Friday’s stock market decline resulted in the biggest options trading volume in history that day, the latest sign of the retail trading community’s incredible support for the stock market. Scott Rabner, head of equity and equity derivatives strategy at Citadel Securities, said more than 108 million contracts were traded on Friday, October 10, the second time in history that the number has exceeded 100 million. The interest was being driven by retail traders, who had a clear bullish bias. “Retail’s bullish belief remains an anomaly,” LaVerner wrote. According to the note, retail flow through the company’s call/put direction ratio was 11% skewed toward purchases, higher than the 4% average over the past three months and the largest single-day call purchase on the platform. According to Rabner, this was the 24th consecutive week of skew towards “better buy” options. This tied the longest bullish streak in history on the company’s platform. .SPX 1M Mountain S&P 500, 1-Month Performance A surge in bullish options buying highlights the bullish buying sentiment among retail traders that has kept the stock market high all year, with the S&P 500 overcoming a series of negative headlines surrounding trade, geopolitical disputes and a weak economy to reach a new all-time high. In fact, individual traders are taking on the risk even though other investors are not participating in the rally. Earlier this week, Bank of America Securities noted from flow data that hedge funds rejected Friday’s push buys. JPMorgan noted that retail traders bought while institutional investors avoided risk, suggesting the latter was behind the decline. This is an unusual market phenomenon. In the past, the market was dominated by hedge funds, considered the “smart money.” Retail traders appear to be driving stocks higher this year. And so far, their decision to continue buying the push has been the right one. The S&P 500 index rose nearly 2% this week after Friday’s plunge, its biggest decline since April. Charles Schwab on Thursday cited a surge in retail trading activity as the reason for better-than-expected third-quarter results. Daily trading on the platform increased by 30% in the last quarter compared to a year ago. Citadel Securities’ Rabner said he remains positive about the stock market, noting that seasonal strength in November could lift the market higher. However, he cautioned that investors should remain cautious in the coming weeks.
