DD: Institutions Bet Against Us With Their Retail Options Strategy, and We Can Flip It to Win

In September 2020 Barclays published “U.S. Equity Derivatives Strategy: Impact of Retail Options Trading.” They documented how zero-commission trading triggered an explosion in retail buying of short-dated, out-of-the-money calls, especially on popular large-cap tech names. Small-lot call buys, a retail proxy, jumped to roughly 40-45% of total customer call volume after brokers went commission-free in late 2019.

That flow wasn’t just noise. Barclays showed it materially affected the options surface: it flattened volatility skew, pushed short-term implied volatility higher relative to longer-dated and put options, and forced market makers to buy the underlying stock to stay delta-neutral. The resulting hedging flow was estimated to account for about 30% of total stock volume in the most active names.

They laid out two clear ways institutions could monetize the distortion. First, their VolScore screen, a proprietary metric comparing a stock’s implied vol to its sector peers and to adjusted realized vol. High VolScore names were candidates for selling one-month delta-hedged straddles to harvest the rich volatility risk premium that retail buyers were systematically overpaying for. Second, on resilient names with strong retail interest but flatter skew and attractive vol levels, they recommended buying call spreads or call one-by-twos to participate in upside momentum more cheaply.

In short, the report showed Wall Street had quantified a repeatable edge from predictable retail lottery-ticket behavior.

That edge is still very much alive in 2026. Options volume set new records again in 2025 with total listed options hitting 15.2 billion contracts, up 26% year-over-year. Average daily volume ran around 61 million contracts, and single-stock options volume grew 28%. Retail continues to make up roughly half of total options volume with a persistent net call-buying bias, especially in short-dated contracts.

Academic work keeps confirming the same mechanics. The 2025 paper “Losing is Optional: Retail Option Trading and Expected Announcement Volatility” by de Silva et al. shows retail investors disproportionately buy call options ahead of high expected-volatility events like earnings, paying premiums that often exceed subsequent realized moves. A March 2026 Journal of Financial Economics paper on “Retail option traders and the implied volatility surface” further documents how this demand continues to shape term structure and moneyness skew.

Major dealer desks and prop volatility groups are still running the same short-volatility and VRP-harvesting strategies on the names where retail call flow is heaviest, delta-hedging to stay directionally neutral.

The good news for us degenerates is that public data now lets any retail trader see the same dynamics Barclays and the desks use. Instead of blindly feeding the machine with every hyped short-dated OTM call, we can get a little smarter about it. Prioritize longer-dated contracts or higher-delta in-the-money strikes where theta decay is less brutal and the premium-to-expected-move ratio often looks more reasonable. Enter only when implied volatility sits at reasonable levels relative to your own expected move or upcoming catalysts, not when hype has already pumped it. Use freely available tools like unusual options flow scanners, IV rank, and IV versus historical vol comparisons to avoid the exact names where institutions are already heavily short vol at scale. For names you actually have high conviction in, consider pairing options with actual share ownership so your exposure doesn’t evaporate at expiration and you’re not purely reliant on gamma and theta timing. Layer our crowdsourced fundamental research on top of the institutional metrics instead of just chasing pure lottery tickets.

The Barclays report and the follow-on academic work handed retail the exact map of how the options market works under heavy retail participation. The flows are bigger now, the data is more accessible, and the edge for disciplined traders who understand the mechanics is clearer than ever.

Position with discipline, size responsibly, and let the information edge work for you. This is not financial advice. It’s research pulled straight from the 2020 Barclays report, 2025-2026 volume data from Cboe, and peer-reviewed academic studies on the exact same retail-options dynamic. Trade at your own risk and do your own DD.

TL;DR: Barclays showed Wall Street exactly how to farm our short-dated OTM call gambling back in 2020, and the edge is still alive and scaling in 2026. Stop being the predictable liquidity they harvest every day. Go longer-dated, enter at sane IV levels, mix in actual shares on real setups, and use their own data plus our crowdsourced DD to flip the script. Discipline wins.