

In just seven years, the S&P 500 options market has shifted from being dominated by medium- to long-term positions to having two-thirds of contracts expiring within just a few days.

Similarly, this round of shift is driven by retail investors. A 2023 SSRN study found that for retail traders, same-day options constitute nearly all of their trading activity—over 75% of retail-traded SPX options are 0DTE.

Robinhood is widely known. The vast majority of retail trading in the U.S. takes place via mobile apps, and Robinhood is one of the leading platforms.

Options trading is Robinhood's largest source of trading revenue. Unlike the volatile revenue from cryptocurrency trading, options revenue has remained consistently stable and firmly holds the top position.

Options have become Robinhood's largest source of trading revenue, with options trading income reaching $342 million in the second quarter of 2026, significantly surpassing the combined revenue from stocks and crypto at $229 million.

The advantages are significant: income from options trading often exceeds the combined revenue from stock and cryptocurrency businesses.

For the second quarter of 2026, option revenue reached $342 million, while the combined revenue from stocks and crypto amounted to just $229 million. Revenue grew steadily, rising from $182 million in the second quarter of 2024 to $342 million in the second quarter of 2026, a 88% increase over two years.

No retail investor group is as enthusiastic about options as Indian traders. Globally, Indian retail traders are the primary force in options trading and serve as a highly valuable research sample.

Before conducting the analysis, let’s clarify the two key metrics for options: premium and notional principal.

• Premium: The actual cash amount paid by a trader to buy an option. For example, if you pay $200 to purchase a call option, that $200 is the premium. It represents real funds in circulation and is the most objective metric for measuring platform trading volume.
• Notional Value: The face value of the underlying asset, calculated as the contract multiplier multiplied by the underlying price. A premium of $200 can control a risk exposure worth $10,000. Therefore, notional values are often large, but the actual capital turnover is relatively small. Useful for assessing market size, but can be misleading if viewed in isolation.

Return to the Indian market.

From FY16 to FY26, the volume of options premiums traded increased 45.8-fold (reaching ₹190.65 trillion), far outpacing the 3.2-fold growth in futures trading volume.

In the fiscal year 2016 (April 2015–March 2016), Indian traders paid ₹4.16 trillion in stock option premiums; by fiscal year 2026, premium turnover reached ₹190.65 trillion, an increase of 45.8 times.

At the end of 2024, India’s Securities and Exchange Board (SEBI) introduced a series of regulatory policies: raising the minimum contract size from ₹500,000 to ₹1.5 million (a threefold increase) and requiring exchanges to offer weekly expiry contracts for only one benchmark index.

Even so, the volume of option premiums continued to rise, increasing by another 7% in fiscal year 2026.

Among Indian retail derivatives traders, options are the absolute favorite. Over ninety percent of retail traders participating in derivatives trading focus solely on options. For Indian retail investors, derivatives trading is essentially synonymous with options trading.

Among individual traders in Indian equity derivatives, the proportion of traders who trade options only and avoid futures rose from 57% in FY19 to 93.3% in FY25, with the vast majority of retail traders engaging exclusively in options.

Before making a global comparison, clarify what “dominant” means in the context of the Indian market. In the first half of 2026, Indian exchanges traded 39.3 billion option contracts, 4.5 times the 8.7 billion contracts traded across all U.S. options exchanges combined.

However, U.S. traders paid premiums totaling $6.3 trillion, nearly five times India’s $1.3 trillion. This translates to approximately $33 in premiums per contract in India, compared to a much higher $719 per contract in the U.S.

Comparison of Indian and U.S. options markets: India has far more traded contracts than the U.S., but the U.S. has significantly higher total premium volume, reflecting that Indian retail investors place smaller individual trades with higher frequency.

The differences stem primarily from two factors: India’s contract minimum face values are lower, and the tradable products differ. India’s trading volume is almost entirely driven by index options, which have low contract prices, low entry barriers, and short durations; in contrast, the U.S. market includes individual stock options, ETF options, and longer-term contracts, each with significantly higher premium amounts.

