YOLO Crowd Losing Some of Its Appetite for Buying Dips
(Bloomberg) -- Retail traders, the market’s most-avid dip buyers earlier this year, are showing some evidence that the famous “you only live once” appetite for risk is losing steam.
Individuals investors were hard at work in previous selloffs in the past year, but are largely sitting this one out as previous drivers of euphoria -- like stimulus money and the Federal Reserve’s backstop -- are fizzling out.
After the S&P 500 spent two straight weeks in the red in late September, small-lot options traders -- those buying 10 contracts or less at a time -- spent just 43% of their total volume on bullish contracts, the lowest share so far this year. As the market sold off further last week, they eagerly paid up for puts, so much so that the daily average premium they shelled out for protection jumped to $480 million, the most since May, according to Options Clearing Corp. data analyzed by Susquehanna International Group.
While the premium small-lot traders pay for rout protection is still off the January highs, the figure has been rising as the stock market kept falling, signaling expectation for even more losses to come.
Markets are staging a bit of rebound on Tuesday, but it may take a while before a full recovery. The S&P 500 ended its fourth-longest streak without a 5% pullback in half a century last week. In prior instances, stocks were able to surpass their previous highs in the next month only once, calculations done by Bank of America’s derivatives desk show.
“With todays‘ markets even more dependent on fanatic faith in buy-the-dip, backed by an “all-in Fed“ who is turning more hawkish into a slowing economy, the risks are even more real,” strategists including Nitin Saksena said in a note on Tuesday. “Failing buy-the-dip and hawkish Fed turn threaten lofty markets.”
Day traders’ abstinence from risk stands in contrast to the broader put-to-call skew on the S&P 500, which experienced some flattening Monday as the selloff exacerbated. The skew measures the cost of bearish versus bullish bets and Monday’s action indicated traders are less concerned with the possibility of an outright correction.
In another silver lining, buying from the day-trading crowd in individual stocks and exchange-traded funds has held steady.
Tech heavyweights like Apple Inc. and Nvidia Corp. were among the most bought assets on Fidelity’s platform during Monday’s slide, with individual investors also placing bets on the triple-leverage ProShares UltraPro QQQ ETF.
That demand carried on Tuesday with Apple, Facebook Inc. and Nvidia ranking as the three stocks with the most buy orders, according to Fidelity data. All three stocks rebounded in Tuesday’s session.
©2021 Bloomberg L.P.