Retail investors may have more of an impact than you guys think.
Speculative excess has surged to the highest in at least 20 years among U.S. options traders -- and that’s a negative for stocks over the medium term, according to Sundial Capital Research Inc.
Traders established fresh bullish positions last week by buying 35.6 million new call options on equities, according to Sundial founder Jason Goepfert. That’s up from a peak of 28.7 million in February, when speculative activity was rampant, he wrote in a note Monday.
“Options traders make stunning bets on rising prices,” Goepfert wrote. “This kind of activity has a strong tendency to lead to negative returns in the S&P 500 and other indexes over a multi-week to multi-month time frame.”
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At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.
Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.
“Small traders are pushing their luck in a major way,” said Goepfert. “It seems increasingly risky to try to chase this rally along with traders who have traditionally been extremely reliable contrary indicators.”
Submitted June 09, 2020 at 07:41PM by mikwow https://ift.tt/2MNFuRS
