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Traders Magazine
By David M. Aferiat, Managing Principal and Co-founder, Trade Ideas
2020 saw the emergence of the retail investor as a key player (and now stakeholder) in US equity trading. Prior to Covid, there were several developments which set the table for this trend. And once Covid hit, a perfect storm of commercial models, technology, and retail investor appetite converged into a retail investor movement, driving markets throughout the year. That trend has continued into 2021.
Among these initial, pre-Covid developments was the October 2019 move to zero-based commission trading by Charles Schwab, immediately followed by E TRADE, TD Ameritrade, and Interactive brokers. This development continues to reverberate and forms the basis for many of the insights later in this paper concerning what retail investors now demand.
Provided by Dow Jones
By Karen Langley and Joe Wallace U.S. stocks surged Friday, ending a wild week during which investors continued to rotate out of big technology shares and into the cyclical sectors that tend to thrive in a recovering economy. The S&P 500 rose 0.8% for the week, as advances by the energy, financial and industrial sectors offset declines in the technology and consumer discretionary groups. The tech-heavy Nasdaq Composite, meanwhile, declined 2.1% its third consecutive week losing ground. The index is down 8.3% from its Feb. 12 high. The Dow Jones Industrial Average, which is less oriented toward fast-growing technology stocks, advanced 1.8%.
GameStop is only the most visible example of today’s options-fuelled stock market mania. While the increasing use of derivatives has been a hallmark of previous retail trading frenzies, the current popularity is alarming even seasoned observers.
Day-trader obsession with hated stocks takes over options market
By Katherine Greifeld Bloomberg,Updated January 27, 2021, 9:59 a.m.
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(Bloomberg) The Reddit-led hunt for heavily shorted stocks is migrating to the options market.
The most-hated stocks have scorched the naysayers, with a Goldman Sachs Group Inc. basket set for its best month since at least 2008. Thatâs been accompanied by a âdramatic shiftâ in options activity toward heavily-shorted securities such as GameStop Corp., BlackBerry Ltd. and Palantir Technologies Inc., according to Barclays Plc analysts.
Frenzied buying of short-dated call contracts has exacerbated the pain for the bears. Normally dealers selling the bullish options buy the underlying stock as a hedge. With enough volume and thereâs been plenty that can drive the stocks higher, making the calls in-the-money. While retail traders had previously favored large-cap tech stocks, the pivot into smaller companies has