Bullish Stock Bets Explode as Major Indexes Repeatedly Set Records
Wagers tied to Tesla, Amazon, Apple and Nvidia were among the most popular wagers recently
Investors are piling into bets that will profit if stocks continue their record run.
Options activity is continuing at a breakneck pace in January, building on 2020’s record volumes. It is the latest sign of optimism cresting through markets as individual and institutional investors pick up bullish options to profit from stock gains and abandon bearish wagers.
More than half a trillion dollars worth of options on individual stocks traded on Jan. 8 alone, the highest single-day level on record, according to Goldman Sachs Group Inc. GS 0.01% analysts in a Jan. 13 note.
Among the most popular bets were those tied to Tesla Inc., TSLA 0.20% Amazon. AMZN -0.45% com Inc., Apple Inc. AAPL 1.61% and Nvidia Corp. NVDA -1.12% And bullish call-options trading surged to a high on Jan. 14, with about 32 million contracts changing hands, according to data provider Trade Alert.
Options are contracts that give investors the right to buy (a call option) or sell (a put option) shares, at specific prices, later in time. They are typically used to bet on stocks’ direction or hedge portfolios. Although they can be risky to trade for amateur investors, activity has exploded in recent months. The interest has stemmed in part from investors looking to magnify gains in the stock market, since options allow them to put down a relatively small sum for the chance at an outsize return.
Many of these investors have flocked to online brokerages that have made it easier than ever to trade. Smaller options trades of just one contract—typically thought to stem from individual investors—recently made up almost a tenth of activity, up from 2% three years ago, according to Trade Alert data.
The robust trading comes as U.S. stocks have jumped to fresh highs. Earnings results have poured in over the past week, with companies such as Netflix Inc. NFLX -2.53% and Goldman Sachs posting strong results. In the coming week, traders will be monitoring a slate of releases from big tech companies, with Microsoft Corp. MSFT 0.44% , Apple, Facebook Inc. FB 0.60% and Tesla on deck.
Investors have also looked ahead to the prospect of fresh stimulus that would help the struggling economic recovery. In January, stocks have built on their big, and perhaps unexpected, gains of 2020: The S&P 500 has gained 2.3%, setting four closing highs, after rallying 16% last year. The stock-market rally has also broadened, lifting laggard sectors like financials and energy.
Ben Austin, a 21-year-old student at Syracuse University, said he has increased his positions in stocks such as American Express Co. AXP -1.01% and Citigroup Inc., C -0.87% in part because of the chance for more fiscal stimulus, which he thinks could boost spending.
“For the next couple months, I’m still kind of bullish on the market,” Mr. Austin said. “I think we’re going to see another giant stimulus package.”
He started trading options in November and primarily trades calls to position for big events that have the potential to lift stocks, shying away from put options. He acknowledges that options can be riskier than stocks but relishes trading.
“There’s somewhat of a thrill to the more risk aspect of it,” Mr. Austin said. “There’s way more potential for higher gains in a shorter amount of time.”
As stocks have continued their ascent and bullish positions have flourished, many have ditched bearish bets on the market.
Short interest in one of the biggest exchange-traded funds tied to the S&P 500 recently hit the lowest level since March 2020, according to data from IHS Markit. Investors that short shares typically borrow stocks and sell them, in the hopes of buying them back later at a lower price before returning them to the lender. These positions profit when stocks tumble. And bearish put options outstanding tied to the gauge recently fell to the lowest level in at least four years, Trade Alert data show.
“This is the most popular I’ve seen call buying in my career,” said Jon Cherry, global head of options at Northern Trust Capital Markets, who has been in the industry for more than two decades. “Where I think that is really driving from is kind of the melt-up that we’ve seen in broader markets.”
Mr. Cherry said he has noticed interest in bullish positions as well as a desire to sell bearish options to juice income. Investors don’t want to miss out on any potential stock-market gains to come and want to stay in positions that will profit if stocks keep soaring, he said.
Hayden Cole, 22, a student at the College of the Canyons in California, waded into stocks and options after he lost his job during the coronavirus pandemic. He started chatting with his father about the stock market.
“He told me the stock market always recovers. It’ll always go back up,” Mr. Cole said.
He said he bought shares of fuel-cell company Plug Power Inc., PLUG 4.99% an exchange-traded fund tied to the S&P 500 and the ARK Innovation Exchange-Traded Fund, which tracks shares of companies such as Tesla and Roku Inc., ROKU -0.19% in May. Lately, he has placed bullish options trades on companies like Advanced Micro Devices Inc. AMD 1.38% and Apple.
The S&P 500 has soared 36% since May, while the ARK fund has jumped 179%.
