No. of Recommendations: 9
Further to my recent comments in the Changing Tides thread.
I want to draw particular attention to something unusual.
https://www.cnbc.com/2023/02/07/powells-speech-tri..."A speculative frenzy after Fed Chairman Jerome Powell spoke last week helped drive record trading in call options Thursday, and there could be more Powell-related options action Tuesday as investors await his midday speech."
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Now this is interesting in several ways.
- More intense than meme frenzy in 2021?? Good grief.
- I know many young adults who trade options and they almost never exercise. They're selling them back. They try to get as much gearing as they can on each bet.
- That means a lot of MM buying in the underlying stock (when call is bought) and a lot of MM selling (when call is sold back) to hedge against the underlying.
- It seems to me that this short-term call buying frenzy has the potential to exaggerate, then rapidly flatten/reverse, a rally.
- I personally suspect it has led to a false signal in Jan/Feb 2023 for the TA people looking for a 'breakout' and 'broad buying'. As a result of a small fraction of investors generating a huge volume of buy activity via short-term calls and massive leverage, that have the appearance of 'a broad buy-in / beginning of bull market'. Remember, more than half of all options trading is now extremely short-term and this is very different to how the options market functioned prior to 2022.
lux
