Steve Quirk of Robinhood on 24/7 Options Trading, 0DTE & Prediction Markets

It has been a year. Thank you for having me. And by the way, I was reading this 46th annual.

Yeah, first year first one was 1980. I just read that.

Well, I think the intersection of a couple things are really interesting. You brought up zero DTE's, but also 24/7. The whole everything's going 24/7 or at least 24/5. There's so many asset classes that are already there: equities, options on futures, futures, derivatives, crypto of course, currencies. So, if I look at it through our customers' eyes, they want to have every asset class around the clock. There's so much market-moving news that is happening when the quote-unquote traditional market is closed, and I think people are frustrated that they can't react to that, protect a portfolio, or take advantage of an opportunity when that news is hitting. It just seems to hit more and more when the traditional US markets aren't open.

You know, it's funny. The people that have the most reservations are not from the retail side, they're from the institutional side. I started my career on the institutional side. So, when I was being asked this question when I was either standing on a trading floor or working for a market maker that made markets, and they said you should have more hours, we would say, 'Oh god, we don't want more hours.' Because that meant we had to staff up. We had to think about things. You at least had to be alerted and on call if something would happen. But now that I'm on the retail side, you look at it through customers' eyes, and they just view us like Amazon. Like, why would Amazon ever close? You're electronic. We watched what happened during COVID. Everything continued to trade without human beings on trading floors. A lot of liquidity providers are already trading around the clock globally anyway. So, this isn't new for them. They're trading every other asset class 24/5 or 24/7. So, this is just an extension of that.

Well, I think the other concern has always been liquidity. You want decent liquidity. We're really rigid with that. Even when new asset classes, new strikes, new whatever, we're pretty particular about making sure we're not putting people in Hotel California trades where they can't get out and there's not proper liquidity. So, I don't want to minimize the importance of that, but I think that's something that's really been solved by a lot of the market makers and liquidity providers that are currently operating in the space.

Well, I think there's a couple things we can do to help with that. You don't have to list every strike. You could minimize the number of strikes, but also even the order types we already do this today. There aren't market orders in after-hour sessions in most products because there's a chance that there's a liquidity gap. And so you just want to protect people. If they want to buy option ABC at $5, they don't really care when they get filled. And if they're not getting an immeasurably worse fill if they just sit there at a price as opposed to a market.

Well, I think it could also be the names, too. That's a way that 24-hour or 24/5 equity trading started. It actually started with just ETFs because it's very easy for liquidity providers. They can just take the spider and use the S&P future, which trades around the clock, as a hedge. It makes it easy for them to provide a nice tight market. And then they built on it and said, 'Okay, Apple's X percentage of this index. I'm comfortable making a market that's this tight.' And then it sort of expands. But then you also started to get more and more volume from overseas, more and more liquidity providers from overseas, and it sort of fills itself in. So I think that's what'll happen on the option side, same way it happened on the equity side.

I think if I'm just focusing on options, what we've really been focusing on is we're now the number one option player in retail. We're just shy of 600 million contracts in the first quarter, roughly 10 million a day. But the level of sophistication that some of our traders want us to get to, we had a ways to go. We started with a suite of tools that weren't really designed for people who are advancing to the next level of option trading, whether that's conditional orders or multi-leg or all the other things that people who get to a certain level of sophistication are looking for. But we continue to fill that out and provide that for people, and also the education around it because it's one thing to be presented with a suite of tools, but you also need to understand how to use them and in what market conditions they are most useful. So I think that's been very helpful for customers, even analyzing trades before they do that, seeing the P&L, playing with that, understanding what could happen in any scenario, being able to move the variables, whether it's volatility, time, theta, etc., and have a good understanding of what that's going to look like. And then outside of that, it's just been piling on more and more context education, which means in the flow. That's the way a lot of the younger users are really interested in learning. They don't want to go to some long-form page that's off where they're actually taking an action. They'd like to just be able to hit a help button right in the course of the transaction.

Some of them do.

We've actually started to do more in person and it really resonates. One of the things, we survey everybody after we do these events. We brought together I think a thousand in Vegas last year. One of the biggest pieces of feedback that we got was content was amazing, really bright educators there, good educational sessions, but we would like more time to interact with each other. Because this validation or just learning from each other is so powerful, especially when you're young and starting off. You really want to know how like-minded people or people who think, look like you, or maybe fit the same profile of number of assets and experience, how are they thinking about option trading? How should I be thinking about it? Am I thinking about it the right way? And I think they find that really powerful to interact with each other.

It'll either they can do one of a couple things. They can just keep clicking on help and it'll take them deeper and deeper all the way to a longer form video or article. Or if they get to a point where they're like, 'I'm just not sure what to do here,' they can just click over and get one of our customer service agents who will help them.

