The events of the past week put the spotlight on retail investors’ influence in the US equity market.
While January’s drama was orders of magnitude more intense than that witnessed late last summer, it’s worth recalling that tales of increased retail participation and stories of previously esoteric concepts being “weaponized” by suddenly enlightened collectives on Reddit, did land above to digital fold on multiple occasions in 2020.
Now, with GameStop’s meteoric rise, we’ve hit peak public interest.
Every major news outlet in America covered the story last week. It was even lampooned on Saturday Night Live. The WallStreetBets story (complete with the short seller angle and Robinhood’s role) are a bonafide national scandal. The House Financial Services Committee is set to hold a hearing on February 18.
Against this backdrop, it’s worth taking stock (no pun intended) of how high retail’s contribution to volumes really is these days.
US cash equity and single-name option volumes hit record highs in January, and as Goldman’s Alexander Blostein wrote Monday, “retail contribution to volumes is likely larger than perceived.”
Thanks in no small part to retail participation, activity is up 100% YoY (left figure, from Goldman, below).
Blostein went on to write that “single name option volumes have also nearly doubled so far in Q1 2021, to 42mn contracts in ADV with a materially higher skew toward call buying at ~71% QTD versus the low 60%’s historically.”
That latter bit is notable. Since the second quarter of 2020, single-stock options volumes have trended more and more heavily in favor of calls. Over the same period, single stocks have comprised a larger and larger share of total US cash equity volume (compared to ETFs).
While I still contend it’s totally implausible to suggest that poor and lower-middle class Americans are spending their stimulus money on GameStop shares, the timing of these trends likely isn’t coincidental. It probably wouldn’t be a terrible idea to lower the income threshold for the next round of checks, especially considering what we now know about employment trends for those making $60,000 or more.
If you’re wondering whether institutional investors are contributing to the trends illustrated above, the quick answer is “no” — or, at the least, they’re probably not “responsible” for the massive increase in volumes.
“While we estimate that direct retail contribution to US cash equity volumes is tracking at about roughly 30%, we believe additional indirect activity by systematic trading firms and electronic market markers in both markets further contributes to the overall US cash equity volumes – amplifying the retail effect,” Goldman went on to say, before noting that on their analysis, “long-only institutional trading trends appear to be fairly unchanged with recent history, suggesting this part of the market was less of a contributor to the industry-wide surge.”
So, these are your markets, folks. Gunslingers from WallStreetBets “playing” Robinhood like Candy Crush, in an increasingly quixotic effort to find new ways to score points against an elusive “establishment,” and all with little to no conception of how their own order flow feeds the very beast they’re trying to kill. Meanwhile, the starchy, staid long-only institutional crowd can only look on incredulously as the world passes them by at 5G.
I, too, find it implausible that poor and lower-middle class Americans are spending their stimulus money on call options. Less implausible is that a lot of white-collar professionas working at home with CNBC on in the backrgound have started to pay attention to techniques and stratgies promoted the Najarians, Mike Kuow, and the rest of the Option Actions crew.
Also, a lot of 20 somethings (college educated) got in, made a fast buck, and at least some have gotten out.
A pretty savvy crowd, who then used profits to pay down student debt and/or credit cards.
I personally know a few that fall into this category. Had nothing to do with “stick it to the man”, just wanted to make some money, and were basically willing to lose the 20-30 shares they bought.
Lucky them- also, they are under no illusion that this is easily to be repeated.
I would suspect, and this is only hypothetical, that there are many, intelligent, trained and experienced, “analysts” who are working from home and trying to milk the institutions for a few more drops of milk. Let’s face it, Wall Street has a pretty dismal approval rating among the American public. As well, it would be reasonable to assume, by some who work for the Wall Street-related firms, that many have been shunned, discriminated against, or otherwise cast out. Who was passed over for consideration for promotions or top-tier openings? And compensation. The distribution of wealth is expressed any longer by an exponential curve, that the H Report has discussed with us, and it is stretching out.
What did we expect?
Great to see that there is this avenue for the possibly shunned to play the field against both the general public and other firms, and perhaps their own employers. We are in an extractive phase in America’s decline, are we not?
So, what other, previous strengths of the flagging US are breaking and held in increasing disregard, ready to be further looted? Government, health care, education, infrastructure, immigration (reform), wealth distribution, housing, what’s next? Did we not expect that we’d see something like this episode of the dirty masses trying to get some dew drops of nectar from an ever taking, skimming Wall Street?
And, please, it’s not about everyone’s 401(k) plans, that we are all benefiting…because we are not. When this is all over, will we not have been better off receiving 4.15%, compounded quarterly for our savings? We will have to see.
This is what we get.
I remember waaay back when I still had the option of a 3% short term contract in my 401k. It got taken away because the annual fee was over 0.1% and my company believes that any options with fees above 0.09% are scams. We can also no longer put the money in USD cash. The closest approximation is a US Treasury based JPM money market. Pretty sure in the next 35 years that whole pile of money just vanishes no matter where I put it.
Well written article H. Succinctly sums up the current landscape with a great choice of metaphors and analogues. Arguably this phenomenon owes it’s origin to the days of dotcom when online trading meant you used a browser and not a broker and the masses were drowning themselves in cheap cash. Fast forward to now and the herds are supercharged by global, real-time comms. Bitcoin’s journey being the exemplar…
“Gunslingers from WallStreetBets “playing” Robinhood like Candy Crush, in an increasingly quixotic effort to find new ways to score points against an elusive “establishment,” and all with little to no conception of how their own order flow feeds the very beast they’re trying to kill. Meanwhile, the starchy, staid long-only institutional crowd can only look on incredulously as the world passes them by at 5G.” — love it.