On-Chain Options Blue Ocean: The Real Battleground Lies in Retail Distribution

Author: marlon

Translated by: Saoirse, Foresight News

The on-chain options sector is currently the blue ocean with the largest growth potential in the crypto market, representing one of the most worthwhile opportunities to position.

Calculating its total addressable market (TAM) reveals an obvious truth: it's only a matter of time before options become central to the market, not a question of whether it will happen. As mature financial markets evolve, they inevitably gravitate toward options; the crypto market is currently at this inflection point.

In traditional finance, retail demand for options has been thoroughly validated. In on-chain contexts, the bottleneck is no longer regulation or underlying infrastructure. Market maker liquidity is continuously improving, Request for Quote (RFQ) mechanisms can handle large orders, and the number of participants in the space is growing.

However, the sector remains in its early stages (currently, on-chain options volume accounts for only 6.9% of Deribit's trading volume), yet momentum is accelerating rapidly. Its core challenge today is to establish effective user distribution channels.

To achieve explosive growth, it must continuously attract retail (healthy buy-side) order flow. Historically, every fast-expanding options market has been driven primarily by retail traders.

How Options Trading Achieves Scale Effects

In the Crypto Twitter (CT) community, the most widespread yet most easily debunked claim is: "Retail investors don't understand options, so they will never trade them on-chain."

This argument completely falls apart, as all empirical evidence points to the opposite conclusion. While understanding Greeks and payoff structures certainly entails a learning curve, the complexity of pricing logic has never stifled strong consumer demand for these products.

Retail traders are willing to trade options because their profit potential is intuitively understandable. No one meticulously calculates Theta decay.

Simply lowering entry barriers and offering a clean, user-friendly interface will generate substantial retail options volume. The core appeal of options lies in their "convexity"—simply put, there is no cap on potential returns.

In fact, options are retail traders' preferred derivative product. Those who disagree can refer to the following case studies:

Case A: Driven by U.S. Retail Investors, Options Contract Volume Has More Than Tripled Since 2017

The U.S. market serves as the perfect example. From roughly 2014 to 2017, the options market was institution-dominated, with growth stagnating at around 4 billion contracts annually, while retail participation was virtually negligible.

In December 2017, Robinhood launched zero-commission options trading, followed swiftly by a wave of other brokerages. This coincided with the onset of the COVID-19 pandemic, creating a convergence of multiple catalysts.

At the time, everyone was under lockdown, waiting for markets to normalize. Early pandemic crashes drove asset prices down, prompting numerous everyday investors to enter. Coupled with sustained marketing efforts and surging public interest in financial investing, this sparked a massive retail frenzy. A flood of retail users flocked to finance apps, causing options volumes to skyrocket.

Since Robinhood introduced commission-free options trading in December 2017, annual exchange-traded options contract volume in the U.S. surged from 4.19 billion to 15.21 billion, a 263% increase, with daily average volume climbing in tandem.

Between 2017 and 2025, annual options contract volume grew by 263%, rising from 4.19 billion to 15.2 billion. As trading activity intensified, institutional volume rose alongside it; market makers required more hedging tools, and all market participants chased convex returns. Yet the primary catalyst behind this expansion remained retail traders.

Case B: S&P 500 Same-Day Options Volume Grew 12-Fold Over Ten Years

Retail influx is also reflected in the rise of short-dated options trading. Retail traders favor convexity; the shorter the option's expiration, the higher the potential upside during volatility spikes.

The riskiest category within options is 0DTE (Zero Days to Expiration) options: contracts that expire and cease trading before the close of the same business day. (Note: Any option on its final trading day qualifies as 0DTE).

Over the past decade, retail demand has accelerated steadily, matching the continuous expansion of same-day options supply. Global retail trading behavior shows striking consistency: contracts expiring within 0DTE to 3 days exhibit the highest trading activity.

Institutions rarely participate in this lottery-like speculative trading, making short-dated contract volume an excellent indicator of retail engagement.

Over ten years, the share of 0DTE options in S&P 500 (SPX) trading volume skyrocketed from 5% to 62%, a trend further fueled by exchanges continuously adding new expiration dates and Robinhood opening index options.

