The stock market award bells just keep ringing

Photographer: Kiyoshi Ota / Bloomberg

Like the slot machines that pay for each attraction, the most reliable bets on the stock market have often been the riskiest.

It’s been a long time coming a company that sounds like something Elon Musk mentioned a tweet (but it wasn’t)? Signal Advance Inc. just fired 12 times. Lending money to a software maker to buy Bitcoin? A Microstrategy Inc. the convertible bond increases by 50% in four weeks (your choice is in cash). Backing up the truck with bullish options after the Nasdaq 100 doubled in 24 months? Wednesday was the fourth busiest day for call negotiation in the U.S. (the other three were last year).

Throwing a dart, hitting a winner, so lately it seems. Encouraged by the stimulus of the Federal Reserve, the vaccines and the psychological conditioning that arises when no patch lasts, everyone, from beginner retailers to institutional managers, rushes to collect the ten-month thaw. Of course, it is possible that all this can continue for weeks, if not months, without even a small investment. Predicting exactly when these fevers will break is an almost impossible task. But bubble warnings start ringing from every corner.

“It’s a full-fledged mania and the bull’s relative youth doesn’t make it safer to get on board,” wrote Doug Ramsey, Leuthold Group’s chief investment officer, in a January 8 customer report. note that his company has also been among buyers.

Chasing it works. Four days after ending the year with nearly 40 times profits, the Nasdaq 100 index recorded its biggest rise in two months. Stock coverage, on the other hand, has been costly. A basket of short positions of favored executives went against them 10% last week, and met the maximum in seven months. Waiting for the craze to go away is also futile. The frenzy for special-purpose acquisition companies continued, with a dozen new Friday Stock Exchange presentations, including one with the ticker. ”LMAO “.

“Too much foam, too much complacency,” said Matt Maley, Miller Tabak + Co.’s chief market strategist, who thought last week’s show in Washington would at least have slowed the frenzy. “After a concentration of 16% in just two months and 70% since March, this news should have toppled the market. A 10% to 15% correction would be normal and healthy.”

The capacity of Tesla Inc. of adding 25% to a market value of nearly $ 700 billion in five days hit headlines last week, but for real foam, the stock market was the place to look. Calls expire Jan. 15 with a strike price of $ 1,000, the most quoted Tesla option on Friday, fivefold on Friday, ending the week at $ 9.15 after starting at 53 cents each.

According to JPMorgan Chase & Co., people appear to be pushing the action, citing a representative of the NYSE margin account data that indicated a potentially strong uptake in December compared to previous months. Purchasing options for small traders has recovered violently after a seasonal drop in the last week of December, as well as retail-oriented out-of-stock trading, the bank says.

“The strength of liquidity seems to have reverberated once again in an intense way through retail investors, in a repeat of the second quarter of last year,” strategists led by Nikolaos Panigirtzoglou wrote on Friday. “Given the forecast for new fiscal support, that strength is likely to continue over the next few weeks.”

The industry has set its sights on it. Cboe Global Markets Inc. has been adapting products for smaller investors. It updated the mini options of the S&P index to improve liquidity and offer better execution to retail customers, after saying in June that it would revive a mini-VIX product aimed at least partially at smaller retailers.

The firm tried to “make some products that explained these changes in investor demand, which we believe is here to stay,” Arianne Criqui, head of derivatives and global customer services at Cboe, said in an interview in November . She pointed out that Robinhood Markets Inc. says only one-fifth of its customers market options. “We see a good rise” for more people to start, he said.

Jason Goepfert, a researcher at Sundial Capital Research, has been raising flags since late December about the degree of exercise retailers have in the options market. He cited data on the number of call purchases and the money spent on them, where the youngest participants had a 54% share, while the largest 28%.

“From the looks of things, it’s gotten even worse,” Goepfert wrote in a note Tuesday. “The most reliable sentiment measures are usually those that focus on real money and leveraged instruments. That’s when emotion has the biggest impact. When we look at some of the most leveraged vehicles available to investors, there is widespread evidence of extreme speculation. ”