Unfazed by high interest rates, US retail investors once again ignite a meme stock frenzy

According to the Wisdom Financial APP, with the encouraging signal from the Federal Reserve and the potential profitability of GameStop (GME.US) along with its high stock price, individual retail investors in the United States have once again been caught up in the meme stock frenzy.

The volume of options trading by individual investors has slightly increased as traders buy call options to hedge against the continuous rise of stock indices that are already in a bubble. They are rushing to buy newly listed Reddit (RDDT.US) stocks, as well as classic meme stocks like GameStop, causing GameStop's stock price to surge by 15% on Monday and pushing Bitcoin to new highs.

Vincent Deluard, Global Macro Strategist at StoneX, stated: "A proper comparison time is the summer of 2021." "At last week's extremely dovish Federal Reserve meeting, we received a signal to lift the alarm, which is icing on the cake."

Despite the S&P 500 index hitting 20 new highs in less than three months this year, institutional traders have not completely stopped trading. However, there has been a slight increase in demand for put options compared to a month ago, as technical strategists are becoming increasingly skeptical about further stock market gains. For many Wall Street forecasters, such high valuations signal an imminent pullback. But for many retail traders, it means it's time to go all in.

On Monday, with GameStop's rebound, the stock prices of the social media platforms Reddit and Trump Media & Technology (DJT.US) also rose by about 30%. The options activity for these three stocks is mainly dominated by small trades, indicating individual investors' participation.

On Tuesday, GameStop's options contract trading volume hit the highest level since the beginning of the year, as investors prepared to wait for the company's earnings in the US stock market after hours. However, the company's stock price plummeted by about 18% in after-hours trading as the earnings report showed that GameStop's revenue and adjusted earnings per share were lower than expected.

Also on Monday, the options trading volume for Trump Media (then named after the blank check company Digital World Acquisition Corp) reached the second-highest level of the year, second only to the volume on the previous Friday. The Reddit options launched on Monday attracted about 90,000 contracts, with more call contracts than put contracts. Just three hours after the opening on Tuesday, the total trading volume surpassed this level.

"Options are a simple speculative way for them," said Bret Kenwell, US Options Investment Analyst at eToro, noting the recent retail trading activity over the past few trading days. "The worst-case scenario is they lose the option premium. The best-case scenario is they can bring multiple returns."

The trend at the beginning of this week aligns with the trend for the whole year, which is a warning to Federal Reserve Chairman Powell that maintaining high interest rates for a longer period has not suppressed speculative buying. According to JPMorgan's data, retail investors' share in the total options trading volume reached a historical high earlier this year, with a slight decrease in recent weeks. Data from the Options Clearing Corporation shows that investors' excitement has driven February's intraday options trading volume to record highs Options trading volume hits a high in February

Similar situations are also seen in the digital asset field, with Bitcoin rising by about 65% since the beginning of this year. Cryptocurrency-related stocks, including Robinhood (HOOD.US) and Coinbase (COIN.US), have also experienced an increase.

At the same time, institutional traders are showing slight signs of caution. Despite a decrease in demand for downside hedging this week, the price of put options saw a slight increase in early March as the Chicago Board Options Exchange Volatility Index (VIX) rebounded from its low point at the end of last year. However, overall, market sentiment remains very optimistic.

Even in the current generally optimistic market environment, the speculation by U.S. retail investors is still noteworthy. Brent Kochuba, the founder of the options platform SpotGamma, stated that retail traders seem to be satisfied with the "party atmosphere".

"It's like a game of musical chairs," he said. "It will continue as long as the music doesn't stop."