Lesson A4.5 · 5 of 5 · Options and derivatives
Risks of options and futures for small investors: leverage and 0DTE
With derivatives, leverage turns a small market move into a large share of your money, and with futures and sold options the loss can exceed what you paid in. Studies of the US market show that retail investors have lost money on options on average, and the spread is one of the big costs.
Terms in this lesson
- Derivatives
- Contracts whose price depends on the price of something else: a stock, an index, gold, oil.
- Leverage
- You invest more than you have, with money borrowed from your broker.
- Options
- Contracts that give you the right, not the obligation, to buy or sell at a set price.
- Bid-ask spread
- The gap between the price you can sell at and the price you can buy at, at the same moment.
Leverage: how you can lose more than you invested
FINRA says options offer leverage, the ability to magnify the purchasing power of the premium you pay, but that leverage can be magnified on the downside too. With futures, leverage comes from margin. Take the illustrative example from the futures lesson: one E-mini S&P 500 contract worth $300,000, with $20,000 initial margin. The exposure is 15 times the margin.
The loss as a percentage of initial margin, for a $300,000 contract with $20,000 margin, illustrative example. A 1% fall in the index: -15% of the margin; 3%: -45%; 5%: -75%; 7%: -105%; 10%: -150%. The reference line at -100% marks the loss of the entire margin; the last two columns go past it.
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Create a free account0DTE options: how much they trade and why it matters
0DTE (zero days to expiration) means options traded on the day they expire. FINRA explains that some index contracts are listed on the very day they expire, and that some investors open positions on the last day of contracts listed days, weeks or months earlier. With a few hours to go, time value is small, and a small move in the index can change the option’s price by tens of per cent.
The figures come from Cboe, the exchange where SPX options trade: its annual report “The State of the Options Industry”, its monthly volume releases and, for the retail share, its article of 2 September 2025. Cboe also reports that total US options volume topped 15.2 billion contracts in the year to 31 December 2025, 26% above the year before.
What research says about retail investors’ returns on options
Real case
What did Bryzgalova, Pavlova and Sikorskaya find?
Retail investors prefer cheap, weekly options with an average bid-ask spread of 12.6%, and lose money on average.
Their study, “Retail Trading in Options and the Rise of the Big Three Wholesalers”, published in the Journal of Finance in 2023 (volume 78, issue 6), measured retail options trading in the US. The authors write that retail trading recently reached over 60% of total market volume and that nearly 90% of payment for order flow (PFOF) comes from three wholesalers. The spread is the gap between the buying and selling price: a cost you pay on every trade, even with no commission.
| Study | Data | Finding |
|---|---|---|
| de Silva, So and Smith, “Losing is Optional”, published in the Review of Finance, 2025 | retail trading in US equity options around earnings announcements; in the 2022 version, 32,791 announcements, January 2010 - February 2021 (as reported by MIT Sloan, 4 August 2022) | average losses of 5-9%, and 10-14% for announcements with high expected volatility (abstract of the June 2023 working paper) |
| Beckmeyer, Branger and Gayda (University of Münster), “Retail Traders Love 0DTE Options... But Should They?”, 2023 | retail trading in S&P 500 options, to February 2023 | more than 75% of their S&P 500 option trades were 0DTE, with substantial losses (SSRN abstract); the first version put losses at about $358,000 a day since May 2022 (as reported by Bloomberg, 21 April 2023) |
These are studies of the US market over specific periods. They don’t say every trade loses, but that on average, after costs, retail investors lost money.
Investor protection: US approval levels, the EU appropriateness test
In the US, FINRA Rule 2360 requires your broker to approve your account before your first options trade and to give you the OCC risk disclosure booklet. To decide, the firm must ask about, among other things, your investment objectives, annual income, net worth and liquid net worth, age, and experience with options, shares and other instruments. FINRA says the firm approves you for a specific level of options trading; the levels are set by each firm, not by FINRA.
In the EU, the MiFID II directive (2014/65/EU, Article 25) requires a firm that isn’t giving you advice to ask about your knowledge and experience of that type of product and to warn you if it doesn’t think it is appropriate. Only non-complex instruments can be dealt in without this test, and options and futures are derivatives (Annex I, Section C). Delegated Regulation (EU) 2017/565 adds that a non-complex instrument cannot leave the client with a liability greater than the cost of buying it.
Lessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: FINRA, investor page “Options” (leverage, daily options and the 0DTE strategy, approval levels set by each firm) and Rule 2360 (b)(16) (client information required, the risk disclosure booklet); SEC, Investor.gov, “Investor Bulletin: An Introduction to Options” (updated 16 July 2026); Cboe, “SPX 0DTE Options Jump to Record 62% Share in August” (2 September 2025, the retail estimate), “The State of the Options Industry: 2025” (22 January 2026) and “Cboe Global Markets Reports Trading Volume for July 2026” (5 August 2026, the 66.2% monthly record); S. Bryzgalova, A. Pavlova, T. Sikorskaya, “Retail Trading in Options and the Rise of the Big Three Wholesalers”, Journal of Finance 78(6), 2023, abstract; T. de Silva, E. So, K. Smith, “Losing is Optional: Retail Option Trading and Expected Announcement Volatility”, Review of Finance, 2025 (abstract of the June 2023 working paper) and the MIT Sloan article of 4 August 2022; H. Beckmeyer, N. Branger, L. Gayda, “Retail Traders Love 0DTE Options... But Should They?”, SSRN, 2023 (abstract) and Bloomberg, 21 April 2023; Directive 2014/65/EU (MiFID II), Article 25 and Annex I, Section C (ESMA Interactive Single Rulebook); Delegated Regulation (EU) 2017/565, Article 57; Bucharest Stock Exchange, H1 2026 results presentation (CCP.RO authorised on 1 July 2026, derivatives market plan) and technical notes on structured products. The numerical examples are illustrative and worked out by us.