Narrative Violation: Stimmies Are Hitting Accounts But Call Option Volume Is Declining

Narrative Violation: Stimmies Are Hitting Accounts But Call Option Volume Is Declining

call option
Narrative Violation: Stimmies Are Hitting Accounts But Call Option Volume Is Declining. Image: iStock

Despite the latest wave of stimulus checks hitting U.S. bank accounts, the five-day average for call option trading contracts is down 30 percent from record highs of February, seemingly defying the jump in volume that accompanied previous rounds of covid relief.

Call options give buyers the right to buy shares at a specified price and sell them later for a profit at a specified price. They can be bought for pennies.

A daily average of 23 million contracts has changed hands on U.S. exchanges in the past five days, down from more than 30 million in February. Bloomberg characterized it as “a mini-skid in the S&P 500” and a sign of “desertion” by the markets’ “fiercest bulls.”

Stay-at-home traders are credited with helping to push the market to record highs earlier this year in a bull market powered by Robinhood investors. Small traders fueled a volatile rally in tech and small-cap stocks, with some pushing shares higher in stocks such as GameStop

The recent call option volume suggests that vaccinated Americans are coming out of lockdown ready to spend money on plane tickets, vacations and family visits instead of equities, Bloomberg reported.

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Elevated call volumes “stood out to us as being the best indicator of the public’s intensity of affection for the equity markets,” said BTIG chief equity and derivatives strategist Julian Emanuel. 

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In 2020, retail trading played a big part in the options boom, but investors said the size of many purchases was too big to be retail-driven, Financial Times reported in September. 

In the third quarter of 2020, Japanese conglomerate SoftBank moved aggressively into the options market. It snapped up huge volumes of options in tech stocks, fueling the largest ever trading volumes in contracts linked to individual companies.

One person familiar with the scale of SoftBank’s trades told Financial Times it was making some people in the organization nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”