Millennials and Options: A Perfect Match?

Spencer Doar

Spencer Doar

Associate Editor

Every business wants to capture the millennial customer. Millennials, loosely defined as those born between 1980 and 2000, are the largest generation on record and are set to inherit some $30 trillion. The generation’s (eventual) inherited wealth and sheer size demand that those in the options industry, and financial services as a whole, pay attention to their different demands and needs.

This generation largely doesn’t trust the old guard or their business models. They witnessed the financial crisis in ‘08 during their formative years. Commissions? Phone calls to customer support? Fees? A human advisor? Millennials want little from traditional broking and investment models. Just look at the growth of the commission-free broking app Robinhood and automated investing service Betterman as proof.  

At the Options Industry Conference in Scottsdale, Arizona, OptionsPlay’s Head of Product Tony Zhang, Mary Ryan, manager at TD Ameritrade, and Kristi Ross, co-CEO and president of tastytrade, put forth their opinions on this generation that is proving difficult to crack.

The panelists, and moderator Ian Rosen, CEO StockTwits, said their firms are drawing attention by engaging on social media, showing instead of telling, becoming increasingly visual and adjusting costs for a more sensitive end user.    

But the real takeaway is that while millennials are underinvested compared to other generations at comparable times, they are altering the traditional investment path. Historically, an individual investor moved to options only after trading stocks. Now, these firms are seeing more millennials jump to options before equities. Yes, they can be complex instruments, but the educational tools and research needed to understand options are available via a simple Google search — and millennials are the first generation to grow up with that sort of access.  

Ross cited a survey from Blackrock which revealed that 70 percent of millennials plan to trade and 45 percent plan on researching trading. Both of those numbers are more than the other generations surveyed.

“They want guided independence,” Ross said.

Millennials are also attracted to the leverage provided by options. A 20-something is more likely to have the capital to deploy a risk defined options strategy on Apple than they are to have $15,000 to buy and hold 100 shares of the stock. In fact, it may be the only way they can access the stocks they know best. And that is opening an opportunity for firms, they said.

The path forward is in the realm of innovative, interactive education — ways for millennials to feel like they are in control of their own destiny while still having a virtual sherpa to help them to the mountaintop.  

 

Miscellaneous points from the panel:

-TD Ameritrade’s Ryan said that beyond having a social media team, TD has a social media response team to converse with customers on social media.

-Stocktwits has 150,000 messages a day.

-Testament to the importance of the user experience, Ross said that her team spent six months developing their user registration process.

 

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