In the first week of September 2020, retail traders (trading less than 10 contracts) made $11.5 billions worth of trades in call contracts, 9 time the weekly average. In comparison, U.S. consumer spent $91 billions on lottery tickets in 2019. It seems like the free money analogy has finally come to fruition and many retail investors are using their stimulus check on options that are risky, but with high reward.
So why the comparison to the 08 credit crisis? Well in 2008, banks were extremely levered, 30 to 1 to be exact, and banks were making record profit thanks to their excess leverage, and as a result, the bankers were making more bonuses every year. We are now in the same situation, with interest rate near zero, constant QE by the fed, it seems like the internet expression of ” Stonks Only Go Up” is not too far from reality. Retail investors are loading up on YOLO (you only live once) call options and taking home hefty profits because we are now in the era of free money and unlimited QE.
As Steve Eisman, one of the few people who made profit during the 2008 market crash puts it, in the era of negative real interest rate and QE, people start taking “leverage for genius.”