How Meme Stocks Impact Options Trading

December 16, 2021

Equities trading activity among retail investors has increased significantly in the past two years, primarily due to the introduction of zero commission trading and the debut of innovative new retail trading platforms. Cboe’s Equities Execution Consulting team examined this trend, along with the retail meme stock trading phenomenon, with a series of analyses including, A Deep Dive into US Equities Trading VenuesThe Lasting Results of an Unprecedented Market Environment and Interlisted Trading Trends and Opportunities. These analyses showed how the influx of retail participant order flow and meme stock trading impacted the U.S. and Canadian equities markets but left us wondering about the impact on options markets. To find out, we examined meme stock retail trading activity on the U.S. equities and options markets in our latest analysis.

We have been compiling the top 15 stocks mentioned each day on the Reddit r/wallstreetbets forum since 2019. Our latest analysis examines those stocks along with unique data sets from Cboe Data Shop, a source of innovative and expansive trading data across numerous asset classes, to examine the initial and overall impact on the most popular stocks discussed on the forum.

The Impact on Overall Market Volume

The charts below show the daily percentage of total volume for the top 15 meme stocks in U.S. equities and options. In 2020, the meme stocks accounted for 4.2% of total equity volume, while in 2021, the meme stocks accounted for 5.0% of total equity volume. Outside of the stocks that are well-known for being popular with retail clients, such as GameStop (GME), AMC Theaters (AMC) and Tilray (TLRY), the list of top 15 stocks has recently included Sundial (SNDL), Naked Juice (NAKD), Roblox (RBLX), SmileDirect Club (SDC) and Skillz, Inc. (SKLZ). With the exclusion of index options, meme stocks accounted for 21.4% of total options volume in 2020 and declined to 10.1% in 2021. Overall options volume in meme stocks declined from 2020 to 2021, but there are still a number of days where these stocks make up more than 25% of total options volume.

Data Source: OCC, Cboe, Reddit.

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