Tommy Wilkes, Saqib Ahmed and Elizabeth Howcroft

LONDON/NEW YORK – Emily from San Diego was feeling flush following a year in which she had made double-digit profits trading stocks. She decided to explore equity options that some of her fellow investors at home were exploring. This would boost her return.

Emily was part of the 2021 stock market shake-up that included small-time investors. A few made fortunes by taking short positions in “meme” stocks, such as GameStop (NYSE;) and AMC Entertainment(NYSE:).

AMC turned out to be Emily’s downfall. When its shares were hovering around $15, she started selling “naked calls options” which enabled holders to buy the stock at a fixed price. AMC stock soared instead of plunging like expected.

Emily didn’t actually have the shares because of naked options. Margin calls were initiated when AMC shares reached $72.62 June 2. This was essentially an order for cash to replenish her brokerage account.

She said, “I called (brokerage) TD Ameritrade margin team and asked them for more time. But it was either they sell it or I sell it.” She eventually said that she had liquidated her portfolio and lost $670,000.

For a related graphic on AMC Surge, click: https://fingfx.thomsonreuters.com/gfx/mkt/akvezodylpr/amc.PNG

Emily, though not the trader’s actual name, provided documentation confirming her identity. Reuters was unable to verify her losses’ size, however we reviewed brokerage statements that showed she had sold large amounts of call options on AMC stocks and other stocks during May.

“It was so devastating. Emily shared that it was so hard to sleep. She is now a driver for delivery after she quit her job in human resources at the close of 2019.

The cautionary tale she shares is one of the many dangers that booming markets can present to inexperienced investors who are willing to take on all risks.

However, for every Emily there’s a small-time trader, who surfed the stock market boom of this year, inspired by the economic recovery and central bank money printing.

TD Ameritrade was Emily’s broker.

Even pre-pandemic the conditions were favorable for retail trading. The new mobile platforms made it possible to sell stocks (or fractions) at very low or no commissions.

Ben Phillips (a London-based 30-year-old pilot, who began trading in 2019) said that everyone can have their share of the cake. Although he is a long-term trader, he also day trades for “a little fun, a little gambling”.

Nikolaos Panigirtzoglou, JPMorgan (NYSE) strategist said that the retail boom was “the main reason” global equity demand reached $1.1 billion this year.

“By acting as momentum traders, retail investors will most likely continue to propagate the equity markets, at least for the coming year. “They will have no other choice because interest rates will be near 0%,” he said.

BIG BUYERS

Retail trade, which is not like meme crazes seems likely to disappear.

According to Vanda (NASDAQ):, U.S. retail investors have purchased a net $281 trillion worth of U.S. stock this year. This compares with $240 billion in 2020 or $38 billion in 2019.

According to Trade Alert, many investors explored equity options. This will increase U.S. volume by more than 40% in 2020.

JPMorgan estimates that they account for as much as half of trading in single stock options, which is wagers on individual shares. This led to such options achieving a record-breaking share of total option volume this year according to JPMorgan’s analysis of Trade Alert data.

For a related graphic on Equity options, click: https://fingfx.thomsonreuters.com/gfx/mkt/znpnexymnvl/equity%20options.PNG

U.S. market is the most popular for retail. Even platforms that are well-known in Europe, traffic to U.S. businesses like Nio (NASDAQ;), Tesla (NASDAQ) or Apple (NASDAQ 🙂 is higher than in U.S. countries such as GameStop (NASDAQ 🙂 and Amazon (NASDAQ :).

However, the trend is expanding.

Russia’s Moscow Exchange claims 26 million accounts have been registered, which is four times more than in early 2020. Both the brokerage Tinkoff and the Moscow Exchange plan to increase trading hours and even extend them into the weekends.

India’s November trading volume was 19%, which is a significant increase from the 7% recorded in November 2019, according to Bombay Stock Exchange data.

SLOWDOWN

The central banks have indicated that higher interest rates may be coming, which could explain why trading activity has fallen.

Brokerage eToro’s Online Platform, which serves two-thirds its European customers, recorded 106 million Trades in the Third Quarter of 2021. This is half the total for the first quarter, but well over the 63 Million levels in early 2019.

Phillips was persuaded by meagre returns from other places to trade in the latter part of 2019.

His Tesla stock was hit hard by March 2020’s sell-off. However, he purchased more after watching YouTube videos in which traders encouraged viewers to “buy the dip.”

He said that the bounce increased by four times Phillips initial $15,000 ($20,100) investment, but that he does not intend to sell due to his Tesla “10-year conviction”.

Dan is one of many students from Northern England who, at 24 years old, discovered the trading bug by reading “boredom”, and then later, learning online in chat rooms such as “WallStreetBets” that promoted meme stocks.

Dan requested that his name not be published. He said that he had invested 1,000 pounds in GameStop and made four times as much. Friends who did so later on lost the money.

He now calls day trading “luck” and invests in stocks using a British savings bank account. He said that the experience “helped him be more financially educated.”

Emily, the Californian trader still trades, but in lower volumes.

She dreams to one day be able to build her portfolio.

($1 = 0.7454 pounds)