To some, the current environment is reminiscent of August, when stocks such as Tesla and Apple soared after their stock splits and a seemingly insatiable enthusiasm for stocks and options swept through the market, helping drive stocks to highs. The summer euphoria was followed by a 7.2% drop in the Nasdaq Composite in September.
JPMorgan Chase & Co. analysts said in a Jan. 8 note that call-option buying was prominent among individual investors, based on an analysis of trading activity made up of fewer than 10 options contracts. This call buying could lead to a rise in volatility, driven by options hedging, they said.
And at times, overwhelming momentum in individual stocks such as GameStop Corp. GME 51.08% has coincided with a surge in options activity. As the stock skyrocketed 51% on Friday, options activity tied to the company jumped to the highest level ever.
Options traders appear to be positioning for bigger gains for some of the sector’s star performers ahead of their earnings reports this week. An options measure called skew, which measures the cost of bullish options relative to bearish ones, is near the lowest levels of the past year on stocks such as Apple, Advanced Micro Devices and Facebook, Trade Alert data show.
“People are always looking in the rearview mirror,” said Joanne Hill, chief adviser for research at Cboe Vest, which oversees options-based strategies. “They’re looking at the returns that had been achieved if they bought a call option on a stock six months ago.
Italy’s Conte threatens to sue vaccine makers over delayed doses
Prime minister attacks AstraZeneca and BioNTech/Pfizer for lower than expected deliveries
Italy’s prime minister has accused AstraZeneca of a “serious contractual violation” for what he said was an unexpected reduction in the number of doses of the company’s Covid-19 vaccine that will be delivered to European Union countries.
Giuseppe Conte said that he would consider “all legal steps” after senior AstraZeneca executives confirmed to Rome on Saturday that Italy would be given 3.4m doses in the first quarter instead of 8m.
Mr Conte’s anger at AstraZeneca adds to mounting tensions between EU governments and Covid-19 vaccine manufacturers over delays to expected deliveries that have already prompted Italy to threaten legal action against BioNTech/Pfizer.
“These delays in deliveries are serious contractual violations, which cause enormous damage to Italy and other European countries with direct effects on the lives and health of citizens, and on our economic and social fabric already severely tested by a year of pandemic,” Mr Conte said in a Facebook post on Saturday.
European Union countries were expecting 100m doses of the AstraZeneca vaccine to be delivered in the first quarter of 2020. But the company has said that its deliveries will be lower as a result of complications at a European manufacturing site.
Earlier this week AstraZeneca warned EU countries in private that they should expect significant reductions from the deliveries of the vaccine they had been expecting. On Friday the company said that there was no “scheduled delay” but that initial shipments would be lower than previously planned.
“We will be supplying tens of millions of doses in February and March to the EU, as we continue to ramp up production volumes,” the company said.
Mr Conte said that his health minister and the special commissioner in charge of Italy’s pandemic response had spoken with senior AstraZeneca executives in Italy on Saturday who confirmed the reduction in deliveries in the first quarter.
“All this is unacceptable,” he said. “Our vaccine plan, approved by the Italian Parliament . . . was developed on the basis of contractual commitments freely agreed and signed by pharmaceutical companies with the European Commission”.
Earlier this week Domenico Arcuri, Italy’s Covid commissioner, said Italy was expecting a 29 per cent drop in the number of BioNTech/Pfizer vaccine beyond this week.
“The vaccination campaign cannot be slowed down, especially when it comes to the administration of second doses to Italians who have already received the first one,” Mr Arcuri said.
Italy has so far vaccinated 1.3m of its population as of Friday, more than Spain which has administered 1.2m doses but significantly behind the UK, which has vaccinated 5.8m people so far.
In terms of vaccines administered per 100 residents Italy is ahead of Germany, Switzerland and Portugal but behind Denmark, Spain and Ireland.
China gives coastguards power to fire on foreign ships in disputed waters
- Force now authorised to use ‘any means necessary’ in all areas where China claims jurisdiction
- Move risks raising tensions in parts of the East and South China where country’s neighbours have a series of overlapping claims
China has risked stoking tensions with its neighbours after it passed a law that for the first time explicitly allows its coastguards to fire on foreign vessels and demolish structures built in disputed waters.
The coastguard law, passed on Friday by China’s top legislative body, the National People’s Congress Standing Committee, came two years after China’s military assumed control of the previously civilian maritime body in 2018.
The law empowers the coastguard to use “all necessary means” to deter threats posed by foreign vessels in waters “under China’s jurisdiction”. It will also allow the coastguards to launch pre-emptive strikes without prior warning if commanders deem it necessary.