Indian retail traders are trading the same type of "lottery-style" options as U.S. retail traders, just at lower price points.

This data also clearly shows the impact of SEBI regulation: from the first half of 2024 to the first half of 2025, contract volume declined by 63%, while premium decreased by only 18%. The drop was primarily in large contracts, not due to traders exiting. By the first half of 2026, contract volume rebounded by 48%, and premium increased by 35%.

Considering the above context, we can see where India stands by examining global options trading volume.

In fiscal year 2026, index option trading volume on India's NSE accounted for 89% of global index option contracts, dominating the global stock index options market.

For reference: In terms of participation volume alone, India leads global options trading.

In fiscal year 2026, India's National Stock Exchange (NSE) traded 34.7 billion index option contracts, accounting for 89% of global volume and 51% of all global equity derivatives contracts. By contract volume, it significantly outpaces leading Western derivatives exchanges.

For comparison, CME had approximately 7.1 billion contracts and ICE had approximately 5.0 billion contracts during the same period. NSE's trading volume was 4.9 times that of CME and 6.9 times that of ICE.

Indian retail investors don't just participate in options—options have become their primary way of engaging in the market.

Before India, Korea witnessed a scenario: what happens when retail investors can easily purchase low-cost index options.

The KOSPI 200 options track the 200 leading listed companies in South Korea and account for the vast majority of trading volume in stock options on the Korea Exchange (KRX).

In the early 2000s, domestic retail investors accounted for 70% of total KOSPI options trading volume. As foreign institutional investors and overseas retail traders entered the market, combined with ongoing tightening of domestic regulations, the share of Korean retail trading plummeted to below 30% and has not recovered since.

The South Korean stock index options market completed a full cycle of rise and decline: rapid ascent to global prominence, followed by a sharp contraction under strict regulation.

South Korean retail investors once pushed KOSPI200 options to become the world’s most actively traded derivative, but trading volume dropped sharply after regulatory restrictions were imposed, and even the subsequent introduction of weekly options failed to restore previous highs.

There are many valuable lessons to be learned, which we will examine in phases:

• Boom period: 2000–2003 — The total volume of stock options surged from 194 million contracts in 2000 to 2.84 billion contracts in 2003, a 14.6-fold increase over three years. During the same period, premiums paid by retail investors skyrocketed by 7.9 times. Retail investors were the core drivers of this boom, accounting for 70% of KOSPI 200 options trading volume.
• Global peak period: 2004–2011 In 2004, KRX stock option volume accounted for approximately 28% of global derivatives contract trading volume. Over the past decade, the KOSPI 200 option consistently ranked first globally in contract volume according to FIA, peaking at 3.67 billion contracts in 2011. Retail option premium reached a peak of KRW 145.7 trillion.
• Bear market: 2012–2017 — Regulators viewed retail speculation as overheated and ultimately implemented strong regulatory measures.

In December 2011, the Korean Financial Services Commission (FSC) announced that the contract size of the KOSPI 200 options would be increased fivefold, with the multiplier rising from KRW 100,000 to KRW 500,000. Based on the exchange rate at the time of USD 1 = KRW 1,327, the contract threshold increased from approximately USD 75.34 to USD 376.71.

The new regulations were implemented in phases between March and June 2012. Total contract trading volume declined by 23% from the peak, and retail option premiums dropped by 37% year-over-year.

In December 2014, regulations were further tightened: new traders wishing to participate in options were required to complete a 30-hour course, 50 hours of simulated trading, and deposit a margin of 50 million Korean won (equivalent to $37,671!!!).

This policy has nearly cut off access for new retail investors.

In January 2016, the third round of regulation took effect: the capital gains tax on KOSPI 200 derivatives was increased from 5% to 10%, causing trading volume to decline again.

By 2017, market activity, adjusted for contract size, had declined by 57% from its peak; retail options premiums had dropped by 77% from their high.