Over the past decade, SPX same-day options volume grew more than 12-fold, increasing its share of total SPX options volume from 5% to over 60%.

Since 2005, SPX options have expired every Friday. Cboe added Monday and Wednesday expirations in 2016, followed by Tuesday and Thursday expirations in 2022, ensuring options expire on every business day.

Each addition of new expiration supply further unlocks demand.

In January 2025, Robinhood opened index options trading to all customers. According to Cboe data, the following month saw same-day options share surge to a then-record 56%. The global market pattern is highly consistent: provide retail traders with low-cost, short-dated options, and they will participate en masse.

Case C: Short-Dated Options Now Dominate S&P 500 Trading

Between 2016 and 2023, the SPX options trading structure completely inverted. The share of ultra-short-term options (0–7 days) surged significantly, with 0DTE same-day options accounting for 43% of total volume by 2023, while medium-to-long term options steadily declined.

This shift isn't limited to same-day options alone. The entire SPX options market has tilted heavily toward ultra-short maturities.

In 2016: Options expiring within a week accounted for 29% of SPX volume; 1 week to 1 month held the highest share at 30%; over 1 month made up 41%.

By 2023, the market landscape completely reversed:

• Expiring within a week: 68% of volume, including 43% same-day
• 1 week to 1 month: fell to 12%
• Over 1 month: fell to 20%

In just seven years, the SPX options market shifted from being dominated by medium-to-long positions to seeing two-thirds of contracts expire within just a few days.

Again, this shift was retail-driven. A 2023 SSRN study revealed: For retail traders, same-day options constitute nearly their entire trading activity — over 75% of the SPX options traded by retail are 0DTE.

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

Everyone is familiar with Robinhood. Most U.S. retail trading occurs via mobile apps, with Robinhood leading the pack.

Options are Robinhood's top source of trading revenue. Unlike the highly volatile crypto revenue stream, options income remains consistently stable, holding the number one spot.

Options have become Robinhood's largest transaction-based revenue source. In Q2 2026, options trading revenue reached $342 million, far exceeding the combined stock and crypto revenue of $229 million.

The advantage is stark: revenue generated from options often surpasses the combined income from stock and crypto businesses.

Taking the latest Q2 2026 figures, quarterly options revenue hit $342 million, while stocks plus crypto totaled just $229 million. Revenue growth remains robust, climbing from $182 million in Q2 2024 to $342 million in Q2 2026, an 88% increase over two years.

Case E: Indian Retail Traders Dominate Global Options Trading

No retail segment exhibits as much enthusiasm for options as Indian traders. Globally, Indian retail is the backbone of options trading, serving as a highly valuable research sample.

Before diving into the analysis, let's clarify two key metrics for options: Premium and Notional Value.

• Premium: The actual cash paid by the buyer to purchase an option. Paying $200 for a call option means the premium is $200. It represents real capital movement and is the most objective metric for measuring platform trading scale.
• Notional Value: The face value of the underlying asset, calculated as contract multiplier × underlying price. A $200 premium can control a $10,000 risk exposure. Thus, notional values are typically large numbers, but actual turnover is relatively low. They are useful for observing market scale but can be misleading if viewed in isolation.

Back to the Indian market.

Between Indian fiscal year FY16 and FY26, options premium turnover grew 45.8-fold (reaching ₹190.65 trillion), vastly outpacing futures turnover, which increased only 3.2 times.

In FY2016 (April 2015–March 2016), Indian traders paid ₹4.16 trillion in equity options premiums. By FY2026, premium turnover reached ₹190.65 trillion, a 45.8-fold increase.

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

Even so, options premium volume continued to climb, growing another 7% in FY2026.

Around Indian retail derivatives traders, options are the absolute favorite. Over 90% of retail traders participating in derivatives stick exclusively to options. For Indian retail, trading derivatives is essentially synonymous with trading options.

Among individual traders in Indian equity derivatives, those trading only options without touching futures rose from 57% in FY19 to 93.3% in FY25, with the vast majority sticking solely to options.

Before making global comparisons, it's crucial to define what "dominance" means for the Indian market. In H1 2026, Indian exchanges cleared 39.3 billion options contracts—4.5 times the combined 8.7 billion across all U.S. options exchanges.

