Friday’s selloff in the stock market resulted in the biggest options volume day ever and the latest sign of the retail trading crowd’s incredible support of the stock market. Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, said Friday, Oct. 10 resulted in over 108 million contracts traded, only the second time its topped 100 million ever. The interest was driven by retail traders and they had a distinct bullish bias. “Retail’s bullish conviction remains extraordinary,” Rubner wrote. Retail flow skewed 11% better to buy through the firm’s call/put direction ratio, topping the 4% average over the last three months, and marking the largest single-day call buying on the platform, according to the note. It was the 24th straight week with a “better-to-buy” options skew, Rubner said. That tied the longest bullish streak on record on the firm’s platform. .SPX 1M mountain S & P 500, 1-month performance The bullish options buying surge underscores the buy-the-dip mentality from retail traders that has held the stock market aloft all year, with the S & P 500 powering through a succession of negative headlines around trade, geopolitical conflict, and economic weakness to all-time highs. In fact, retail traders are taking on risk, even as other investors sit out the rally. Earlier this week, Bank of America Securities noted from its flows data that hedge funds declined to buy Friday’s dip. JPMorgan noted that retail traders bought while institutional investors de-risked, suggesting the latter was behind the pullback. This is atypical as a market phenomenon. In the past, it was hedge funds that were considered the “smart money,” who led the market. This year, it’s been retail traders appearing to drive equity prices. And their decision to keep buying the dip has been correct, so far. The S & P 500 is up nearly 2% this week following Friday’s dip that saw it post its biggest decline since April. On Thursday, Charles Schwab cited the jump in retail trading activity for its stronger-than-expected third-quarter earnings results. Daily trades on the platform were up 30% in the last quarter from a year ago. Citadel Securities’ Rubner said he remains constructive on the equity market trend, noting that seasonal strength in November could carry the market higher. Yet, he also noted that investors should be cautious over the next several weeks.
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