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Good morning. After yesterday’s unsuccessful attempt to streamline AMC’s investor behavior, I today bow in front of crazy speculators, especially those who trade options. Perhaps rationality will return to the menu next week.
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So to be honest:
That’s three days! It’s $ 30. No, it’s $ 72. There is no $ 38. I really think so this time. No, I’m sorry, but it’s certainly $ 68. Good, good, $ 50. (Charts are Refinitiv.)
I tried to understand yesterday What was happening Compare with AMC stock in terms of the economic virtues that investors may see in the company. This was an idiot’s errand. Moreover, I ignored the gorillas in the room when discussing the meme stock madness, the options market.
It is a broad (but not universal) truth. Meme stock It is at least partially under the control of the options market. There are multiple control mechanisms. The simplest is information. When stock investors see many call-bys, they anticipate future stock purchases and try to anticipate them.
Another tricky mechanism is hedging. If an investor who wants to speculate on a stock buys a call option for it, the market maker who sold the call to her does not want to take the other side of the deal. Ideally, another customer would take the opposite position in put options, allowing market makers to get some spread without risk. However, if there is more demand for calls than puts, for example from many crazy retail investors, dealers can buy the underlying asset as a hedge. Important Details: If the stock price rises, the market maker will need to buy more stock to enable hedging. It adds fuel to the rise in stocks, requires more buying for hedging, and continues endlessly. Stocks temporarily become puppets in the options market.
So is AMC Baccanal an optional puppet show?
Garrett DeSimone, head of quantitative research at OptionMetrics, an options data and analytics firm, said the AMC options market was eccentric. When we spoke on Thursday, the stock price volatility implied by AMC option prices was about 300%. Recently, it reached 800% at some point. He states that these numbers are “very crazy” and it is difficult to immediately estimate the impact of the underlying asset on the stock price.
DeSimone sent us data on the purchase volume of call and put options I plotted against stock prices by the end of Wednesday. Each unit of volume is a standard contract of the right to buy and sell 100 shares.
This correlation isn’t perfect, but it’s certainly suggestive.
How many of these are retail options trading? Now, OptionMetrics tracks retail options (less than 10 contracts) as an alternative to retail purchases. The quantity of small lots after March is as follows. Recently, it has been increasing more rapidly.
I tell Desimone that the meme stock market is still a story of individual investors beating institutional investors by “taking over” transactions in their own names, or professionals making money from individual-led volatility. Asked if he had figured out a way. He said:
“The market is still trying to understand this … In an environment with 800% volatility, the old rules do not apply. In my own sense, many retail investors remain having this problem. The institution will always understand it first. “
I also talked Lily Francas And Alex goode, An independent option trader, a member of Finzottati. They were convinced that option-driven trading accounted for a “significant portion” of Wednesday’s trading at AMC. They also made an interesting observation: Market makers were “surprised” by the whirlpool of previous meme stocks, but this time market makers (such as Citadel Securities and Jane Street) said in Good’s words. I’m definitely casting money. “
What is their evidence for this? Optional bid ask spread reduction. “It shows that market makers are active and trading on both sides of the options market,” Francus said. Narrow spreads avoid market makers’ risk over AMC’s options business. It does not mean that you are actively competing.
Of course, market makers aren’t the only ones making money in this madhouse: AMC Announced Yesterday, we announced that we would sell another 25 million shares to the public. And why do they stop there?
Peruse more housing data
Last week I wrote U.S. home prices skyrocket, And wondered about the role that institutional capital inflows played in it. As a way to track institutional investor funds flowing into housing, I used data from the Mortgage Bankers Association and non-residents Investigated the number of new mortgages borrowed. The data looks like this:
After all, there is another good data source, showing that even more of the US market is owned by investors. John Burns Real Estate Consulting tracks non-owner purchases by looking at the number of homes where the real estate taxpayer’s address is different from the home’s own address. This captures cash purchases that cannot be obtained with MBA data. Burns just tabulated the first quarter numbers. here you are:
Amazing numbers: In Phoenix, New York, Austin, Tampa and Las Vegas, about one-third of the market is investors. However, looking at the national trends in investor ownership, it seems to be stable over time.
Rick Palacios, head of research at Burns, points out an important point. From 2010 to 2015, when the proportion of purchases by investors was higher than it is now, it was because purchases by residents decreased significantly and institutional and rental housing investors became the majority of the field. is. But now the occupied market is bright red and investor owners are still a quarter of the market. He sees institutional interest in US residential real estate as a “maniac.”
Will hot money (then over-leveraged house flippers, today institutional investors seeking yields) move away from the market rapidly and lead to a plunge? ?? Palacios doesn’t think:
“Hundreds [institutional investment] A platform that leaves a lasting footprint in the single-family home market. They are staying here. .. Their investment period is decades to decades.Our view is that this is [capital] It is in circulation in the long run and will structurally change the market. “
It’s a physical pain to recommend the work of my competitor John Authers in Bloomberg, but my conscience wants to point out what he wrote. Newsletter If you haven’t read it yet, you should read it a few days in advance. It’s about the relationship between fixed income, equities and inflation, and is an excerpt from a very good report from Absolute Strategy Research. If this argument is correct, we could last for years if rising inflation changes the relationship between bonds and stock prices.