Thread by @LWrymouth

#reddit is not your friend. A 4/20 study by London School of Business economists discovered #wallstreetbets $GME retail traders lost $5.27 billion trading options during the 2021 stock market bull run. 🧵@stillgray @acrossthespread /1

visiontimes.com/2022/05/02/red…

LSB analyzed a combination of small-contract trades and SLAN-coded trades to isolate the activity of amateur retail speculation between November of 2019 and present. /2

The team found ordinary people lost:

$1.14 billion on directly failed options trades

$4.13 billion in aggregate trading costs, including a bid-ask spread that at times almost 30%.

By comparison, the performance of the overall options market was a positive $5.48 billion. /3

Data also showed new blood and dead money were being led to the slaughterhouse by #wallstreetbets .

During the same time period, SLAN trading volume increased by 143 percent while small contract trading volume increased by 224 percent. /4

LSB was definitive when it stated SLAN volume was "positively correlated with stock-based measures of retail activity, such as ticker mentions on #wallstreetbets forum and #Robinhood ownership breadth." /5

When #wallstreetbets turned on the hype train, the money followed. In the case of $AMC, in mid-June the stock was getting as many as 7,500 mentions a day on Reddit as it was being distributed in the $60s after spending four years trading <$20.

AMC closed Friday at $15.30 /6

LSB focused on Payment for Order Flow, the practice of routing trades from "zero commission" platforms like #Robinhood to "dark pool" market makers such as Citadel Securities. /7

"The brokerage therefore has an incentive to encourage investors to trade more and to trade assets with larger spreads, which could be to their detriment," they stated. /8

During the House inquiry into the "Gamestop Rebellion," @BradSherman eloquently stated there are "two ways to pay the folks involved in Wall Street for buying and selling a stock."

One is commission, he said. "The other way to do it is to give them a worse execution. /9

This is a gravy train for #Robinhood, "In the second quarter of 2021, brokerages in the U.S. received more than 284.4 million dollars of PFOF for their order flow in stocks and 581.2 million dollars for options," LSB said. /10

The researchers stated that the bulk of the $4.13 billion lost to trading costs not only "are not as transparent as brokerage fees, and are likely to be overlooked by retail investors."

But "become revenue for market makers and exchanges executing retail orders." /11

LSB said amateurs "have preferences for lotteries and opt for ultra short-term (weekly) options."

People come to gamble, not invest or cultivate as a trader, "Participat[ing] in trading frenzies, and incur large trading costs (possibly masked by zero-commission offers).
/12

They also found a prevalence of bad habits, such as 69 percent of all retail trades being calls, rather than puts, and 96 percent of contracts being in-the-money or slightly-out-of-the-money, where the bid-ask spread was as high as 28%. /13

Additionally, 41 percent of all trades were sizes under $250, where the bid-ask spread was 23.4%, compared to only 8.3% for trades between $250-$500. /14

Both money and opportunities are hard to come by. The market is a zero-sum game.

Don't think someone on Reddit has your interests in mind, or is trying to organize a rebellion against Wall Street and the Government.

They're just Fabians, and you're the sacrifice. /15

@threadreaderapp unroll