Bullish options trading has been declining over the last month as retail investors focus their attention on the economic reopening, Deutsche Bank finds

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  • Bullish options activity from retail investors has started to decline in recent weeks, Deutsche Bank strategists said.
  • The decline in options trading has coincided with an uptick in mobility indicators, restaurant bookings, and air travel.
  • It’s a sign that the retail-trading frenzy may be dying down as the economy re-opens.
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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.

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$40 billion of new stimulus money could go to bitcoin and stocks, Mizuho says

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A survey conducted by Mizuho found that $40 billion of COVID-19 relief bill funds sent to Americans could go to bitcoin and stocks.

Mizuho analysts, led by Dan Dolev, spoke with approximately 235 people with a household income of $150,000 or less in a survey released on Monday.

The team found that roughly 40% of respondents said they planned on using at least a portion of their stimulus money to invest in bitcoin or stocks.

Mizuho calculated that this means nearly $40 billion of the $380 billion in stimulus checks could go to the assets.

The survey also found that investors are more likely to put their stimulus money into bitcoin than stocks.

Of the respondents who said they plan on investing, 61% said they would be investing in bitcoin versus just 39% who said they would be putting money into stocks.

“The survey predicts that bitcoin will account for 60% of total incremental investment spend,” Dan Dolev, Senior Equity Analyst for Mizuho wrote. “We calculate it could add as much as 2-3% to bitcoin’s current $1.1 trillion market value.”

Bitcoin hit record highs of over $61,000 per coin over the weekend as stimulus hopes and institutional investor demand boosted the digital asset. However, on Monday the cryptocurrency gave back most of those gains.

Dolev highlighted a number of crypto-related firms that he believes could benefit from investors’ stimulus check moves including, Visa, Mastercard, PayPal, and Square.

In an interview with CNBC on Monday, Dolev said he was “very surprised” by the survey results, so he had his team spend a lot of time “sanity-checking” the data.

The analyst added that although the survey data was surprising, he believes it is an accurate representation of how consumers might spend their stimulus money.

“It is what it is,” Dolev concluded.

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The next stimulus will drive another surge of retail investing in the stock market, Bank of America says

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Robinhood is hugely popular among day traders, putting it at the center of the GameStop frenzy

  • The next round of stimulus aid will drive another surge of retail investing, Bank of America said.
  • BofA data shows the last two spikes in trading app downloads coincided with the receipt of stimulus checks. 
  • A more broad-based stimulus will lead to a higher uptick of retail-investing, added BofA.
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Retail investors have poured into the stock market in the last year, lured by comission-free trading, work from home conditions, stimulus checks, and high savings rates. Now, Bank of America says that it is expecting the next round of federal stimulus aid to drive another surge in retail investing.

“We expect another uptick in retail activity with another round of stimulus, though the level will likely depend on the type of stimulus (broad based or targeted), the market backdrop at the time, as well as any potential regulatory changes discussed over the coming weeks,” a team of BofA analysts said in a recent note. 

The firm found that the last two spikes in trading app downloads coincided with the receipt of stimulus checks. However, in both cases, there were extreme market moves (April 2020) and individual stock moves (January 2021) that helped draw investors.

If the next round of stimulus is broad based, BofA expects a higher level of retail activity, particularly as unemployment improves and many Americans are in better financial positions. President Joe Biden’s proposed $1.9 trillion stimulus plan includes $1,400 direct payments for individuals making up to $75,000 a year. 

Read more: Raymond James says buy these 12 ‘center of the storm’ stocks that are set to rebound as the economy reopens – including 6 that can outperform the S&P 500 in the coming months

While BofA expects retail engagement to moderate throughout 2021 following the stimulus as people spend more time and money away from home, the bank still expects structurally higher levels of retail activity versus 2019 because of zero commissions, new entrants, and advances in technology. 

In addition to a stimulus-boost, Bank of America’s data shows that the recent surge in retail trading has been led by young investors and social media.

Throughout 2020 and January 2021, brokerage firms E-Trade and TD Ameritrade saw a rising percentage of users aged 18-34, BofA said.

“It’s not just retail investors that may increasingly be a force in markets, its young retail investors,” BofA noted. “And while traditional news outlets did see a usage boost from the January surge in certain stocks, the boost was far bigger for Reddit, which tells you something about how these younger investors are obtaining views and information.” 

Bank of America found that Robinhood daily average users reached 8 million, up from an average of 4.5 million, at the height of the GameStop market-mania in late January. At the same time, conversations on the WallStreetBets Reddit forum climbed dramatically.

While Robinhood usage has come down from its January highs, it still remains elevated relative to before the GameStop frenzy, indicating that retail activity is here to stay, BofA added.

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Read more: Biden’s ESG push is a huge opportunity for asset managers. Firms like BlackRock and Fidelity are making hires, boosting tech tools, and launching new products to capture it.

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