Bored Day Traders Locked at Home Are Now Obsessed With Options

Forget buy-and hold. Stuck at home and dreaming of a killing, bored retail traders are branching out into all manner of Wall Street exotica.

Darting in and out of stock options, dabbling in complicated exchange-traded funds, devouring trading how-to books by the dozen — all have become tools in the self-directed portfolio playbook. Locked down and socially distant with lots of time and (apparently) money to spare, they’re leveraging zero-percent brokerage fees in new and surprising ways.

Big shock: Wall Street says it will end badly.

“Obviously you’re exposing yourself, depending on how you’re doing it, to catastrophic loss,” said Brian Nick, chief investment strategist at Nuveen. “If you get a lot of investors in either individual securities, companies or investment strategies that they may not have experience with, it could lead to unhappy investors down the road.”

Whatever the advisability, individual investors have been a rising force in the $6 trillion stock rebound. Contrary to old-school theories that mom and pop bail at times of market crisis, they piled in this year, lured by free trading and, probably, boredom, with casinos closed and sports betting halted. Besides fretting about its prudence, analysts worry the dynamic is delaying the type of retail-investor washout that many consider necessary to end a serious bear market.

The fingerprints of tiny investors are all over the options market. Trades consisting of just one contract now account for 13% of total volume, according to Goldman Sachs Group Inc. analysts led by John Marshall. That supports a view that “individual investor active trading is playing an increased role in market volatility.” In some popular stocks, like Chipotle Mexican Grill Inc. and Alphabet Inc., small options trades account for nearly a third of total volume.

Many of the trades are quick ones. Chris Murphy, Susquehanna International Group’s co-head of derivatives strategy, calls the phenomenon “message board trading,” one-day round trips where an investor both opens and closes the position in the same session. Such activity is exploding, especially in stocks like Apple Inc., Stitch Fix Inc. and TripAdvisor Inc.

TD Ameritrade Holding Corp. has seen client engagement soar, with requests flooding in for new investing strategies. Visits to the brokerage’s “Education Center” hit an all-time high in April, up 280% from the year prior, with clients downloading explanatory videos and online courses. The most popular classes included stock fundamentals and options trading. Clients gravitated to content showing how to buy and sell stocks using mobile apps, and also on covered calls — a type of options strategy.

“People are still trying to learn to do this better,” said JJ Kinahan, the chief market strategist at TD Ameritrade. “People are just saying, ‘OK, retail is going in and being crazy.’ Well, I think the fact is retail is trading more because they have more time. People actually have time to do so, and that’s why they are more interested.”

Driver-Turned-Trader

That’s been true for Ameer Umarov, a cab driver in Arizona with an interest in math and a passion for video games. Months ago, when he realized the coronavirus was growing into a global health crisis, he reactivated his Amazon.com account to make some purchases. Not for masks or hand sanitizer — for books on stock trading. Two a week, at one point.

When equities started surging in late March, Umarov stayed away, scared by the volatility. He was ready to act by the first week of April. He bought shares of Boeing Co., a bad decision that set him back more than $4,000. But a stake in Halliburton Co. brought him $9,800, after he sold shares on the day of a 16% rally late last month. A few other purchases — Goldman Sachs and Micron Technology Inc., among them — yielded mixed results. All told, Umarov is down some $400 since he began.

“It’s a gamble, but a highly intellectual gamble,” he said by phone. “It’s about knowledge and risk, but especially for guys like me, it’s all about sheer luck.”

This month, he stopped buying books and instead signed up for a virtual trading boot-camp. He paid $4,100 for two days of 8 a.m. to 4 p.m. classes, where he learned about concepts like support, resistance, and trading on gaps. To Umarov, the course is a long-term investment, and he’s decided eventually he wants to make trading his full-time job.

“I have no idea how it’s going to go,” he said. “But it will be stupid not to try.”

Arbitrage Chatroom

Chris Camillo isn’t your typical retail trader. He starting investing when he was 13 years old. Now 45 in Dallas, he’s turned the original hobby into a full-time job, he says, and created quite the community — aided by claims of mammoth gains in his TD Ameritrade portfolio. All the while, he was hosting live shows on YouTube, each episode drawing as many as 6,000 viewers, where he explains his method — what he calls “social arb” trading.

