The stereotype of algorithmic trading often conjures images of institutional quants and math PhDs managing high-frequency strategies on Wall Street. But today, a growing number of retail traders are embracing automation, running bots and custom scripts from home setups that mirror the tools once reserved for investment banks, Bloomberg News reported Saturday.
This surge in retail automation, however, is creating visible patterns in the options market. According to data from Cboe Global Markets, retail-driven trades -- especially in zero-day-to-expiration (0DTE) S&P 500 options -- are now clustering at specific times, such as 10:00 a.m., 10:15, 10:30, 11:00 and again at 2:00 p.m. Eastern time.
These patterns suggest synchronized, programmatic activity among individual traders, and open the door for more sophisticated players to potentially take advantage.
At the recent Options Industry Conference in Florida, Cboe’s Vice President of Market Intelligence, Henry Schwartz, presented intraday trading data that underscored the trend.
Schwartz attributed the spikes to automated strategies like iron condors being deployed by retail traders, often set to execute on the dot during "round" minutes. When trades of fewer than 10 contracts were excluded, the pattern all but disappeared, confirming that small-scale retail accounts are driving the phenomenon.
The systems are often built to manage specific strategies on set intervals, Bloomberg News quoted Schwartz as saying. Increasingly, they’re run through plug-and-play software or custom-coded bots, some of which are even developed using artificial intelligence.
Tony Zhang, chief strategist at OptionsPlay, noted a dramatic rise in interest from retail users wanting to connect to broker APIs, a necessary step for building such automated tools, Bloomberg New reported.
Market makers are paying attention
Kevin Darby, vice president at CQG, which provides trading infrastructure, explained that such visible behavioral patterns could be exploited by liquidity providers.
Even in a highly liquid environment like S&P 500 (SP500) options, synchronized retail activity could offer arbitrage opportunities for faster, better-equipped players.
Backtesting software tools like those from Option Research & Technology Services and Options Omega have made it easier for retail traders to develop strategies based on historical data. Some tools come pre-loaded with start times that may unintentionally contribute to the volume spikes seen in the market.
Troy McNeil, a co-founder of Options Omega, said the activity is more nuanced than it seems. While certain strategies such as selling iron condors or covered calls may be popular, many retail bots are also taking opposing positions.
Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, drew a comparison between retail automation and bank-issued structured products, Bloomberg News reported.
Wake-up call
For some conference attendees, the extent of visible retail automation was unexpected.
It was shocking to see how many bots were firing trades at the same time, Matthew Amberson, founder of ORATS, said to Bloomberg News.
He called the herd-like approach a “silly way” to trade because it might leave smaller traders vulnerable in fast-moving markets.
Still, with retail enthusiasm for automation growing and tools becoming more accessible, the rise of the retail algo trader looks less like a fad, and more like a structural shift, Bloomberg News reported.
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