On-Chain Options Blue Ocean: The Real Battlefield is in Retail Distribution

Looking at cases from the US stock market, India, and South Korea, the demand for options will not disappear, but will only shift.

Written by: marlon

Compiled by: Saoirse, Foresight News

The on-chain options track is currently the largest blue ocean in the crypto market and the most worthwhile opportunity to lay out.

If we estimate its potential market size (TAM), it is not hard to find that options becoming the core of the market is just a matter of time, not whether it will happen. All mature financial markets eventually move towards options; the crypto market is at this turning point.

In traditional financial markets, the demand for options from retail investors has been fully validated. In the on-chain scenario, the current bottleneck is no longer regulation or underlying infrastructure. The liquidity of market makers continues to improve, and the Request for Quote (RFQ) mechanism can accommodate large orders, with more and more participants in the track.

However, this track is still in its early stages (currently, on-chain options trading volume accounts for only 6.9% of Deribit’s options trading volume), and the heat is rapidly rising. At present, it faces the most critical proposition: to open up user distribution channels.

To achieve explosive growth, it is essential to continuously attract retail (healthy buyer) order flow. Historically, every options market that has achieved rapid expansion has been driven by retail investors.

How Options Trading Forms Scale Effects

In the crypto Twitter community (CT), the most widely circulated yet least substantiated saying is: "Retail investors do not understand options, so they will never trade options on-chain."

This statement is completely unfounded; all evidence points to the opposite conclusion. While understanding Greek values and profit structures does require a learning cost, the complexity of pricing logic has never suppressed users' strong demand for such products.

Retail investors are willing to trade options because their profit potential is easy to understand. No one will meticulously calculate Theta time decay.

As long as the trading threshold is lowered and the interface is simple and easy to use, retail options trading volume will be considerable. The "convexity" of options is precisely its core attraction, simply put, there is no upper limit on profits.

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

Case A: Driven by Retail Investors, US Options Contract Trading Volume Has More Than Doubled Since 2017

The US market is the best example. From 2014 to 2017, the options market was dominated by institutions, and growth stagnated, with annual contract trading volume stabilizing around 4 billion, and retail participation was almost negligible.

In December 2017, Robinhood launched zero-commission options trading, followed by a large number of brokerages. Then came the COVID-19 pandemic, with multiple conditions resonating together.

At that time, everyone was quarantined at home, waiting for the market to return to normal. In the early stages of the pandemic, asset prices plummeted, and a large number of ordinary investors began to enter the market. Continuous market promotion, combined with the public's growing interest in financial investment, gave rise to this wave. A massive influx of retail investors into financial apps led to a surge in options trading volume.

Since Robinhood launched commission-free options trading in December 2017, the annual contract trading volume in the US options market has increased from 4.19 billion to 15.21 billion, an increase of 263%, with daily trading volume also rising accordingly.

From 2017 to 2025, the annual options contract trading volume increased by 263%, from 4.19 billion to 15.2 billion. After the trading activity increased, institutional trading volume also rose, as market makers needed more hedging tools, and all parties in the market were chasing convexity returns. However, the core driver of this growth was retail investors.

Case B: The Proportion of Daily Options in the S&P 500 Has Increased 12 Times Over the Past Decade

The massive entry of retail investors is also reflected in the rise of short-term options trading. Retail investors prefer convexity; the shorter the expiration time of options, the higher the potential upside when volatility spikes.

The riskiest category of options is 0DTE (zero days to expiration options): options that expire and stop trading before the market closes on the same trading day. (Note: Any option on its last trading day is considered 0DTE.)

Over the past decade, retail demand has continued to accelerate, and the supply of daily options contracts has also increased. The trading behavior of global retail investors shows a high degree of commonality: contracts with 0DTE to 3 days to expiration have the highest trading activity.

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

Over the past decade, the trading volume of 0DTE options in the S&P 500 (SPX) has surged from 5% to 62%, with exchanges continuously adding expiration dates, and Robinhood's opening of index options further boosting this trend.

Over the past decade, the trading volume of daily options in the S&P 500 (SPX) has increased more than 12 times, with its proportion in total SPX options trading volume rising from 5% to over 60%.

SPX options have expired every Friday since 2005. Cboe added Monday and Wednesday expiration contracts in 2016, and again added Tuesday and Thursday expiration contracts in 2022, ensuring that options expire on every trading day.

