Små trader indikerar hög risk

The net difference between calls and puts bought to open is even more extreme.

Just as troubling, this activity has become more and more of a factor. If we adjust the options volume to account for an equivalent number of shares, then we can get a rough comparison to overall market volume.

And for the first time, the activity of these small traders was the equivalent of more than 9% of NYSE volume, exceeding even what we saw at the end of August.

Last week, the smallest of options traders bought to open 22.1 million equity and ETF call option contracts, a record amount dating back more than 20 years.

They spent $11.3 billion on those speculative upside bets, just under the record from the end of August - beginning of September.

The most remarkable feature today is how few people recognize it as being both phenomenally extreme and completely unsustainable. All similar bubbles in past centuries have ended with nearly identical collapses, and this is not going to be the first-ever exception to that rule.

The most important similarity between 2005-2006 and 2020-2021 is that the ratio of U.S. housing prices to average household income in both cases surpassed twice their long-term level in many neighborhoods.

Much of this data including the detailed Herengracht study which began in 1628 and Case-Shiller backdating to 1890 spans centuries (and even millennia, since real estate prices have been recorded throughout written history).

No asset which is more than double its fair value can sustain such a high price regardless of whether it's real estate, stocks, commodities, or anything else.

An infamous survey in February 2000 registering the average investors' expectations of 30% annualized gains in the stock market for the following decade.

Recently, similar absurd extrapolations have become commonplace.

The biggest percentage losses have always occurred whenever there was the highest level of overconfidence in future gains while the most dramatic percentage gains have happened in an atmosphere of maximum pessimism.

Usually bear markets have their second largest percentage losses near the beginning and their largest percentage declines near the end with lots of bounces and other unknowable fluctuations in between.

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