ANALYSIS-Financial literacy or luck? The year small-time traders made a big impact


By Tommy Wilkes, Saqib Iqbal Ahmed and Elizabeth Howcroft

LONDONNEW YORK, Dec 29 (Reuters) – In May, San Diego-based Emily was feeling flush from a year of double-digit gains earned from trading stocks. Equity options, which some fellow stay-at-home investors were dabbling in, would juice up her returns, she decided.

Emily was among the army of small-time investors who shook up stock markets in 2021. Some earned fortunes by squeezing out hedge funds from short positions on so-called “meme” stocks such as retailer GameStop and cinema group AMC Entertainment.

But AMC proved to be Emily’s downfall. As its shares hovered around (dollar)15, she began selling “naked call options” that allowed holders to buy underlying stock from her at pre-agreed price. Instead of falling as expected, however, AMC stock rocketed.

Naked options meant Emily did not actually own the shares. When AMC shares hit (dollar)72.62 on June 2, margin calls kicked in – essentially a demand for cash to top up her brokerage account.

“I was on the phone with (brokerage) TD Ameritrade’s margin team, telling them to give me more time … but it was either I sell it or they sell it,” she said. Eventually, she said she liquidated her portfolio, losing (dollar)670,000.

Emily is not the trader’s real name but she provided documents confirming her identity. Reuters could not independently verify the size of her losses but reviewed brokerage statements showing she sold sizeable call options on AMC and other stocks in May.

“It was very devastating. I couldn’t sleep,” Emily said. Having quit her human resources job at the end of 2019 to trade full time, she now works as a delivery driver.

Her account is a cautionary tale of what can happen when booming markets tempt inexperienced investors to risk it all.

But for every Emily, there is a small-time trader who surfed this year’s stock market boom, energised by economic recovery, central bank money-printing and government cash handouts.

TD Ameritrade, the broker Emily used, says along with broker Schwab, it added six million new accounts this year.

Conditions were ripe for retail trading even pre-pandemic, as new mobile platforms enabled individuals to buy stocks, or fractions of stocks, at tiny or even non-existent commissions.

“Everyone can get their bit of the pie,” said Ben Phillips, a 30-year old London-based pilot who started trading in 2019. He calls himself a long-term investor, but also day trades “as a bit of fun, a bit of gambling”.

The retail wave was the “main reason” global equity demand reached… Nokia News – Short Summary.


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