1/9 don't think so much about #jeromepowell, check out the deleveraging happening in the option chain! here is why:
2/9 options gained enormous popularity in 20/21, especially in retail, which peaked in the meme stock mania in Jan/Feb 21. this was fueled by the monetary and fiscal stimulus which created a rare case of a bull mkt with a sustained vix >20, ideal setup for momentum strategies.
3/9 options are leveraged bets, they can fuel bull runs, but also exacerbate corrections once the deleveraging process starts. last year, total option vol has been 2x the '19 level in terms of # of contracts traded.
https://twitter.com/OptionsClearing/status/1478370919705980934
4/9 assuming 50% higher market levels on average, the underlying 2021 $ figure is easily 3x the 2019 level. as the momentum in many popular stocks for retail investors has faded, demand for options is coming back to historical levels as well.
5/9 on Jan 21, 22, an important opex date for LEAPS, 3.3tn notional expired on US-listed options. alone 240bn of the 400bn NAV (i.e. more than every 2nd $ invested!) of the $SPY was part of the option expiry!
https://twitter.com/BowTiedFun/status/1484523948666724364
6/9 tons of long term option bets were in the money due to the prior bull run. but now, the % of total call demand from retail is back to april '20 levels.
https://twitter.com/GunjanJS/status/1486851084710731779
7/9 others may have access to better data, but to me it appears that option holders are not rolling expiring options positions forward and/or are not exercising those in the money, which causes a deleveraging process in the system.
8/9 this deleveraging process reveals that there is a lack of fundamentally driven demand in certain market segments, particularly in the growth/tech segment which is more challenging to value for investors compared to established value stocks.
9/9 while it is unclear how long this may last in the short term, ultimately this deleveraging process will prove to be healthy for this bull market.
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