No doubt you’ve noticed that hundreds and hundreds of companies reported their quarterly earnings this week, with hundreds more to come next week.
These announcements tend to put Wall Street in a rapid-fire mode that results in a “shoot first, ask questions later” scenario.
Of course, it’s only later that you can put all of the pieces together and reconcile them with your larger investing mosaic.
As you sit back and sift through the data, you’ll also notice that even though the stock market is setting new highs, the S&P 500 is up only 7.5% year to date. Even if the stock market replicated that return in the back half of 2014, it would mean a total return of 14-15%.
On the one hand, you would probably say, “I’d take that!”
But if we were to follow the money, and by that I mean the dollar amount that is being committed to equities, we’d find it has been falling. We have to look no further than the monthly trading data published by the NYSE Euronext (NYX) and the NASDAQ OMX Group (NDAQ) to confirm this; but it’s the drop in equity revenue that is really worth noting.
If we look at the large investment banks like Morgan Stanley (MS), Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC), each reported both sequential and year-over-year drops in equity trading volumes and related revenue during the June quarter.
So where is the money going?
Perhaps the better question to ask is this one — where should the money go to produce a big double-digit, if not triple-digit, percentage return?
The answer isoptions.
Data from the Options Clearing Corporation shows that since 1991, there have been only two years that did not see a year-over-year increase in equity option volume. If we annualize the volume of equity option trading through the first six months of 2014, we are tracking to see another year-over-year increase.
With the ability to book double-digit, or even triple-digit, percentage trades in a few weeks and, in some cases, just a few days, it’s no wonder that more individual investors are trading options.
Chris Versace is the editor of PowerTrend Brief — a FREE, weekly electronic newsletter. He also writes PowerTrend Profits, a paid monthly newsletter that helps individual investors profit through buying shares of companies poised to win big in the 8 PowerTrends, as well as writes the PowerTrader trading service that seeks to deliver short-term gains using stocks, ETFs and options. Chris has been ranked an All Star Analyst by Zacks Investment Research.