Investors are said to feel the emotional pain of a loss twice as intensely as the pleasure of an equivalent gain. For decades, this idea has served as a foundational principle of behavioural economics.
The latest retail boom is in zero-days-to-expiration options – or 0DTE in trader parlance – which represent single-day bets on the direction of markets. But this is no boom cycle. Last year brought a painful reckoning to financial markets after the exuberance ended. And this year hasn’t been great for stocks outside of a handful of tech giants and beneficiaries of the rise in artificial intelligence.
Options trading, for example, has traditionally been used by large investors to hedge portfolios. In early 2021, individual investors accounted for almost 30 per cent of U.S. options trading volumes. “It’s a great case in point of the FOMO mentality,” Mr. Madden said. “There is a lot of professional money sloshing around in those instruments, but they’re widely available and accessible, and it’s like rocket fuel for a speculative retail investor.”