Every time new expiration contract supply is added, it further stimulates demand.

In January 2025, Robinhood opened index options trading to all customers. Cboe data showed that the proportion of daily options surged to a record 56% the following month. The rules of the global market are highly consistent: provide retail investors with low-cost, short-term options contracts, and they will participate in trading on a large scale.

Case C: Short-Term Options Have Dominated S&P 500 Options Trading

From 2016 to 2023, the trading structure of S&P 500 (SPX) options has completely reversed, with the proportion of ultra-short-term options (0-7 days) significantly increasing, among which 0DTE daily options accounted for 43% of total trading volume by 2023, while the proportion of medium- to long-term options trading continued to shrink.

This change is not limited to daily options. The entire S&P 500 options market is shifting its trading focus towards ultra-short terms.

In 2016, data showed that options expiring within a week accounted for 29% of SPX trading volume; options expiring from one week to one month had the highest proportion at 30%; options expiring beyond one month accounted for 41%.

By 2023, the market structure had completely reversed:

• Options expiring within a week: accounted for 68% of trading volume, with daily options accounting for 43%
• Options expiring from one week to one month: fell to 12%
• Options expiring beyond one month: fell to 20%

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

Similarly, this round of change is led by retail investors. A 2023 SSRN study showed that for retail investors, daily options are almost all they trade ------over 75% of SPX options traded by retail investors are 0DTE.

Case D: Options Have Always Been Robinhood's Largest Source of Trading Revenue

Robinhood is well known. The vast majority of retail trading in the US is done through mobile apps, and Robinhood is one of the leading platforms.

Options trading is the largest source of Robinhood's trading revenue. Unlike the volatile revenue from crypto business, options revenue is long-term stable and ranks first.

Options have become Robinhood's largest source of trading revenue, with options trading revenue of $342 million in Q2 2026, far exceeding the combined revenue from stocks and crypto business of $229 million.

The advantages are very prominent: the revenue from options trading often exceeds the combined revenue from stock and crypto businesses.

For example, in the latest Q2 2026, options revenue for the quarter was $342 million, while the total from stocks and crypto was only $229 million. Revenue growth has been steady, increasing from $182 million in Q2 2024 to $342 million in Q2 2026, an increase of 88% over two years.

Case E: Indian Retail Investors Dominate Global Options Trading

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

Before diving into analysis, let’s clarify two core statistical measures of options: premium and notional value.

• Premium: The cash that traders actually pay to buy options. If you spend $200 to buy a call option, that $200 is the premium. It represents the real flow of funds and is the most objective measure of the trading scale on the platform.
• Notional Value: The face value of the underlying asset corresponding to the contract, equal to the contract multiplier × the underlying price. A $200 premium can leverage a risk exposure of $10,000. Therefore, the notional value is often large, but the actual turnover is not much. It is suitable for observing market size, but looking at it alone can easily lead to misjudgment.

Back to the Indian market.

From FY16 to FY26, the trading volume of options premiums in India increased by 45.8 times (reaching ₹190.65 trillion), far exceeding the 3.2 times increase in futures trading volume.

In FY2016 (April 2015 to March 2016), Indian traders paid ₹4.16 trillion in stock options premiums; by FY2026, the premium trading volume reached ₹190.65 trillion, an increase of 45.8 times.

At the end of 2024, the Securities and Exchange Board of India (SEBI) introduced a series of regulatory policies: raising the minimum contract size from ₹500,000 to ₹1,500,000 (a threefold increase), while requiring exchanges to provide weekly expiration contracts for only one benchmark index.

Even so, the scale of options premiums continued to rise, with a further increase of 7% in FY2026.

Among Indian retail derivatives traders, options are the absolute first choice. More than 90% of retail investors participating in derivatives trading only trade options. It can be said that for Indian retail investors, derivatives trading is essentially equivalent to options trading.

Among individual traders in India's stock derivatives market, those who only trade options and avoid futures have increased from 57% in FY19 to 93.3% in FY25, indicating that the vast majority of retail investors are only trading options.

Before making a global comparison, it is essential to clarify what "dominance" means in the Indian market. In the first half of 2026, the number of options contracts traded on Indian exchanges reached 39.3 billion, which is 4.5 times the total of 8.7 billion contracts traded across all U.S. options exchanges.