You and I are kind of the same. I've made this point before. When I competed with Robinhood, my background is I came from Thinkorswim, TD Ameritrade, Schwab. If you would have told me that the number one retail option trading platform is being done 99% on mobile, I would have been, 'No way.' But again, 10 years ago from a technological capability standpoint and the amount of real estate on a phone, I just couldn't imagine a world where you'd be able to do that in an efficient manner. And we're here. And it's here. And that's another reason why 24/5, 24/7 makes sense. This thing is in my pocket 24/5, 24/7. The news is hitting me 24/5, 24/7. So, it's just logical.

I'd kind of cut it into two camps. One, what is growing? Zero DTEs have grown. We've had so many panels and discussions and I'm sure there'll be a couple here. Zero DTEs, the duration is shrinking. The point I always make is if you look at any asset class, the duration of the trade has shrunk. The reason the duration of the trade has shrunk is because this isn't 1970. There aren't companies that come into existence and stay in business for 100 years. Things like AI pop up in a year and suddenly they're the largest component on the market. So you better be reactive and you better be quick, and have a duration that matches however long these opportunities persist. So I don't think that's illogical that the timing of how long you need things has shortened. I think there's also been conversations, 'Oh, the exchanges put out these zero DTEs so that people trade more actively.' Exchanges put out zero DTEs because they're more effective. If I have been holding an Apple position for years and I'm up 40, 60% and I know that there is one day where a potential storm earnings might hit, why do I want to buy insurance for a month? I don't need to. I know exactly what day I need to protect myself. This is a precise instrument created for clients who want precise instruments. So I think that's been interesting. The other facet, because I said there's sort of two flavors, is it's more situational. What happens, and this isn't limited to Robinhood, it kind of happens across the option space, when there is more market volatility and turmoil, people get away from individual names and they rotate into broad-based ETFs. The thesis, at least from many of our customers, is 'Hey, there's this tariff thing that happened and the market's down X percent, and we're not really sure which one of these companies or even sectors is going to benefit or not be really materially harmed. However, we think the market down 30% is just overdone. So, what's the safest thing I can do? I can just buy a spider call or sell a spider put or QQQ or whatever it is.' So, there's a rotation that happens away from individual names into broad-based ETFs. You see it in our audience, but we see it in the industry as well. And then, as soon as the market calms, you get the VIX under 20, in the teens, then you see people sort of rotate back to individual names.

I think we're going to see both, but I think it'll be gradual. And listen, you can go online and see that we at Robinhood have not always been that supportive of these. The reason that I had a lot of concerns about the rollout and how we rolled them out was it's introducing expiration risk, and we bear all that risk. We, the broker and the customer, bear it all. So, I understand why an exchange and a market maker wants them, but we're the one bearing all the risk. And there's an easy solution to this: it's cash settled.

No, we haven't, because we're being helped by technology. Automation in the risk control functions has been really good. There still can be events that can really challenge systems, but we've been fortunate and I've been happy. Look, I don't want to, the exchanges and market makers who have been pushing on them. We love the fact that we have very open dialogue about these things. It's kind of like the dialogue is, 'Yeah, we'll get there one day, but let's see how they work and if there are problems.' So, I think we always have disagreements and we do, but it's healthy. I think everybody realizes if a bunch of customers get burned, it's bad for everybody at this whole conference.

I do. Yeah, I really do. And again, I love to be proven wrong, especially when it's customers that aren't being harmed as materially as we thought they were going to be. So, I think yeah, I think we'll continue an expansion at a good pace and just keep monitoring.

It's exactly what we just talked about. The take rates are very different for individual names than they are for broad-based ETFs. So, we try to guide our analysts as much as we can, but they have a lot of companies that they cover.

They have a lot of things that they're looking at, but we try and help them with their models and say, 'Look, understand what's happening across the industry and you'll get a good understanding.' There's publicly traded Virtu and other stocks that are the market makers. They can look at theirs as well. So that should help guide them.

Yep, it's those two things. It's composition and then it's who are you getting? So, yes, if the take rates come down, the analysts are looking at that negatively, but if we're continuing to attract more and more people become more sophisticated on the platform and the volumes are growing commensurately, then it's a positive. If the combination of those two things continues to grow as it has been, then it's a very positive thing. The flip side of it is when you have more novice investors, you have more variance in your volumes. When it becomes really volatile, they're like, 'I'm tapping out.' When you get more sophisticated people, it smooths the volumes out, so that's a positive.

They got a name change.

Yeah, I think it's pretty cool in a couple ways. People keep saying it's new, it's not new. They've been around, they just haven't been popular. They've been around for quite some time.