On Tuesday he created a chatroom through the site Discord to develop a hub for conversation. It already has over 500 members — many of them younger.

“And, hey, it took a pandemic, but it was already happening before this with Wall Street Bets and cryptocurrency,” Camillo said by phone. “Now they’re wanting to go one layer deeper. OK I did that, I did crypto, OK now I own Tesla, I get it. But there has to be more to investing than just Tesla.”

Short on money? Next month Charles Schwab Corp. will allow investors to buy fractions of shares through a mechanism called “slices.” Retail trading platforms Robinhood and Social Finance, popular with investors in their 20s, have launched similar products in the past two years. While many cheer the convenience, some fear it will awaken animal spirits among young investors that aren’t ready for it.

“It’s good to get people involved in investing earlier in an efficient way that meets their asset scale,” said Benn Eifert, chief investment officer of QVR Advisors. “From my perspective, the difference is, are you channeling them into the gameification of day trading, into over-confidence, into getting involved in things you don’t understand, or are you channeling that into long-term planning and asset allocation?”

The number of investors at Robinhood currently holding the U.S. Oil Fund, the biggest exchange-traded fund invested in oil, stands at 171,000, 20 times the number of users that held the fund in early March, according to website Robintrack, which uses Robinhood’s data to show trends in positioning but isn’t affiliated with it. The popularity of the fund only increased after negative oil prices captivated and confused traders.

This past week, FINRA — a government-authorized non-profit that oversees broker-dealers — issued a notice on oil-linked exchange-traded products, saying they provide exposure to the oil market through product structures that some investors may not understand. The non-profit called for the ETPs to have a “fair and accurate” communication with the public.

“There is a long, documented history of retail investors chasing a handful of story stocks and then getting burned,” said James Pillow, managing director at Moors & Cabot Inc. “We humans love a good narrative. I cannot imagine this time around ending any different.”

— With assistance by Claire Ballentine, Vildana Hajric, and Katherine Greifeld

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U.S. Retail Sales Plunge By Record 16.4% In April

Retail sales in the U.S. plunged by even more than expected in the month of April, according to a report released by the Commerce Department on Friday.

The Commerce Department said retail sales cratered by a record 16.4 percent in April after tumbling by a revised 8.3 percent in March.

Economists had expected retail sales to plummet by 12.0 percent compared to the 8.7 percent slump originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales plunged by an even steeper 17.2 percent in April after falling by a revised 4.0 percent in March.

Ex-auto sales were expected to tumble by 8.6 percent compared to the 4.5 percent nosedive originally reported for the previous month.

The collapse in retail sales reflected weakness throughout most of the sector, as the coronavirus pandemic forced most stores to close their doors.

The report showed particularly steep drops in sales by clothing and accessories stores, electronics and appliance stores and furnishing and home furnishing stores.

Even sales at grocery stores plummeted by 13.2 percent in April after spiking by 28.6 percent in the previous month.

The only segment to see an increase in sales was non-store retailers, where sales jumped 8.4 percent as consumers resorted to online shopping amid the lockdown.

Core retail sales, which exclude autos, gasoline, building materials and food services, plunged by 15.3 percent in April after a surprise 3.1 percent jump in March. Economists had expected core sales to drop by about 5.0 percent.

“While we believe the worst of the consumer retrenchment is likely behind us, the gradual relaxation of lockdowns and lingering virus fear will translate into a slow release of purse strings,” said a note from economists at Oxford Economics.

They added, “In addition, the combination of elevated unemployment, depressed income, frail consumer confidence will continue to weigh on consumer’s appetite for spending.”

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U.S. Consumer Sentiment Unexpectedly Rises Amid Relief Payments

U.S. consumer sentiment posted a surprise increase in early May amid widespread virus-relief payments and discounts for big-ticket items, though pessimism deepened about the longer-term outlook for incomes and the economy.

