Retail radar in 2022 via Goldman Sachs

Goldman Sachs believe it is critical to monitor options volumes to understand retail investor risk appetite through time. Over the past two years, options volumes have grown significantly. The daily notional volume in the single stock options market has often exceeded the daily volume in the single stock shares market. Goldman Sachs analysis of Payment for Order flow filings shows that retail options trades account for 50-60％of all single stock options trades (by contract volume) and have been a stable proportion of options volume over the past several years.

Goldman Sachs monitor 10-day option volume as a proxy for current holdings as 70%+ of single stock options traded have an expiration of less than 2-weeks. Goldman Sachs focus on call volumes as those are most frequently bought to express a positive view on stocks. While put selling is also a common strategy, the volumes are more systematic and consistent through time.

Goldman Sachs estimate that over the past 7 months, single stock call option volumes have reversed 70% of their increase from Jan-2019 to their peak in Nov-2021. This reduction in activity suggests a significant move towards pre-pandemic levels of risk-taking by retail traders in the options market. The recent decline is likely sufficient to conclude that risk taking by retail in the options market has normalized.

Individual investors have continued to buy ETFs in 2022, although the pace has slowed in recent weeks. Goldman Sachs believe this demonstrates a moderation in bullish sentiment among long-term minded buy-and-hold individual investors, but not the same level of fear as among retail traders of single stocks.

Goldman Sachs estimate that individual investors bought $20b in January, $40b in February, $50b in March, sold $20b in April and have bought $6b in May. As the chart below shows, it is difficult to conclude that the long-term trend of ETF buying has changed significantly. Goldman Sachs believe these flows are most important for large-cap S&P 500 stocks as the overwhelming majority of these flows have gone to S&P 500 related ETFs.

Dividend ETF flows show signs of acceleration. YTD, Goldman Sachs estimate that dividend ETFs have seen $30b of inflows representing an acceleration from 2020 and 2021.