Welcome to The Spread, I’m Matt Raebel.
I can honestly say that I didn’t expect the hysteria around options traders on Reddit to go away in a week, but I am surprised at just how intensely the furor has persisted. Some are framing this as a “David and Goliath” moment, a point in history when amateur traders – many of them presumably unemployed because of the pandemic and jaded by the current economic system – struck out against wealthy hedge funds using Robinhood, a trading platform that prides itself on bringing financial inclusivity to Average Joe investors. The appropriateness of that analogy is debatable, but it has gained traction nonetheless.
In case you’re hazy on some of the details, here’s the scoop: over the past couple of weeks, mostly amateur traders bought stocks and single-stock options on struggling companies using trading platforms like Robinhood. That drove certain stock prices up and caused losses for anyone who had short positions in those stocks – though some argued that institutional or prop trade money contributed to the upward momentum, as a lot of orders for 10,000-share blocks were placed around the same time. In any case, a lot of hedge funds ended up looking worse off than the Duke brothers at the end of “Trading Places.” GameStop wasn’t the only company that had their stock jump, but it’s the one that became emblematic of the whole issue.
U.S. Treasury Secretary Janet Yellen met with top officials from the SEC and the Fed this week to discuss the related stock market volatility and if the U.S. government should intervene. From the looks of it, the SEC may already have gotten started. A lot of the newbie traders involved got the idea from trading communities on social media, including Reddit, a huge site that sees over 52 million active users daily. The SEC has reportedly started scanning social media and popular websites like Reddit looking for signs of fraud and misinformation, although the regulator has not confirmed that report. Users on Reddit’s infamous trader community WallStreetBets even created a thread to greet the SEC interns” viewing the page.
In other news, this week the OCC published its market data for January 2021, announcing that it cleared over 843 million contracts last month, up 61.7 percent from January 2020. Year-to-date ADV through January was up 78.7 percent from January 2020, and exchange-listed options volume increased 62.7 percent from January 2020 as well. Given recent trading, I think that it’s probably safe to assume those numbers will stay strong.
We’ve got new content up on John Lothian News dot com, including two new Path to Electronic Trading videos, one with Cboe’s Ed Tily and the other with CBOT and CME veteran John Van Der Bleek, and a new article in which I look at 2020’s single-stock options volume. Head to our site to check those out, otherwise that’s it for The Spread this week, so until next time, stay safe and happy trading.
David v Goliath narrative in GameStop story has serious flaws
Jeffrey Frankel – The Guardian
GameStop – David and Goliath or a political fable?
Simon Jack – BBC News
BlackBerry, AMC and Other Reddit YOLO Favorites That Aren’t GameStop
Sebastian Pellejero and Marco Quiroz-Gutierrez – WSJ
Reddit reveals daily active user count for the first time: 52 million
Jacob Kastrenakes – The Verge
It Wasn’t Just Small Investors Behind the GameStop Frenzy, Some Fear
Jacob Sonenshine – Barron’s
The SEC is hunting down possible misinformation on social media posts for signs of fraud in Reddit-driven trading frenzy, report says
Shalini Nagarajan – Markets Insider
OCC January 2021 Total Volume Up 61.7 Percent from a Year Ago