The University of Michigan’s preliminary sentiment index rose 1.9 points from an eight-year low to 73.7, according to data Friday. That compared with the median estimate for a decline to 68 in a Bloomberg survey of economists.

The measure of current conditions rose 8.7 points to 83, while the expectations index fell 2.4 points to 67.7, the lowest level since 2013.

“Confidence inched upward in early May as the CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes,” Richard Curtin, director of the survey, said in a statement. “Despite these gains, personal financial prospects for the year ahead continued to weaken.”

A separate report Friday showed retail sales plunged in April by the most on record.

Deep Discounts

The Michigan report said the improvement in buying conditions for durable goods reflected deep discounts, especially on autos, as well as low interest rates. That helped offset concerns about job and income prospects.

A measure of sentiment on respondents’ current financial situations improved from the prior month due to income gains. But personal financial prospects for the year ahead were the lowest in almost six years.

Although some items are being heavily discounted, prices have been rising for everyday essentials such as food. The Michigan report showed inflation expectations for the year ahead jumped to 3%, the highest since 2018.

Asked about their top concerns related to the pandemic, 57% of respondents cited health, down slightly from 61% the prior month, while 17% said finances and 21% said social isolation. That indicates the “growing costs of social isolation and its potential to shift opinions about reopening the economy,” Curtin said.

While a number of states are beginning to let businesses reopen, it’s unclear how much confidence will rise in the near term. Economists expect a significant pick-up in activity in the third quarter, but a return to normal is still nowhere in sight as tens of millions of Americans are now out of work and schools remain closed.

The survey was conducted April 22 to May 13. During that period, the Labor Department reported that more than 20 million people lost their jobs, sending the unemployment rate to its highest since the Great Depression era.

The Michigan report also showed a wide partisan gap in confidence persisting between Democrats and Republicans, though the difference has narrowed since the pandemic started.

— With assistance by Kristy Scheuble

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Retail sales plunge a record 16.4% in April as coronavirus freezes economy

Food, local retailers could ‘revitalize’ coronavirus-hit shopping centers

Strategic Resource Group Managing Director Burt Flickinger argues future malls will focus on food, local stores, distribution centers and community events.

U.S. retail sales endured the biggest drop in history in April, plunging 16.4 percent as the coronavirus pandemic shuttered businesses around the country and forced residents to stay at home.

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It was the second straight month of declines for the industry as the virus outbreak forces American life to come to a grinding halt and marks the steepest decline since March, when they plunged 8.7 percent. The government began tracking retail sales in 1992.

VIRUS OUTBREAK DEVASTATED THESE INDUSTRIES IN APRIL

Economists surveyed by Refinitiv forecast a decline of 12 percent.

The declines were pervasive across the retail sector, led by a 78.8 percent drop at clothing stores, a 60.6 percent decrease at electronics and appliance stores, and a 58.7 percent decline at furniture stores.

Even with takeout and delivery options, food services and drinking places got clobbered, plummeting 29.5 percent. Food and beverage stores, which saw sales climb in March as Americans stockpiled essential goods, fell 13.1 percent.

CORONAVIRUS LAYOFFS HIT WOMEN, MINORITIES THE HARDEST

The only area that experienced growth was non-store retailers, which increased by 8.4 percent. That includes online sellers like Amazon.

The report came as millions lost their jobs. In the two months since the virus paralyzed the economy, more than 33 million Americans have filed for first-time unemployment benefits, a rate unseen since the Great Depression. Officially, the unemployment rate is 14.7 percent — the highest on record — but economists have suggested it's likely more than 20 percent.

Consumer spending accounts for nearly two-thirds of the nation's GDP. In the first three months of the year, the U.S. economy shrank by 4.8 percent, the sharpest decline since the 2008 financial crisis.

The severity of the coronavirus-induced downturn will be reflected more accurately in the second quarter, when the nation’s economy came to a near standstill to mitigate the spread of the virus. Estimates vary widely — Goldman Sachs forecast a decline of 34 percent — but economists broadly agree it’ll be grim.

CONGRESS HAS FUNNELED TRILLIONS TO VIRUS RELIEF EFFORTS. WHERE IS THAT MONEY GOING?

