Hot stocks like
Tesla
and
Apple
have become even hotter as stock option speculators sweep back into the market. Many are retail investors holding their positions for less than a day. This new day-trading frenzy in options is helping lift individual stocks and bolstering the revenue of online brokers like Robinhood.
“Small retail traders are back buying lottery tickets on the rally again,” says Jason Goepfert, the founder of Sundial Capital Research, whose SentimenTrader newsletter tracks measures of speculative trading.
Earlier this month, total equity options volume reached 56.5 million contracts—the second-highest total ever, behind the 59.2 million contracts traded on Jan. 27 at the height of the meme-stock craze involving
GameStop
(ticker: GME),
AMC Entertainment Holdings
(AMC), and others. “We’re back challenging those speculative peaks,” Goepfert says.
Retail traders tend to prefer lower-priced options. That is apparent in a preference for cheaper—and more speculative—options with short maturities. About 40% of options trading volume on individual stocks is in contracts expiring within a week and 54% within two weeks, according to the Susquehanna Financial Group. In stocks like Tesla (TSLA) and Apple (AAPL), as much as 65% of trading volume is in options expiring within a week.
“Options have become more important in the mix of retail trading than ever before,” says Richard Repetto, an equity analyst at Piper Sandler.
Calls give holders the right to buy a stock at a fixed price for a period, and amount to a bullish bet. Puts, which allow investors to sell a stock at a fixed price, are bearish bets. Each contract covers 100 shares of stock.
Equity call volume topped 37 million contracts on Nov. 5, just shy of the record 39 million contracts on Jan. 27, after averaging 20 million to 25 million contracts daily from March through September. Reflecting the bull market, call volume on individual stocks is regularly running at double the rate of put volume. Of late, the most popular individual stocks for call options have been Tesla, Apple,
Ford Motor
(F),
Advanced Micro Devices
(AMD), and
Nvidia
(NVDA).
Given its recent volatility and prominence, Tesla has been a favorite of options investors. One sign of the heavy day trading in Tesla options is that high volume in the company’s call options generally translates into little change in open interest, or the number of outstanding contracts.
Day trading in options on volatile stocks can be enticing, but those options…
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