However, U.S. traders paid $6.3 trillion in premiums, nearly five times India's $1.3 trillion. On a per-contract basis: Indian contracts command roughly $33 in premium, while U.S. contracts reach $719 each.

Comparing the Indian and U.S. options markets: India clears vastly more contracts than the U.S., but U.S. premium volume is significantly higher, indicating that Indian retail makes smaller single trades but executes them more frequently.

This disparity stems mainly from two factors: lower minimum contract values in India and different tradable varieties. Nearly all Indian volume comes from index options featuring low contract prices, low barriers, and short durations. Meanwhile, the U.S. market includes individual stock options, ETF options, and long-duration contracts, commanding substantially higher premiums per contract.

Indian retail trades the exact same type of "lottery-style" options as U.S. retail, just at a lower unit price.

These figures also clearly illustrate the impact of SEBI's regulations: Between H1 2024 and H1 2025, contract volume dropped 63%, but premiums only fell 18%. The decline primarily affected larger contracts, not a departure of traders. By H1 2026, volume rebounded 48% and premiums recovered 35%.

Given this context, looking at global options contract volume clarifies India's standing.

In FY2026, index options volume on India's National Stock Exchange (NSE) accounted for 89% of the global total, establishing absolute dominance in the global equity index options market.

For reference: purely in terms of participation heat, India dictates global options trading.

In FY2026, India's NSE cleared 34.7 billion index options contracts, representing 89% of the global total and 51% of all global equity derivative contracts. By contract volume alone, it drastically outpaces leading Western derivatives exchanges.

For comparison: during the same period, CME cleared ~7.1 billion and ICE ~5 billion. NSE volume was 4.9x and 6.9x those of CME and ICE, respectively.

Indian retail doesn't just participate in options; options have become their primary vehicle for market engagement.

Case F: Korean Equity Index Options: A History of Market Rise and Fall

Long before India, South Korea witnessed a parallel scenario: showing exactly what happens when retail can easily access low-cost index options.

KOSPI 200 options track Korea's top 200 listed companies and dominate the vast majority of trading volume on the Korea Exchange (KRX).

In the early 2000s, domestic Korean retail accounted for 70% of total KOSPI options volume. As foreign institutions and overseas retail entered the market, coupled with tightening domestic regulations, local retail's share plummeted below 30% and has yet to recover.

The Korean equity index options market completed a full cycle of boom and bust: rapid rise, topping global charts, followed by a sharp contraction under strict regulation.

Korean retail once propelled KOSPI 200 options to become the world's highest-volume derivative. After regulatory restrictions were imposed, volume collapsed, and despite later introducing weekly options, it never regained its previous peaks.

There are numerous lessons to be learned here, broken down by phase:

• Boom Phase (2000–2003): Total equity options contracts surged from 194 million in 2000 to 2.84 billion in 2003, a 14.6-fold increase in three years. During the same period, retail-paid premiums jumped 7.9-fold. Retail was the core driver of this boom, accounting for 70% of KOSPI 200 options volume.
• Global Peak (2004–2011): In 2004, KRX equity options volume accounted for roughly 28% of global derivative contract volume. Over the next decade, KOSPI 200 options consistently ranked first in FIA's global contract volume chart, peaking at 3.67 billion in 2011. Retail options premiums peaked at ₩145.7 trillion.
• Downturn Phase (2012–2017): Regulators deemed retail speculation excessive and ultimately rolled out stringent measures.

In December 2011, the Financial Supervisory Commission (FSC) announced a fivefold increase in KOSPI 200 options contract size, raising the multiplier from ₩100,000 to ₩500,000. Based on the exchange rate at the time ($1 = ₩1,327), the barrier per contract jumped from roughly $75.34 to $376.71.

The new rules were rolled out in phases between March and June 2012. Total contract volume fell 23% from its peak, while retail premiums plummeted 37% year-over-year.

In December 2014, regulators tightened restrictions further: new traders wishing to participate in options had to complete 30 hours of coursework, undergo 50 hours of simulated trading, and deposit a ₩50 million margin (equivalent to $37,671!!!).

This policy effectively sealed off the channel for new retail entrants.