It is unclear whether the law will be applied to all waters claimed by Beijing, which has a number of competing claims with its neighbours in the East and South China Seas.
Under the new bill, coastguard personnel can demolish structures built or installed by other countries in Chinese-claimed waters and board and inspect foreign ships in the area.
The passing of the law is likely to heighten concern among China’s neighbours about the prospect of more aggressive operations.
Chinese coastguard ships have played a leading role in asserting China’s maritime claims, including in fishing disputes off Indonesia’s Natuna Islands and the stand-off with Vietnam over Vanguard Bank.
In a document published last month, the US said it would integrate its coastguard into the naval forces countering China’s growing presence in the South China Sea.
Other claimants in the South China Sea are racing to empower their coastguard fleets. For example, Vietnam passed a law permitting its coastguard fleet to operate outside the country’s territorial waters.
Japanese diplomats have previously lodged a protest against the growing presence of Chinese coastguard vessels near the Diaoyu, or Senkaku, Islands in the East China Sea.
Foreign ministry spokeswoman Hua Chunying said on Friday that the new law would clarify the functions and authority of the coastguard forces and that it was in line with international practice. Hua added that China will continue to manage its differences with Japan through dialogue.
Collin Koh, a research fellow at the S Rajaratnam School of International Studies at Singapore’s Nanyang Technological University, said the ambiguous language in the law could heighten the risk of miscalculation in the disputed waters.
“[Though] promulgating a coastguard law (CGL) is a general practice that other countries have been doing (such as Vietnam back in late 2018), China’s CGL contains ambiguous language that begs proper definition, for instance ‘waters under national jurisdiction’,” said Koh.
“This also means the law bestows … the authority to use force to assert those rights against other foreign parties even when operating in the latter’s legitimate [exclusive economic zone],” he said
“Generally it means heightening the risk of miscalculation and could possibly even create a deterrent effect on others’ law enforcement actions against Chinese fishermen.”
With front-line personnel granted the authority to judge whether they should open fire, Koh said the open nature of the provisions “may be prone to abuse” and could escalate the situation.
Stimulus Checks Emerge as Tool to Fill Gaps in Targeted Aid Programs
As Congress weighs another round of direct payments to households, advocates see a continuing role for periodic cash from Washington
WASHINGTON—Lawmakers approved stimulus checks last March as an intentionally scattershot move to flood households with cash when the course of the pandemic and economy were uncertain. Now, as Congress and President Biden pursue a third round of payments, the economic case for them is shifting.
A policy once viewed partly as a bridge until relief could be more carefully targeted became a recurring backstop to other programs during a bumpy recovery. Despite concerns from some Republicans and a few Democrats about giving money to people who don’t need it, many members of Congress now view the checks as an essential element of future relief legislation.
The checks’ broad appeal stems from their near-universality, simplicity and speed, and they may become a more routine government response to future recessions.
Though many payments would go to employed workers likely to save the money until after the pandemic, lawmakers defend that feature as necessary to fill gaps in social spending programs. Unemployment insurance doesn’t cover everyone who lost a job or suffered an income decline, and some households faced long delays as states processed claims.
“The people that we want to help, some of them, many of them, millions of them, are not getting help,” said Claudia Sahm, a former Federal Reserve economist who has studied stimulus payments and their impact.
President Biden included $1,400 per-person payments in his $1.9 trillion economic-relief plan, adding to the $600 approved by Congress in December. He would also expand the child tax credit, unemployment insurance, food stamps and rental assistance.
The exact legislative path and timing remain murky as Republicans object to Mr. Biden’s full proposal. Democrats, who control the House, Senate and White House, have the procedural power to move ahead on their own, making a new round of checks likely in coming months.
Congress, mimicking a 2008 program, approved the first payments in March, and the IRS easily beat its past pace in getting money into bank accounts. Checks of $1,200 per adult and $500 per child began phasing out for individuals with incomes above $75,000 and married couples with incomes above $150,000.
Democrats, then-President Donald Trump and 44 House Republicans embraced the idea of $2,000 checks in December. Under that plan, many households making over $200,000 would have gotten some money.
That bill got blocked in the Senate, but Democrats promised to follow through if they won control of the chamber, which they did this month. They may adjust the income levels and phaseouts.
In 2008 the payments were seen as a way to stimulate demand. Today, the Biden administration sees them more as a way to protect households from sudden income drops that are a hallmark of the current downturn, an administration official said. They also provide the biggest boost to families at the bottom of the income scale, the official said.
“So many people are suffering right now in my district, in my state, throughout the country,” Rep. Brendan Boyle (D., Pa.) said in an interview. “This is probably the most tenuous situation the economy has faced since I would say about early April.”
