ROBIN HOOD-WINKED
THINK ABOUT THIS
This long-bias can be seen through distortions in the options market, an unusually strong positive skew. It is rare for the number of calls (bullish bets) to be more than 2x the number of puts (bearish bets). Last week this ratio reached 2.8x.
Some of the favourite targets for retail investors are stocks with low prices (in dollar terms). In many cases, however, there’s a reason these stocks have low prices: they have filed for bankruptcy. To be clear, these companies cannot pay the interest on their debt, they are in breach of debt covenants, and they cannot reach an agreement with their creditors to roll over existing facilities. Creditors, who stand first in line, are likely to recover only a percentage of their capital through bankruptcy proceedings. When this is the case the company’s equity is worthless. And yet, because these stocks trade at low prices, and because they are being discussed by an increasing number of day traders on Twitter, they are going up!
While the volume from retail ‘day traders’ isn’t large enough to move markets on its own (we have consistently been discussing the Fed’s ‘put’ and algorithmic, momentum-following strategies as the main drivers), these investors have amplified positive momentum and created unique biases in certain stocks.
Dave Portnoy, founder of the betting blog Barstool Sports and one of the most visible, Twitter based day traders, has come to symbolize their approach with his two investing rules:
1. Stocks only go up.
2. When in doubt about
whether to buy or sell, see
rule 1.
Online Brokers Monthly New Client Accounts
Sources: Company Filings, Deltec
Google Searches for “Day Traders” and “Call Options”
Sources: Google, Deltec