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The flood of new retail investors in the market have been spoiled by the epic rebound and the investing pubic is getting too greedy, according to BTIG.
The Wall Street firm said zero-commission trading and fractional share ownership is driving record bidding into areas of the market that warrant a higher degree of caution, including coronavirus-impacted sectors or bankrupt stocks.
BTIG said there has been a record number of "odd lot" trades, which signals retail investors are involved, due to the irregular number of shares being bought, compared to institutions which consistently purchase large sums of stock shares in round increments.
"Everyone wants a 'slice' – underemployed sports bettors, doctors, Millennials and Gen Z first-time market participants in a Work From Home, socially distanced, Bull market summer," BTIG analyst Julian Emanuel said in a note to clients. "Investors and traders all, riding the wave of Fed liquidity, even as the Virus first wave has not yet subsided and unemployment remains historically high."
BTIG noted that the options market is pricing in greed as well. A handful of stocks have expensive upside calls, compared to downside puts. These skews are largely concentrated in the largest cyclical winners off the March lows and the "retail favorites" whose outperformance accelerated in mid-May, said Emanuel.
Options strategies can be complicated and not for everyone but BTIG recommends taking advantage of this greed that has gone too far.
The firm said individuals should sell a call option —also known as overwriting — to a greedy investor that expects that stocks will keep going higher through August. The seller collects the premium and then, if the stock doesn't keep rising, the call option will expire worthless for the buyer.
"To Sell Greed – taking advantage of high volatility and historically flat skew while the broad market range trades – we recommend overwriting (selling near-term out-of-the-money calls against shareholdings) selected liquid option names from the larger list," said Emanuel.
Here's a list of stocks that BTIG expects won't rise to hit the strike price for these August option contracts.