Will The ‘Absurdist’ Retail Mania Return In 2022?

A defining feature of the post-pandemic market environment was greater participation on the part of retail investors, whose footprint grew dramatically on some metrics.

The retail “mania” (as professional investors somewhat derisively called it) manifested in a hodgepodge of objectively humorous outcomes, including and especially the meme stock frenzy in which, to quote the best article Bloomberg’s Katie Greifeld ever wrote, day-traders emboldened by Reddit communities and hypnotized by Robinhood’s gamified interface, “chas[ed] the dopamine high of going all in and getting rich quick on increasingly absurd ’90s-era nostalgia stocks — all while giving the collective middle finger to the Wall Street pros and their valuations.”

In the same linked article, Greifeld called it an “absurdist morality tale over the unalienable right of Redditors to pump up meme stocks and punish Wall Street.” Since that linked piece was published, I’ve often wondered if Greifeld can write like that consistently. If she can, I’d offer her a job and free her from Bloomberg’s straitjacket editorial strictures.

Anyway, a key question for 2022 is what will become of the retail mania. There were vociferous debates about the extent to which it was driven by stimulus checks and stay-at-home orders, but the phenomenon was more complex than it appeared on the surface.

The Reddit crowd also learned how to weaponize gamma, for example, and otherwise leverage esoteric concepts to create self-fulfilling prophecies. That dynamic was on display as recently as late October in Tesla. As SocGen noted earlier this month, Tesla “accounted for 86% of the amount spent on call option premiums for the top 50 stocks in the S&P on October 25.”

Recently, though, some of the joie de vivre seems to have faded. “Bullish option volumes have fallen sharply over the last three weeks to the lowest in a year, and put/call volume ratios have risen from below their long-run range back towards the middle,” Deutsche Bank’s Parag Thatte and Binky Chadha wrote, in a piece assessing positioning headed into 2022.

Notably, “the move has been largely driven by a decline in single-stock call volumes to the bottom of their one-year range,” they added (figures below).

The well-documented link between retail speculation and cabin fever during the pandemic broke down in October. That is, bullish options volumes jumped despite a generalized increase in mobility.

Now, the Omicron variant looks poised to once again upend corporate return-to-office plans, perhaps leaving legions of speculators free to spend their “work”-from-home hours scouring Reddit for hot tips on where to find the best OTM lottery tickets.

“We previously noted that bullish option volumes, which are closely tied to retail participation, had been inversely linked with mobility through the pandemic, particularly a return back to the office,” Deutsche Bank went on to say. “A key question for next year will be whether retail participation will rebound again.”