However, U.S. traders paid a total premium of $6.3 trillion, nearly five times India's $1.3 trillion. In terms of per contract premium: the premium for a single contract in India is approximately $33, while in the U.S., it reaches as high as $719.

Comparing the options markets of India and the U.S.: India has a significantly higher number of contracts traded, but the total premium traded in the U.S. is much higher, reflecting that Indian retail investors make smaller trades but more frequently.

The differences mainly stem from two points: the minimum contract value in India is lower, and the types of products traded differ. Almost all of India's trading volume comes from index options, which have lower contract prices, lower entry barriers, and shorter durations; whereas the U.S. market includes individual stock options, ETF options, and long-term contracts, which have much higher premiums.

The options traded by Indian retail investors are of the same "lottery-type" as those in the U.S., just at a lower price point.

This data also clearly shows the impact of SEBI regulations: from the first half of 2024 to the first half of 2025, contract volumes fell by 63%, but premiums only dropped by 18%. The decline was primarily in large contracts, not due to traders exiting the market. By the first half of 2026, contract volumes rebounded by 48%, and premiums increased by 35%.

With this background, we can examine the global options contract trading volume to see India's position more clearly.

In the fiscal year 2026, the volume of stock index options traded on India's NSE accounted for 89% of the total global stock index options contracts, establishing an absolute dominance in the global stock index options market.

For reference: in terms of participation, India dominates global options trading.

In the fiscal year 2026, the National Stock Exchange of India (NSE) traded 34.7 billion stock index options contracts, accounting for 89% of the global total and 51% of all global stock derivatives contracts. In terms of contract volume, it far outpaces leading Western derivatives exchanges.

For comparison: during the same period, CME traded about 7.1 billion contracts, and ICE traded about 5 billion contracts. NSE's trading volume is 4.9 times that of CME and 6.9 times that of ICE.

Indian retail investors are not just participating in options; options have become their primary means of market participation.

Case F: The Rise and Fall of South Korea's Stock Index Options Market

Long before India, South Korea experienced a similar scenario: what happens when retail investors can easily buy low-priced index options?

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

In the early 2000s, local retail investors accounted for 70% of the total trading volume of KOSPI options. As foreign institutions and overseas retail investors entered the market, coupled with tightening local regulations, the proportion of retail trading in South Korea plummeted to below 30%, a level that has not recovered to this day.

The South Korean stock index options market has gone through a complete cycle of rise and fall: a rapid ascent to global prominence, followed by a sudden contraction under stringent regulations.

South Korean retail investors once propelled KOSPI 200 options to become the largest traded derivatives globally, but after regulatory restrictions were implemented, trading volumes significantly declined, and even the introduction of weekly options could not restore previous highs.

There are many lessons to be learned from this experience, which we can examine in stages:

• Prosperity Phase: 2000-2003 The total contract volume of stock options surged from 194 million in 2000 to 2.84 billion in 2003, a 14.6-fold increase over three years. During the same period, the premiums paid by retail investors skyrocketed by 7.9 times. Retail investors were the core of this boom, accounting for 70% of KOSPI 200 options trading volume.
• Global Peak Phase: 2004-2011 In 2004, KRX stock options accounted for about 28% of the global derivatives contract trading volume. Over nearly a decade, KOSPI 200 options consistently ranked first in FIA's global contract trading volume, peaking at 3.67 billion contracts in 2011. The peak premium for retail options reached 145.7 trillion KRW.
• Decline Phase: 2012-2017 Regulators believed that retail speculation was overheating and ultimately implemented stringent regulatory measures.

In December 2011, the Financial Services Commission (FSC) of South Korea announced that the KOSPI 200 options contract size would be increased fivefold, with the multiplier raised from 100,000 KRW to 500,000 KRW. Based on an exchange rate of 1 USD = 1327 KRW at that time, the entry threshold for a single contract rose from approximately $75.34 to $376.71.

The new regulations were gradually implemented from March to June 2012. The total contract volume declined by 23% from its peak, and retail premiums fell by 37% year-on-year.

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

This policy almost completely cut off the entry for new retail investors.

In January 2016, the third round of regulations was implemented: the capital gains tax on KOSPI 200 derivatives was raised from 5% to 10%, leading to another decline in trading volume.

