Free Online Trading Lessons Archives

Buying call options might be the next pain trade


Will call option buying soon be the new pain trade? If so, how can we prepare ourselves for the implications?

I’ve been doing this long enough to know trading is not a walk in the park, at least not trading profitably. In recent months, buying overpriced call options in the S&P has felt, to some, like a risk-free proposition. Stocks only go up, right? The absurdity of the call option buying froth is best portrayed in the now infamous TikTok video in which two young investors encouraged followers to quit their jobs and trade stock options instead. The strategy is simple, buy calls when a stock is moving higher and then sell at the first sign of the stock going down. What could go wrong? Join us to discuss specific commodity and stock index futures options markets to discuss overheating and overzealous speculation.

• Aggressive call option buyers aren’t just participating in GameStop and other meme stocks, E-mini S&P 500 futures are seeing unprecedented call buying.
• The call option buying acts as a vacuum to higher prices because market makers and short call sellers must buy futures to hedge risk.
• We are seeing double the call option volume as puts in popular strikes.
• Option trading volume has been concentrated in short-term expirations.
• What does all of this mean and how to prepare for the possible implications?



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