Subsequently, regulators acknowledged that the policy measures were too stringent. In March 2017, the contract multiplier was halved, reducing to 250,000 KRW. In 2019, the FSC admitted that the entry barriers had been set too high, lowering the margin requirement to 10–20 million KRW and shortening the training to a 1-hour course plus 3 hours of simulated trading.

In 2019, the FSC also introduced weekly KOSPI 200 options to revitalize the market. Trading activity gradually recovered, and from 2020 to 2025, the adjusted annual contract volume returned to 1.7–2 billion, though it remained half of the 2011 peak.

Regulators did not directly shut down the KOSPI 200 options market, but they severely dampened retail investors' willingness to participate. In 2025, retail options premiums fell to a 20-year low of just 21.5 trillion Korean won, an 85% decline from the 2011 peak.

After the participation enthusiasm of local retail investors was damaged, it became nearly impossible to repair. By the fourth quarter of 2026, retail investors accounted for less than 27%, while overseas institutional and individual investors combined exceeded 66%.

In 2025, foreign investors accounted for 66.4% of KOSPI200 options trading, while Korean retail investors made up only 26.1%, a significant decline from their peak of 72.2% in 2001.

Many people might think that this kind of "reasonable regulation" has achieved its goals—speculation has been curbed, investors are protected, and the frenzy of trading demand has subsided...

That is not the case.

Any thriving market, if overly restricted, will see demand shift overseas.

Korean traders have simply shifted to offshore futures and options trading; demand for leveraged trading has never disappeared.

South Korean retail investors' overseas derivatives trading volume has reached 3.6 times that of the domestic market, as regulatory restrictions on domestic trading have redirected significant trading demand overseas.

The Financial Services Commission (FSS) and the Korea Financial Investment Association (KOFIA) did not publicly disclose overseas trading data prior to 2016, so we compare data from 2016 to 2024.

The derivative trading volume here refers to the annual total derivative trading volume by individual investors in Korea, including futures and options. For futures, the statistics are based on the full notional value of positions (index price × multiplier × number of contracts); for options, only the premiums paid are counted, not the notional value of the positions they control.

In 2016, South Korean retail trading volume in domestic derivatives exceeded overseas trading: KRX domestic trading reached KRW 272.9 trillion, compared to KRW 195.2 trillion on overseas exchanges. In 2018, overseas trading volume surpassed domestic trading for the first time.

By 2024, the gap had widened significantly: overseas trading reached 106,070 trillion KRW, while domestic trading amounted to only 29,860 trillion KRW, making overseas volume 3.6 times larger than domestic.

Over these eight years, retail trading volume in overseas derivatives increased 5.4 times, while domestic trading grew by only 9%.

Domestically, new derivatives traders still need to meet a minimum margin requirement of 10 million KRW plus mandatory training; most overseas brokers, however, have no such margin or training requirements.

As a result, retail investors continue to exit high-barrier domestic markets and shift toward overseas platforms with more relaxed regulatory environments. Korean retail investors primarily trade U.S. stock index futures overseas, with the Nasdaq-100 Mini futures recording the highest trading volume.

It is clear that retail investors naturally prefer options trading. Understanding demand patterns across different regions is fundamental to addressing distribution channel issues.

• Throughout history, the primary driver behind every options market that experienced explosive growth has been retail investors.
• Regulation can suppress the trading volume in local markets, but it cannot eliminate trading demand.
• Among all trading categories, options have a far greater appeal to retail investors.

India and the United States are excellent positive examples, and Korea’s experience offers a particularly important cautionary lesson.

When it comes to on-chain options, many people say: "DeFi can never compete with Robinhood in the retail market." I don't fully agree with this view—the key point is that for the on-chain options sector to explode, it doesn't need to attract American retail investors at all.

Just like Korean traders in the past, a large number of traders will turn to offshore platforms to meet their trading needs. With the right distribution channel, any permissionless protocol has the potential to capture this demand.

The current on-chain options volume is still small; attracting more institutions and native crypto users could easily increase trading volume tenfold. However, according to the historical development of traditional finance, the tipping point for mass adoption will inevitably come from retail investor order flow.