But now that the unemployment rate has declined and the economic pain is more concentrated in a few industries, some lawmakers and policy experts question the wisdom of such broad assistance.
Checks made sense in March when there wasn’t time for more targeted policies, said Kyle Pomerleau, resident fellow at the conservative American Enterprise Institute in Washington.
“Is it necessary to have a round of checks that go to households earning up to $200,000 a year?” he said. “Maybe not if you’re worried about limited resources.”
Several Republican senators, including Bill Cassidy of Louisiana and Pat Toomey of Pennsylvania, pressed Treasury Secretary nominee Janet Yellen on untargeted assistance during her confirmation hearing this past week. And some Republicans, who backed tax cuts, spending increases and emergency relief, say they are starting to worry about federal debt and don’t see a need for a plan nearly as large as Mr. Biden’s.
Ms. Yellen said the checks would help many families facing financial burdens who don’t receive jobless benefits, including people who left the labor force to care for children.
“Some families presumably don’t greatly need the money, but there are many families who are under stress,” she said.
One-third of families who lost employment income since March haven’t received jobless benefits, according to Ms. Sahm’s analysis of the Census Bureau’s December Household Pulse Survey. The gap is larger for low- and moderate-income families, she found.
Several studies of the first stimulus payments found households spent a sizable chunk immediately, especially those with lower incomes, greater income drops and less savings.
University of Chicago researchers found that recipients spent between 25 and 40 cents of every stimulus dollar during the first weeks after receiving payments, while the rest went to savings and debt. Federal Reserve Bank of Chicago economists found that spending was as high as 62 cents on the dollar in the first two weeks by recipients who live paycheck-to-paycheck.
The median consumer checking-account balance increased 65% after stimulus checks arrived in April and has fallen continuously since May, according to the JPMorgan Chase Institute.
“The trajectory of these balances suggests that in a couple of months…low-income families in particular may have worn down this initial cash buffer,” said Fiona Greig, the institute’s director of consumer research.
Rep. Judy Chu (D., Calif.) said she’s heard from constituents dealing with past-due rent and income gaps from lapses in unemployment insurance.
“I would call them survival checks,” she said.
Rep. Tom Suozzi (D., N.Y.) said he’s more focused on aid for state and local governments.
“The idea of giving everyone a check for $2,000 is not the greatest policy decision there is,” he said. “It’s not my priority, but I’ll support it to get a deal done.”
Politicians can explain checks in a sentence, and that is a crucial part of their appeal, Mr. Boyle said.
“As we come up with policy proposals and they get refined and they become more complex, frankly, they just become harder to sell to the American people,” he said. “The more our side can deliver immediate help to people, the better off we will be politically.”
United Wholesale Mortgage Goes Public in Biggest SPAC Deal Ever
Merger with blank-check company takes mortgage lender public at valuation of $16 billion
United Wholesale Mortgage made its public trading debut Friday, the largest-ever listing through a special-purpose-acquisition company.
Gores Holdings IV Inc. UWMC -1.65% shareholders this week approved a merger with the company, now called UWM Holdings Corp. , in a deal to take it public at a valuation close to $16 billion. It marks a record for SPAC deals, which have become all the rage on Wall Street, according to data provider SPACInsider.
The Michigan-based mortgage company, trading on the New York Stock Exchange under the symbol UWMC, closed at $11.35 on Friday, slightly below Gores Holdings’ closing price of $11.54 on Thursday.
SPACs, also known as blank-check companies, put a reverse spin on the conventional model for public offerings because they raise money before developing a business. They use the funds to make an acquisition that turns the target into a public company. Once the blank-check company merges with a target company, as Gores Holdings and UWM did Thursday, that company gets the SPAC’s spot on a stock exchange, enabling it to sell shares to the public.
UWM works with independent brokers around the country to underwrite and service mortgages. It is one of a number of nonbank mortgage companies embracing the public markets at a booming time for the U.S. housing market. Low interest rates helped push mortgage originations to record levels in 2020. UWM was the third-largest mortgage lender in the U.S. in the first three quarters of 2020, according to industry research group Inside Mortgage Finance.
The company expects to exceed its initial projection of $210 billion worth of mortgage originations this year, Chief Executive Officer Mat Ishbia said in an interview, thanks in part to signaling from the Federal Reserve that short-term interest rates would likely remain low for several years.
“The mortgage market is going to be a little bigger this year than a lot of people thought,” Mr. Ishbia said. “Our expectation is that we have a lot of upside in our projection numbers from what we had originally disclosed.”