In January 2016, a third round of regulations took effect: capital gains tax on KOSPI 200 derivatives was raised from 5% to 10%, causing volume to slide again.

By 2017, post-adjustment market activity dropped 57% from its peak; retail options premiums fell 77% from their high.

Regulators eventually acknowledged the measures were too severe. In March 2017, the contract multiplier was halved back to ₩250,000. In 2019, the FSC admitted the entry threshold was set too high, lowering margins to ₩10–20 million and compressing training requirements to a 1-hour course plus 3 hours of simulation.

The FSC also launched weekly KOSPI 200 options in 2019, attempting to stimulate the market. Activity showed some recovery, and from 2020 to 2025, post-adjustment annual volume stabilized between 1.7 and 2.0 billion contracts, but remained half of the 2011 peak.

While regulators didn't outright shut down the KOSPI 200 options market, they severely dampened retail willingness to participate. By 2025, retail options premiums hit a 20-year low of only ₩21.5 trillion, an 85% drop from the 2011 peak.

Once domestic retail enthusiasm is eroded, it is nearly impossible to rebuild. As of Q4 2026, retail share fell below 27%, while foreign institutions plus overseas individuals accounted for over 66%.

In 2025 KOSPI 200 options trading, foreign capital accounted for 66.4%, with Korean retail at just 26.1%, a massive decline from the 72.2% retail peak in 2001.

Many might assume this "prudent regulation" achieved its goals: curbing speculation, protecting investors, and cooling down frenzied trading demand...

The reality is far different.

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

Korean traders merely shifted to offshore futures and options trading. The market's appetite for leveraged trading never disappeared.

South Korean retail offshore derivatives turnover has now reached 3.6 times the domestic market. After regulatory constraints hit domestic trading, massive demand migrated overseas.

(The Financial Services Commission [FSC] and Korea Federation of Investment Associations [KOFIA] did not publish overseas trading data publicly prior to 2016, so we compare the 2016–2024 period)

Derivatives turnover here refers to the total annual derivatives trading volume for Korean individual investors, encompassing both futures and options. Futures statistics capture the full notional value of positions (index price × multiplier × contract count); options statistics only capture paid premiums, excluding the notional value of controlled positions.

In 2016, Korean retail domestic derivatives volume still exceeded overseas: ₩2,729 trillion on KRX versus ₩1,952 trillion on overseas exchanges. By 2018, overseas turnover surpassed the domestic market for the first time.

By 2024, the gap widened significantly: overseas trading hit ₩10,607 trillion against just ₩2,986 trillion domestically, making overseas volume 3.6 times larger.

Over these eight years, offshore retail derivatives volume grew 5.4-fold, while domestic trading expanded by only 9%.

Domestically, new derivatives traders still face minimum ₩10 million margin requirements and mandatory training, whereas most overseas brokers lack such margin and training hurdles.

Consequently, retail continues to flee the high-barrier domestic market for overseas platforms with more lenient regulatory environments. Korean retail primarily trades U.S. equity index futures abroad, with Nasdaq 100 mini futures generating the highest turnover.

History Doesn't Repeat Exactly, but It Often Rhymes

It's clear that retail traders naturally prefer options trading. Deciphering demand patterns across global markets is fundamental to solving distribution channel challenges.

• Historically, every options market that achieved explosive growth was fundamentally driven by retail
• Regulation can suppress local market volume, but it cannot eliminate trading demand
• Among all trading categories, options hold an overwhelming edge in attracting retail traders

India and the U.S. serve as excellent positive case studies, while Korea's experience offers a particularly cautionary tale.

When discussing on-chain options, many argue that DeFi can never compete with Robinhood in the retail space. I don't entirely agree with this view. The critical point is: for the on-chain options sector to go mainstream, it absolutely does not need to attract U.S. retail.

Like the Korean traders of old, countless traders will migrate to offshore platforms to satisfy their trading needs. As long as the right distribution channels are selected, any permissionless protocol has the opportunity to capture this demand.

Currently, on-chain options volume is still small, and continuing to onboard institutions and native crypto users could easily multiply trading volume tenfold. However, based on the historical development of traditional finance, the tipping point for mass adoption will inevitably come from the order flow of ordinary retail traders.