Evaluation: U.S. retail merchants pile again into choices as meme-stock mania flares

Merchants work underneath signage for GameStop Corp. (NYSE: GME) on the buying and selling ground on the New York Inventory Alternate (NYSE) in Manhattan, New York Metropolis, U.S., August 8, 2022. REUTERS/Andrew Kelly

NEW YORK, Aug 18 (Reuters) – Speculative choices buying and selling is on the rise once more amongst particular person buyers alongside a rally in so-called meme shares, reviving a pattern that swept Wall Road final yr however pale as markets turned risky in 2022.

Buying and selling in single inventory choices – a well-liked car for retail buyers trying to place leveraged bets in hopes of outsized good points – has shot larger in current weeks, with 10-day common each day buying and selling quantity at a more-than six-month excessive of almost 25 million contracts, Commerce Alert information confirmed.

The rise in choices buying and selling comes amid wild rallies within the shares of firms widespread with retail buyers, led by Mattress, Bathtub & Past (BBBY.O), whose inventory is up about 360% this month. Extra seasoned meme-stock names akin to GameStop (GME.N) and AMC Leisure (AMC.N) have surged as effectively, rising 19% and 47% respectively month-to-date. The S&P 500 (.SPX) is up 3.5% up to now in August and has rallied almost 17% from its June lows.

“It is clear that particular person buyers are re-engaged in choices buying and selling,” mentioned Steve Sosnick, chief strategist at Interactive Brokers.

“Actually a disproportionate quantity of the expansion is in extremely speculative names, meme shares and the like.”

Shares of many smaller or much less worthwhile firms had been hit laborious within the first half of the yr, when worries over surging inflation and a hawkish Federal Reserve dried up threat urge for food and dealt the S&P 500 its worst first half loss since 1970.

The current pickup in choices buying and selling is one signal that threat urge for food amongst retail buyers could also be returning, though volumes are nonetheless down some 24% from a peak hit final November.

On Wednesday, Mattress Bathtub & Past was the second-most actively traded single-stock identify with 1.4 million choices contracts altering fingers, topping market behemoths akin to Tesla (TSLA.O) and Amazon.com (AMZN.O).

The deal with Mattress Bathtub & Past grew after a regulatory submitting confirmed on Aug. 16 that activist investor and GameStop Chairman Ryan Cohen took a big bullish choices positions within the retailer’s shares. learn extra

Mattress Bathtub & Past shares closed up almost 12% on Wednesday however fell sharply in after-hours buying and selling, after a late submitting confirmed RC Ventures, owned by Cohen, filed a discover with the U.S. SEC for the proposed sale of 9.45 million shares, together with choices. learn extra

Different shares widespread with retail merchants have additionally drawn elevated curiosity in current weeks, although to not the identical extent. AMC each day choices quantity, as an illustration, stands at about 64,000 contracts month-to-date, up 60% from the typical for the remainder of the yr.

The rise in retail choices buying and selling has been accompanied by elevated engagement in social media platforms the place meme shares are mentioned, in line with information from VandaTrack, one other signal that particular person buyers are rising bolder.

Nonetheless, many market watchers have been skeptical of the rallies, noting that previous rebounds in meme shares have fizzled, significantly a run within the first half of the yr that was adopted by new lows in broader markets.

“It is the canine days of summer season and we’ve got had slightly little bit of easing of volatility,” mentioned Garrett DeSimone, head quant at OptionMetrics. “I would not say it’s a complete change in threat aversion.”

Dan Pipitone, chief govt of retail brokerage TradeZero, famous {that a} surge in name shopping for is commonly considered as a contrarian sign that factors to a near-term high in markets.

A lot is determined by whether or not the bounce that has taken broader markets larger begins to fade, mentioned Sosnick, of Interactive Brokers.

“If we begin to go down in a significant manner, significantly if we re-test the lows, that might imply the greed would revert to worry,” he mentioned.

Reporting by Saqib Iqbal Ahmed; Enhancing by Ira Iosebashvili and Richard Pullin

Our Requirements: The Thomson Reuters Belief Ideas.