Speculative options trading is on the rise again among retail investors, alongside a rally in so-called “same” stocks, reigniting a trend that swept the stock market last year but faded when markets are become volatile in 2022.
Individual stock options trading – a popular vehicle for retail investors looking to place leveraged bets in the hope of making windfall gains – has soared in recent weeks, with average daily trading volume over 10 days to a more than six-month high of nearly 25 million contracts, according to data from Trade Alert.
CHART: Simple stock options –
The surge in options trading comes amid a wild rally in company stocks popular with retail investors, led by Bed, Bath & Beyond, whose stock has risen around 360% this month -this. More experienced companies, such as GameStop and AMC Entertainment, have also gained 19% and 47% respectively since the start of the month. The S&P 500 is up 3.5% so far in August and has rallied nearly 17% from its June lows.
“It’s clear that individual investors are re-engaging in options trading,” said Steve Sosnick, chief strategist at Interactive Brokers.
“Certainly a disproportionate share of the growth is in highly speculative names, stocks and the like.”
Shares of many smaller or less profitable companies were hit hard in the first half of the year, when worries about runaway inflation and a hawkish Federal Reserve dampened risk appetite and inflicted on the S&P 500 its worst first-half loss since 1970.
The recent recovery in options trading is a sign that risk appetite among retail investors may return, although volumes are still down 24% from the peak reached last November.
On Wednesday, Bed Bath & Beyond was the second most actively traded stock name with 1.4 million options contracts changing hands, ahead of market behemoths like Tesla and Amazon.com.
Bed Bath & Beyond’s attention grew after a regulatory filing on Aug. 16 showed that activist investor and GameStop chairman Ryan Cohen had taken a large bullish options position in the company’s stock. retailer.
Shares of Bed Bath & Beyond closed nearly 12% higher on Wednesday but fell sharply in after-hours trading after a late filing showed Cohen-owned RC Ventures filed a notice. with the US SEC for the proposed sale of 9.45 million shares, including options.
Other stocks popular with retail traders have also seen increased interest in recent weeks, but not to the same extent. AMC’s daily options volume, for example, is around 64,000 contracts month-to-date, up 60% from the average for the rest of the year.
The rise in retail options trading has been accompanied by increased engagement on social media platforms where the same stocks are discussed, VandaTrack data shows, another sign that individual investors are getting bolder. .
Yet many market watchers were skeptical of these rallies, and were compelled to note that earlier rallies in equities themselves have fizzled, particularly the rally in the first half of the year, which was followed by new lows in the broader markets.
“It’s late summer and we’ve had a slight drop in volatility,” said Garrett DeSimone, head of statistics at OptionMetrics. “I wouldn’t say it’s a total shift in risk aversion.”
Dan Pipitone, managing director of retail brokerage TradeZero, noted that a surge in call option bids is often seen as a contrarian signal that indicates a short-term top in the markets.
Much hinges on whether the rebound that has been driving the broader markets begins to fade, said Interactive Brokers’ Mr. Sosnick.
“If we start to drop significantly, especially if we hold the lows, that would mean that greed would turn back into fear,” he said.