By Gunjan Banerji and Alexander Osipovich

Individuals looking to profit from the stock market's explosive moves are piling into options, lured by low trading fees and a chance at mammoth payoffs.

Coronavirus-fueled market swings this year have created ample opportunities for these traders, who tend to thrive when markets are more volatile. Big market moves tend to benefit traders because they increase the likelihood that stocks will jump or fall toward levels that can make their options contracts exponentially more valuable.

Meanwhile, individual investors -- often stuck at home during the pandemic -- are finding it cheaper and easier than ever before to trade options. Popular apps such as the one from Robinhood Markets Inc. offer rock-bottom commissions on options trades.

Options are contracts that give investors the right to buy or sell shares at a specific price, later in time. Traders can tap options to hedge their portfolios from stock declines or make bets that major indexes and individual companies will either go up or down in value.

Adding to the appeal: The contracts allow an investor to put down a relatively small amount of cash -- called option premium -- for a potentially outsize return if the investor's hunch proves to be correct. The downside is that an investor can lose the premium paid should a stock or index move unfavorably.

A record 28 million options contracts have changed hands on an average day this year, a jump of 45% from last year, according to Options Clearing Corp. data.

Individuals are helping drive the surge. The percentage of options volume stemming from small trades of just one contract on 50 of the most-traded stocks has risen to 14% this year, from 10% at the end of 2019, according to an analysis by Goldman Sachs.

Online brokerages have seen big jumps in customer options activity. E*Trade Financial Corp. reported record levels of derivatives trades, which mostly involve options, for the first quarter of 2020. Data from TD Ameritrade Holding Corp. show daily options trades surged about 60% in the quarter ended March 31 from the previous quarter, although overall trading, including stock volumes, grew even faster.

Such brokerages make more money from options than from stock trades, thanks in part to a system in which high-speed traders pay them to execute small investors' trades. Such firms find it more consistently profitable to trade against individuals, with their small orders, than against institutional investors, which can push prices up or down with large trades.

Sam Rodela, a Texas-based consultant, started trading options this year after years of trading stocks. He said he recently turned $80 into more than $2,500 through bullish options bets on shares of Walt Disney Co. He bought a few contracts priced at $20 each in May. At one point before they expired May 22, each contract was worth $633, akin to a return of more than 30 times his original investment.

"Other than a casino, there's nowhere else you can get a return like that," Mr. Rodela said. "It's much higher risk and higher reward" than stocks.

Industry veterans say zero-commission trading has made investors quicker to pull the trigger on trades. Robinhood has drawn more than 13 million customer accounts, many of them opened by younger people. Its success helped to spur brokers including Charles Schwab Corp., E*Trade and TD Ameritrade to eliminate commissions for stock trades last year, although they still charge fees for options, often around 65 cents a contract. Until last year, customers often paid $4.95 or more for each options trade, plus a per-contract fee.

Some investor-protection advocates said they are alarmed by the boom and want more guardrails for investors.

"Firms are making it way too easy to trade options, and they're making it seem very attractive or low-risk," said Micah Hauptman, financial services counsel at the Consumer Federation of America. "This isn't a game. People can lose real money and in some cases a lot of money."

Robinhood imposes fewer hurdles on options than some other brokers. New clients assess their own suitability through a questionnaire. Those who say they don't have much of an investing background can't open an options account initially. But users can simply revise their answers to enable trading.

The firm came under scrutiny this month following news reports that a 20-year-old customer died by suicide after thinking he had lost more than $700,000 trading options. Robinhood's founders said in a Friday blog post that they were "personally devastated by this tragedy" and looking at ways to bolster protections for options customers.

A Robinhood spokesperson said: "It is not lost upon us that our company and our service have become synonymous with retail investing in America, and that this has led to millions of new investors making their first investments through Robinhood. We recognize this profound responsibility, and we don't take it lightly."

Newbies have found it easy to jump in. Sheldon Dong, 22, a recent college graduate, decided to try options trading on Robinhood in February, using about $1,500 he had saved from an internship.

He bought bullish options on companies including Microsoft Corp. and Facebook Inc. that could pay out if the tech giants' share prices kept rising.

Things didn't work out as expected. "I almost lost my entire investment, " Mr. Dong said.

He said he took a short break but couldn't resist wading back into the market and has had a wild ride trading, with some big gains and losses.

Options are lucrative for brokerages. Even without commissions, brokers can make money by routing customer orders to electronic trading firms. Those firms pay the brokers for the orders.

The longstanding practice has drawn concerns that ultrafast traders may be preying on small investors. Brokers and traders reject such concerns and say investors benefit by getting better prices than they would if their orders were sent directly to exchanges.

New reports mandated this year by the Securities and Exchange Commission show such payments are more generous for options than for stocks. People involved in the business said options exchanges pay rebates to electronic trading firms, which in turn pass them on to the brokerages. Such payments are an extra incentive for brokers to boost options activity.

Robinhood, for instance, received $59.8 million in payments for options trades in the first quarter, nearly double the $31.1 million it received for stock trades, a May 29 report shows. E*Trade, TD Ameritrade and Schwab also got paid more for options than for stock orders, their reports show. The brokers routed options trades to firms including Citadel Securities, Susquehanna International Group LLP and Wolverine Trading LLC.

-- Michael Wursthorn contributed to this article. To receive our Markets newsletter every morning in your inbox, click here.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com