90s?

No, that's a little surprising but now I think what's really made them very popular is that we even can see it across, we have 27 million customers and people say, 'Oh my gosh, who is trading these? Who's interacting with these?' And we're like, 'Give us a category.' Because every category is different. The people that are doing the economic indicators are different than doing the election, different than doing the weather, different than doing the sports, different than doing the cultural. And so it kind of allows people who think that they have insights in areas or desires to say, 'Hey, if this happens, I'm going to be able to hedge an entire portfolio as opposed to pieces of a portfolio or take advantage of an opportunity where I think I have some domain expertise.' So I think it's cool but the part that's really going to make these revolutionary is just the information flowing from them. Because as many people, we started off the onset of this for us was last November, the election, and we saw 800,000 accounts opened and 600 million contracts traded. But what was even more interesting was how many people were looking at it. We sat there and watched it the evening of the election and these contracts went 80/20 when every network was still like these states are undecided. It's decided. Look at the dollars. So, I think that's going to be very powerful. Where I think this is going to go, all the focus is on sports right now because it is the biggest component, but we can already see it starting to go down as there's other categories that are opened up. I think you'll start to see things that are a little closer to securities. So, like think of number of units shipped by Tesla or things like that. So it can have more precision. Again, back to this precision. One of the things that's such a huge source of frustration for retail customers is they're trading earnings and they get everything right except there's one piece of that puzzle in that earnings call, whether it's guidance or whatever, that doesn't go the way that they anticipated and so their investment or trade goes the other way and they're like, 'Man, if I would just have a way to protect myself on that, that would be really powerful.' Now, extend that to all the other things in the universe and I think this category can get pretty big.

You know, it's so nascent that people are just kind of picking it up. But the extreme ones that I think are really interesting are we're sitting in Florida. I have a home here. Largely uninsurable or it doesn't make sense from a price standpoint to even try to insure it. I know what day that storm's hitting. There's a prediction market on that. So, I could actually hedge that. I think that's a leap to the days where we're not going to have insurance or anything like that, but there's practical applications that I think are going to be pretty interesting and cool.

LedgerX, so we bought that from Mayex and we are partnering with Susquehanna.

No, there's actually a growing number of market makers on these contracts. We have a model. It's the same model across any asset class, whether it's crypto, options, equities, futures. We want that liquidity. We're going to get the liquidity we need. When we first started on the elections, some of the parties that we were working on it with were like, 'Oh, it's okay. I think the liquidity will be good.' We're like, 'No, no, no. I don't think you understand what's coming here. We need liquidity providers here and deep liquidity providers who can provide deep markets in case we get customers all moving in the same direction.' And so, SIG's the biggest.

If I just look at history, I think I know where it's going to shake out.

From a regulatory standpoint, I don't know what's going to happen. We talk to regulators and we try to help and provide clarity like give us the rules of the road and we'll obey them. That's what we did in the crypto space. But I would say a lot of the things that are being discussed with some of the prediction markets and event contracts are similar conversations that they had if I go back in time far enough. They were saying some of this stuff about ETFs. We still have different requirements from an advertising standpoint for ETFs. I would argue they're the safest product there are out there, better than an individual name. But whenever we get new asset classes, there's apprehension. And there's time that needs to happen for the regulatory bodies to sort of catch up and say how and what should we permit? We're in that period right now. So, I'm hopeful that we get more regulatory clarity. But I would also say some of the entities that you're mentioning, a very short period of time ago said they would never be in these and now they're already halfway in. So, it's not hard to see where they're probably going.

I also think about, because we often have this conversation, you have to look at the audience. I'm not disrespecting the decisions of competitors, but look at their audience. Look at their customers. I came from those worlds. They're 60 years old. Ours are 30. They're very different. They want these products. They might not have a similar audience in their demographic and customer base, but we try to cater to what our customers are looking for. We want to be on the cutting edge. We want to be careful and do things that are suitable for them. But what can be viewed as something, options used to be viewed this way. They were viewed as the most dangerous instrument on the planet if you were an investor. And I would argue if you are fluent with options, they're safer than a mutual fund.

They are. Yeah.

Oh, no, no. I'm okay to talk about anything.

Gosh, I got to think about it. I think event contracts, you've gone to these conferences. What's super hot one year sort of gets a little quieter and moves into something else. There could be something else that pops up that could be hot. I think what we'll be talking about is just continued growth in the option space. I myself, coming from this, I started at the Cboe, have been skeptical about can we sustain this level of growth and it just keeps going. So, I think we'll be talking about the new products and just continued growth.

Yeah, 1 and a half billion I'm assuming.

Thank you. Appreciate it.