And Just Like That, Everything's Fixed

There’s really nothing to add to today’s sentiment regarding everything “markets.” As of the opening bell on this Monday there’s only one thing to do for those with a gambler’s need – Buy, and buy everything because we’re “Back in the ~~saddle~~ channel again.”

Below is a snapshot at the opening bell of my current most watched chart. To wit:

I could go on to add – Margin Leverage (the most dangerous poison pill) is at all time record highs, Retail (aka as “The Gamblers”) is not just neck deep in it (e.g., leverage), but seriously way out into deep water. Or, that more than 60% of all options trading (aka known as where the degenerate gamblers play) is made up of ODTE (zero days till expiry) type. And, just one more for good measure, but is far from the last: (there’s just too many) to satisfy this same cohort because, there’s just not enough dangerous options to fill every demand for more – they’ve just created new ETFs that are to leverage 5X the underlying.

For those that really don’t get the implications of what all this means, think of it this way….

Simplistic example: For a stock to go up, someone has to buy it at a higher price. If it’s $100 stock, someone buys for $101. e.g., stock goes up. Enter what is now deemed “The Retail Army.” (think purveyors of WallStBets or Reddit etc.) 100 of these traders come in with $100 each. Do they buy 100 shares of our example? No, they can’t because it’s now $101. So what do they do? They buy a ODTE option for $100 that will expire at the end of day (aka becoming worthless) with the hopes the stock will move higher and pay them a reward. But here’s the part most don’t understand…

Does our 100 traders with $100 in hand move 100 shares? Hint: nope.

Because these are options, each contract purchased represents the price movement on 100 shares. So, what this means is that the Market Maker (the one that facilitates the transaction) has to now go into the market and purchase 100 shares as to cover the contract. Therefore…

100 gamblers with $100 each (cumulatively $10K) suddenly force the market to respond as if $1,000,000 worth of stock was purchased. e.g., 100 traders buy 100 options that control 100 shares each, and each share is $100. Add leverage like 2, 3, 5, 10X and more, you can see how the numbers and the buying for simple hedging goes through the roof. Now swap out 100 example with thousands, tens, hundreds of thousands – then millions.

Are you starting to see the picture here? But you’re told (or convinced) this is all nothing to worry about because – “The Fed’s Got You’re Back!” Well, that may be true, but the issue is the Fed has always overplayed their hand with confidence – till it fell apart.

We are at the extreme of all of that where we sit currently. But everyone’s still in Alfred E. Neuman mode…

As always, we shall see.

Note: This commentary is for education purposes only and is not to be construed as trading or investing advice of any sort. These commentaries/opinions are for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.