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Inside Volatility Trading: Volatility Through The Years
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GameStop volatility puts spotlight on clearinghouses as Interactive Brokers, Robinhood, others restricted trading
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In particular, retail investors have piled into call options on individual stocks.
“Call option buying appears to have risen sharply to new record high levels last week pointing to acceleration of the retail impulse,” JPMorgan wrote in a note, saying it expects the trend to slow rather than accelerate further from here on.
The surge in equity options was in stark contrast to a 12.4% drop in index option volumes in January, OCC data showed, indicating bets were largely in single stocks rather than the overall market.
Buying call options in a company lets investors take bigger risks than by simply acquiring shares. Options can be worthless when they expire but, conversely, there’s theoretically no limit to how much their value can rise, and holders only needs to put down a fraction of the stock’s value to get that exposure.
LONDON (Feb 3): Trading volumes in US equity options surged 70% to hit a record monthly high in January, data from Options Clearing Corporation showed, as a retail share trading boom drove extreme gains in some small-cap stocks such as GameStop.
The use of such derivatives, which allow holders to buy shares at pre-determined prices, has ballooned over the past year amid Covid-19 lockdowns, as they became more popular with small-time investors who often trade from home on their phones.
In particular, retail investors have piled into call options on individual stocks. Call option buying appears to have risen sharply to new record high levels last week pointing to acceleration of the retail impulse, JPMorgan wrote in a note, saying it expects the trend to slow rather than accelerate further from here on.
Every investor wants to profit from their investments, of course choosing the right time to buy or sell. What if there were a way to lock in a price on, say, a stock, and then waiting to see how it performs without having to purchase it?
Enter options. Options give you the right to buy or sell a given stock (or other asset) within a given timeframe, without having to pay for it upfront at its actual market price. This way, traders actually buy the stock only if it has moved in a favorable direction for them the way they predict it will go.
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