Here are the takeaways from today’s Morning Brief, which you can register to receive every morning in your mailbox accompanied by:

One of the biggest changes in investing over the past two decades has been the growing popularity of passive funds, as more people follow Warren Buffett’s advice to log out of their accounts and just invest in the S&P 500.

And even if that happened, something else is happening on the other end of the spectrum. In what appears to be a classic dumbbell pattern, risk tolerance becomes both more reasonable and riskier.

Options trading is reaching new heights in popularity – and it’s playing a bigger financial role at brokerages like Robinhood. The company, which just published its quarterly results This week saw an increase in trading volume, leading to a significant increase in options revenue.

As you can see from our chart for the week, that comes to $202 million for the third quarter – and that’s subtracted from revenue from stock trading.

Robinhood’s innovative free trading transformed the brokerage industry, making fee-free trading ubiquitous. And once the main barrier to enacting measures disappeared, price-sensitive retail investors rushed in, likely aided by the stimulus checks. As trading grew significantly, investors also explored derivatives and margining.

“Retail participation in options market trading increased sharply during the pandemic, peaking at 48% in July 2022. Although it has rebounded since then, it reached 45% in July 2023.” wrote NYSE Director of Research Steven W. Poser late last year. “This data suggests that significant retail options trading is here for the foreseeable future.”

At the same time, Robinhood continually beat the drum that it was a place only for index fund investors, which was also true. There is proof that its individual investors also helped stabilize the market during the 2020 pandemic crash by buying the decline in the S&P 500.

These two things are very different, however. Even though the S&P 500 Index is comprised of volatile stocks that are subject to wild swings that require a tolerance for risk, there is no doubt that investing in these stocks is an investment. If there are wounds, time will certainly heal them.

But options trading, while traditionally used to hedge risk, is an easy way to speculate and place high-risk, big-payoff bets. And as is the case with some types of leveraged investments, the downsides can be endless. As the Merrill Lynch website notes, “If you write an uncovered call option, you face an unlimited potential loss because there is no cap on how much a stock price can rise.” »

The rise in options and bitcoin trading – Coinbase trading revenue almost doubledit announced in its quarterly release this week – coincides with the rise of sports betting, which, recently legalized, is having a cultural moment as people explore fandom with a money horse in the race.

And this week, Robinhood may have shown us where it could go next: Its customers can now bet directly on the results of the American elections.

Ethan Wolff-Mann is an editor at Yahoo Finance, where he publishes newsletters. Follow him on @ewolffmann.

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