Behavioural Determinants of Options Trading: A Study on trading attitude, trading objectives, and Strategy Preferences among Online Retail Investors

Abstract

The increased availability of digital trading platforms has increased the accessibility of retail trading in the options market, and there is a strong urgency in developing more insight into the behavioural aspects that affect the decision to trade options. This paper explores the influence of attitudes, perceptions and trading objectives on option trading behaviour of online retail traders. In a quantitative research design, 150 active derivatives traders were sampled using structured questionnaire and their attitude towards options, their perceptions of the market characteristics, behavioural intention, the goal of their trading, and their tendencies towards transactions were measured. To evaluate the interrelation between the constructs, descriptive statistics, correlation analysis, and Structural Equation Modeling (SEM) were used. The findings indicate that attitudes towards the options have a strong and positive effect on the option trading behaviour meaning that the positive perception of the convenience, risk assessment and strategic utility has a strong positive influence on the willingness to venture into derivative trading. The option market such as perceptions of profitability, potential of hedging, and information efficiency also have a significant positive impact on the behavioural intention but not as much as attitudes. Correlation analysis illustrates the fact that trading goals that include fast returns, leverage, risk transfer, and shorter term speculation are big predictors of strategy preferences and transactional patterns with particular reference to ITM, ATM and OTM options. Risk-transfer motivated traders are conservative in their behaviours and leverage-seeking and short period traders are aggressive or high turnover. The results have demonstrated the significance of incorporating strategic motives and psychological dispositions to explain retail derivative trading behaviour. The research adds to the behavioural finance literature because the model is very detailed to capture both cognitive and motivational factors in making the decisions in the options trade. It has some practical implications on brokerage firms, fintech platforms, and policymakers that strive to leverage investor education, risk-awareness activities, and user-centric trading platforms. The research paper draws a conclusion and suggests that further studies based on larger and more heterogeneous samples, long-term designs, and introduction of emotional and cognitive bias variables are needed.