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Individual Investor Back Option Bet


Those individual investors accepted the options as a way to boost the stock market promoting shares of companies from Apple Inc.

Nvidia Corp.

to new heights. Now, the Federal Reserve move to increase interest rates to tame inflation reversed that dynamic, sending stock prices sliding.

Individual investors accounted for 26% of total options activity in March, down from nearly 30% at the beginning of last year. That’s the lowest level since March 2020, although still well above pre-pandemic levels, as calculated by Larry Tabb of Bloomberg Intelligence, who analyzed figures from 12 of the largest online brokers. .

Meanwhile, their share of stock trading activity hit a low of 10.7% in January, based on data from the largest brokerages. Activity has picked up slightly since then but remains below last year when it peaked at 21%.

A wave of severe volatility has led many individual investors to abandon a series of momentum trades such as blank test companies called SPAC, cryptocurrencies act as unprofitable tokens and unprofitable tech companies. Risk aversion has hit the markets, dragging the S&P 500 down 16% this year. Many people love the pandemic era like

Netflix Inc.

and

PayPal Holdings Inc.

has decreased even more.

“There was real herd behavior last year,” said Viraj Patel, global macro strategist at Vanda Research in London. “It’s really hard to choose who will win in this environment.”

Over the next week, investors will analyze comments from Federal Reserve speakers as well as data on the housing market and consumer spending for clues about the path of interest rates. and the economy. The Fed has become the driving force in the market, with many investors fearing the Fed’s quest to contain inflation will lead to a recession. They are also worried because war in Ukraine, door lock in China and continue supply chain disruptions around the globe.

So, the proportion of call options trading increased in price of individual investors fell to their lowest level since April 2020, another sharp reversal since the beginning of the pandemic. Investors have rushed to look for options tied to companies like electric vehicle maker Nio Inc. and

GameStop Corp.

as a way to increase their bets that the stock will continue to rise. Those deals have fallen in popularity as the stock is down 55% and 34% this year, respectively.

“Last year, I was going to be much more aggressive,” said Steve Dez, a 30-year-old actor who has traveled between California and Puerto Rico, of his options trading. This year, “falling momentum slightly faster.”

Calls give investors the right, but not the obligation, to buy shares at a specific price on a set date. Because options allow traders to fork out a relatively small amount of cash for huge profits if they bet right, investors can use them to increase their profits. However, options may expire worthless and investors may lose their initial investments.

“Across the industry, [retail] Shawn Cruz, trade strategist at TD Ameritrade said. “Retail customers are moving away from single-name options and into broader, macro-based options like [exchange-traded funds] and index options. ”

Individual investors are also increasing their exposure to exchange-traded funds, according to data from Vanda Research. Funds that track the S&P 500 and Nasdaq-100 indices, along with who provide supercharged exposure to tech stocks, has been among the most popular. That helped individual investors’ ETF purchases hit an eight-year high in early May.

Paul Soucy, a 65-year-old retired teacher in Cape Cod, said he has moved on from trading meme stocks like

AMC Entertainment Holdings Inc.

and SPAC to buy shares of consumer staples like snack companies

Mondelez International Inc.

and dividend stocks that he thinks will do well when inflation soars.

Mr. Soucy said he was worried about certain individual stocks whose earnings fell sharply, making the market more unpredictable and making it harder to trade options and stocks.

“The market is crazy,” Mr. Soucy said. “Some months I didn’t do very well.”

Of course, some of last year’s strategies still retain their appeal. Many individual investors have continued to buy discount on the stock market this year, spurring record buying. Even meme stocks bounce back from time to time. Buying big tech stocks remains popular despite the volatility, according to Vanda Research.

Specifically, a deal shows no signs of cooling down. Option above

Tesla Inc.

still most popular among individual investors This year, Vanda Research estimates, is the same as last year. The company’s stock is down 27% this year.

Write to Gunjan Banerji at [email protected]

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