By 2017, the market activity level after the adjustment of contract sizes had decreased by 57% from its peak; retail options premiums had dropped by 77% from their peak.

Subsequent regulators also admitted that the policy was too severe. In March 2017, the contract multiplier was halved, returning to 250,000 KRW. In 2019, the FSC acknowledged that the entry threshold was set too high, reducing the margin to 10-20 million KRW and compressing the training to a 1-hour course + 3 hours of simulated trading.

In 2019, the FSC also introduced weekly KOSPI 200 options in an attempt to revitalize the market. The market showed some signs of recovery, and from 2020 to 2025, the adjusted annual contract volume returned to 1.7-2 billion contracts, but it was still half of the peak in 2011.

Regulation did not directly shut down the KOSPI 200 options market, but it severely impacted retail participation willingness. In 2025, retail options premiums hit a 20-year low of only 21.5 trillion KRW, down 85% from the 2011 peak.

After the enthusiasm of local retail investors was damaged, it has been nearly impossible to repair. By the fourth quarter of 2026, the proportion of retail investors had fallen below 27%, while foreign institutions and individuals accounted for over 66%.

In 2025, foreign investors accounted for 66.4% of KOSPI 200 options trading, while South Korean retail investors only made up 26.1%, a significant decline from the peak of 72.2% in 2001.

Many might think that this kind of "reasonable regulation" has achieved its purpose, right? Speculation has been suppressed, investors are protected, and the fervent trading demand has subsided...

The reality is not so.

In any prosperous market, if overly restricted, demand will only flow overseas.

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

The volume of overseas derivatives trading by South Korean retail investors has reached 3.6 times that of the domestic market; after regulatory restrictions on domestic trading, a large amount of trading demand has shifted to overseas markets.

(The Financial Supervisory Service of Korea (FSS) and the Korea Financial Investment Association (KOFIA) did not publicly disclose overseas trading data before 2016, so we compare 2016-2024)

The derivatives trading volume here refers to the total annual derivatives trading volume of individual investors in South Korea, including futures and options. Futures are calculated based on the full nominal value of positions (index price × multiplier × number of contracts); options only account for the premiums paid, not the nominal value of the positions they control.

In 2016, the domestic derivatives trading volume of South Korean retail investors was still higher than that of overseas: KRX on-exchange trading was 272.9 trillion KRW, while overseas exchanges were 195.2 trillion KRW. In 2018, overseas trading volume first exceeded the domestic market.

By 2024, the gap had completely widened: overseas trading reached 1060.7 trillion KRW, while the domestic market only reached 298.6 trillion KRW, making the overseas volume 3.6 times that of the domestic market.

In these eight years, the overseas derivatives trading volume of retail investors grew 5.4 times, while domestic trading only grew 9%.

In the domestic market, new derivatives traders still need to meet a minimum margin of 10 million KRW + mandatory training; while most overseas brokers do not have such margin and training thresholds.

As a result, retail investors continue to flee the high-threshold domestic market and turn to overseas platforms with more relaxed regulatory environments. South Korean retail investors primarily trade U.S. stock index futures overseas, with the Nasdaq 100 mini futures having the highest trading volume.

History Does Not Simply Repeat, But Always Rhymes

It is clear that retail investors have a natural preference for options trading. Analyzing the demand patterns across the globe is fundamental to understanding distribution channel issues.

• Throughout history, every options market that has achieved explosive growth has been driven by retail investors.
• Regulation can suppress the trading volume of domestic markets, but it cannot eliminate trading demand.
• Among all trading categories, options have a significantly higher appeal to retail investors.

India and the U.S. are excellent positive examples, while the lessons from South Korea are particularly worth heeding.

When discussing on-chain options, many people say: DeFi can never compete with retail markets and Robinhood. I do not entirely agree with this viewpoint; the key is: for the on-chain options sector to explode, it does not need to attract U.S. retail investors.

Just like the South Korean traders of the past, many traders will turn to offshore platforms to meet their trading needs. As long as the right distribution channels are chosen, any permissionless protocol has the opportunity to capture this demand.

The current on-chain options volume is still small, and by continuing to attract institutions and native crypto users, the trading volume can easily multiply tenfold. However, from the historical development of traditional finance, the critical point for large-scale adoption must come from the order flow of ordinary retail investors.

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