After heightened activity in 2020, the volume of bullish options trading has fallen since late January in a sign that retail investors are starting shift their attention, according to a team of strategists from Deutsche Bank.
In a Friday note, the strategists said that the size of call options trades that have risen and now fallen are small, indicating that they’re driven by retail investors. This comes as Wall Street begins to question whether the stay-at-home retail trading frenzy that was seen most prominently during the GameStop short squeeze will die down as the economy reopens and investors spend their money and time on other activities.
Deutsche Bank data also showed that mobility indicators, restaurant bookings, and air passenger traffic have all risen significantly in recent weeks as retail call volumes decline.
“This jives with our view that as retail investors have other things to do, the attention focused on the equity market will start to fade,” the firm said.
The options activity decline has also dragged down a basket of stocks with the highest call exposures that Deutsche Bank tracks. The group of stocks soared 160% in just over three months since November. However since mid-February, the basket has tumbled 24%, compared to the average stock in the S&P 500, which is up slightly in the same time period.
Although a lot of firms predicted that retail investors would put a large chunk of their stimulus money into stocks, Deutsche Bank found that two-thirds of those payments have already been distributed, implying that the impact of stimulus should start to fade in the market.
The analysts also noted that as these call volumes decline, stock market volatility may also trend lower. This could prompt systematic investors to raise already elevated allocations to stocks to record high levels, according to the strategists.