1. Most likely there was no reasoning. Options were initially intended for well-capitalized professional investors.
2 With another option?
3. It depends
I'm thinking what you are seeing is open interest for each monthly contract stringed together into one chart. Naturally, OI would decline closer to expiration.
Number of stocks traded is irrelevant, what matters is number of round-trip trades.
Buy 100 SPY/Sell 50 SPY is one trade
Buy 100 SPY, Buy 100 SPY / Sell 200 SPY is one trade
If you are paper trading, why not just use Thinkorswim OnDemand functionality? It basically allows you to replay the market. Just pick day and time and you can paper trade in real-time as if you were there. No need to wake up at 3 am
I have no doubts many made -100% of account with options. I bet a few of the volatility sellers felt quite a bit of pain today with VIX jumping almost 50% in a day.