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U.S. Retail Sales Plunged Record 16% In April

BALTIMORE (AP) — U.S. retail sales tumbled by a record 16.4% from March to April as business shutdowns caused by the coronavirus kept shoppers away, threatened stores across the country and weighed down a sinking economy.

The Commerce Department’s report Friday on retail purchases showed a sector that has collapsed so quickly that sales over the past 12 months are down a crippling 21.6%.

The sharpest drops from March to April were at clothiers, electronics stores, furniture stores and restaurants. A long-standing migration of consumers toward online purchases is accelerating, with that segment posting a 8.4% monthly gain. Measured year over year, online sales surged 21.6%.

For a retail sector already reeling from the migration of consumers to online shopping and to app-based delivery services, a back-to-back free-fall in spending poses a grave risk. Department stores like Neiman Marcus and J.Crew have filed for bankruptcy protection. Hotels, restaurants and auto dealerships are in danger.

An April analysis by a group of academic economists found that a one-month closure could wipe out 31% of non-grocer retailers. A four-month closure could force 65% to close.

The plunge in retail spending is a key reason why the U.S. economy is contracting. Purchases at retailers are a major component of overall consumer spending, which fuels about 70% of economic growth.

Other than online, not a single retail category was spared in April. Auto dealers suffered a monthly drop of 13%. Furniture stores absorbed a 59% plunge. Electronics and appliance stores were down more than 60%.

Retailers that sell building materials posted a drop of more than 3%. After panic buying in March, grocery sales fell 13%.

Clothing-store sales tumbled 79%, department stores 29%. Restaurants, some of which are already starting to close permanently, endured a nearly 30% decline despite shifting aggressively to takeout and delivery orders.

With few Americans shopping, traveling, eating out or otherwise spending normally, economists are projecting that the gross domestic product — the broadest gauge of economic activity — is shrinking in the April-June quarter at a roughly 40% annual rate. That would be the deepest quarterly drop on record.

Spending tracked by Opportunity Insights suggests that consumer spending might have bottomed out around mid-April before beginning to tick up slightly, at least in the clothing and general merchandise categories. But spending on transportation, restaurants, hotels and arts and entertainment remains severely depressed.

Credit card purchases tracked by JPMorgan Chase found that spending on such necessities as groceries, fuel, phone service and auto repair declined 20% on a year-over-year basis. By contrast, spending on “non-essentials,” such as meals out, airfare and personal services like salons or yoga classes, plummeted by a much worse 50%.

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US retail sales see biggest drop ever amid coronavirus crisis

US retail sales posted their sharpest drop on record last month as the coronavirus pandemic shuttered shops around the country, stark new data show.

Retail and foodservice businesses raked in a seasonally adjusted $483.1 billion in sales in March, an 8.7 percent plunge from February’s revised total, the US Department of Commerce revealed Wednesday.

That’s the biggest month-to-month decrease in the history of the feds’ monthly report, which started in 1992. The previous record of 3.9 percent was set in November 2008 amid the global financial crisis.

“The economy is literally in freefall with consumers unable to get out to the shops and malls in March and about the only retailers smiling are grocery stores with consumers stockpiling food for the coming economic apocalypse,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “This report today breaks all modern-day records for the consumer who has dealt the economy a body blow from which it will be difficult to recover.”

Sales at food and beverage stores spiked more than 25 percent to about $82.1 billion in March as panic-shopping consumers stocked up on groceries and other staples, the federal data show. Pharmacies and “general merchandise” retailers such as department stores and warehouses also saw sales jump.

But that wasn’t enough to cancel out sharp drops at car dealerships, restaurants and clothing stores as the pandemic brought the US economy to a screeching halt. Clothing and accessories sales plunged more than 50 percent last month to about $11.1 billion, according to the feds. And gas station sales dropped about 17 percent as many Americans started working at home and oil prices fell.

The tumble came as lockdowns meant to stop the spread of the deadly coronavirus forced retailers large and small to shut down as their customers hunkered down at home. Those restrictions have also led to mass layoffs, with nearly 17 million Americans filing for unemployment benefits in just three weeks.

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