Advertising
Advertising
twitter
youtube
facebook
instagram
linkedin
Advertising

Institutional Call Selling Dominates, Retail Demand for Tech Stocks Persists

In our view, the single most important secular trend in the options market is the growth of ETFs/MutualFunds that systematically trade options. Arun Prakash has done some great work cataloging each strategy to paint a picture of the AUM in specific flows (calls/puts, expirations, moneyness) to help investors understand the growth of these strategies.

Institutional Call Selling Dominates, Retail Demand for Tech Stocks Persists
freepik.com | Institutional Call Selling Dominates, Retail Demand for Tech Stocks Persists
Aa
Share
facebook
twitter
linkedin

Table of contents

  1. Don’t trade index options without this chart 
    1. Funding spreads remain low vs last fall 
      1. Hedge fund and retail investor activity in options has declined significantly 
        1. Retail investors continue to buy the dip in NDX and SPX names 
          1. Factor volatility has increased, suggesting high volatility among fundamental hedge funds 
            1. SPX daily implied moves: Flat term structure 
              1. VVIX has declined faster than the VIX 
                1. Single stock skew suggests balanced positioning vs the past few years 
                  1. Single stock liquidity has been pressured over the past week 
                    1. Call buying pressure for China stocks has declined 
                      1. Equity options remain most elevated vs history; credit options have risen the most
                        1. Oil options positioning is balanced 
                          1. What does it mean that so many investors are short Treasury Futures? 

                            Don’t trade index options without this chart 

                            These strategies represent nearly $200b in AUM (up from $150b last year) and systematically hold positions on $310b notional in options (some hold multiple positions). Biggest selling pressure: Net call selling across 1m, 3m and 12m options is most notable at a combined $168b of AUM. Biggest buying Pressure: Net put buying across 3m and 12m options is next most notable at a combined $70b of AUM.  

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 1institutional call selling dominates retail demand for tech stocks persists grafika numer 1

                            Funding spreads remain low vs last fall 

                            This was the key metric that warned us that asset managers were selling late last year and helped us become more cautious ahead of the drawdown. Demand for length in the futures/swaps/options markets continues to be much weaker YTD than in 4Q24. We still view this chart as a negative signal, but given the gap has closed more than halfway between the market and this measure, this signal only suggests being half as bearish. Given the lack of movement of funding spreads we have shifted our focus to other positioning measures that tell us about retail investor and hedge fund positioning. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 2institutional call selling dominates retail demand for tech stocks persists grafika numer 2

                            Hedge fund and retail investor activity in options has declined significantly 

                            We believe this decline in options activity is likely to embolden investors that short stocks as lower options volumes mean a lower probability of short squeezes. While retail investors appear to be buying the dip in NDX stocks (see next chart), we believe the options activity is a more important indicator of positioning. Investors excitement about positioning for short term upside  has clearly declined over the past couple weeks, likely due to fewer scheduled single stock catalysts in the next few weeks. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 3institutional call selling dominates retail demand for tech stocks persists grafika numer 3

                             

                            Retail investors continue to buy the dip in NDX and SPX names 

                            We view it as a positive that retail investors are still willing to buy the dip in Tech names. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 4institutional call selling dominates retail demand for tech stocks persists grafika numer 4

                            Factor volatility has increased, suggesting high volatility among fundamental hedge funds 

                            Last week we demonstrated with similar data that factor volatility has been consistently higher than average stock volatility in the post-COVID era. Due in part to the extreme factor volatility of late February, factor volatility has increased recently. 1-month realized factor volatility of 15 is at its highest level in over two years. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 5institutional call selling dominates retail demand for tech stocks persists grafika numer 5

                            SPX daily implied moves: Flat term structure 

                            While there are a few standout days, the SPX volatility surface is remarkably flat over the next 7 weeks. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 6institutional call selling dominates retail demand for tech stocks persists grafika numer 6

                            VVIX has declined faster than the VIX 

                            Investors expect the VIX to be less volatile over the next month at its recently elevated level. Investors think “elevated volatility is here to stay”. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 7institutional call selling dominates retail demand for tech stocks persists grafika numer 7

                            Single stock skew suggests balanced positioning vs the past few years 

                            After a few weeks of increasing fear, we are now at multi-year average levels. This suggests neither crowded upside nor downside positioning. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 8institutional call selling dominates retail demand for tech stocks persists grafika numer 8

                            Single stock liquidity has been pressured over the past week 

                            This suggests single stock volatility has risen at a faster pace than single  stock volumes, leading bid-ask spreads to be wider on large trades. Our cross- sectional studies of liquidity suggests that those stocks with low liquidity also  tend to see higher subsequent volatility. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 9institutional call selling dominates retail demand for tech stocks persists grafika numer 9

                            Call buying pressure for China stocks has declined 

                            Following the recent rally in FXI, investors are less excited about buying calls for further upside asymmetry. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 10institutional call selling dominates retail demand for tech stocks persists grafika numer 10

                            Equity options remain most elevated vs history; credit options have risen the most

                            For the first time in years, credit volatility is above its 14-year average and more elevated than rates volatility. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 11institutional call selling dominates retail demand for tech stocks persists grafika numer 11

                            Oil options positioning is balanced 

                            Investors are not disproportionately positioned for asymmetric upside or downside. 

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 12institutional call selling dominates retail demand for tech stocks persists grafika numer 12

                            What does it mean that so many investors are short Treasury Futures? 

                            While this positioning developed following the August global equity decline, positioning remains at historically extreme levels.  

                            institutional call selling dominates retail demand for tech stocks persists grafika numer 13institutional call selling dominates retail demand for tech stocks persists grafika numer 13

                             

                            Advertising

                            Goldman Sachs

                            Goldman Sachs

                            The Goldman Sachs Group, Inc. is a leading global investment banking, securities, and asset and wealth management firm


                            Topics

                            options market trends

                            ETF/Mutual Fund options strategies

                            $200b AUM

                            $310b options notional

                            net call selling pressure

                            net put buying

                            funding spreads

                            futures demand

                            hedge fund positioning

                            retail options activity

                            short squeeze risk

                            NDX dip buying

                            SPX dip buying

                            factor volatility

                            hedge fund volatility

                            SPX implied moves

                            flat volatility term structure

                            VVIX decline

                            persistent volatility

                            single stock skew

                            balanced positioning

                            stock liquidity pressure

                            wider bid-ask spreads

                            China stocks call buying decline

                            FXI rally

                            equity options elevated

                            credit options surge

                            credit volatility

                            oil options balanced

                            Treasury futures short positioning

                            historical extremes.

                            Advertising
                            Advertising