Sumary of How Options Trading Is Driving Up Stocks—and Driving Them Down:
- NYSE Options trading by retail investors may account for the strength in the S&P 500 during the morning this year and weakness in the afternoon.
- The S&P 500 is up 9% in morning trading so far in 2021, while the index is down 5% in the afternoon, according to a note Thursday from Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.
- Murphy measures morning trading from immediately after the opening print in the S&P 500. He says the growing presence of retail investors in the options market may be a factor.
- Such investors tend to be buyers of call options and engage in day trading, which means they buy in the morning and sell by the close of trading in the afternoon.
- “There has been a lot of discussion around the role of ‘message board’ options trading and its impact on equity markets.
- One key characteristic of message board trading is high call volume without a significant change in open interest the next day.
- This is due to opening call buying in the morning followed by closing call selling in the afternoon,” Murphy wrote.
- Murphy cited options activity in market leader Apple (ticker: AAPL) Wednesday, when 122,000 calls with a strike of 146 expiring Friday traded but open interest in that strike only rose by 18,000 contracts.