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Understanding Recent Option Activity

Recent reports attribute the market’s recent melt-up to option buying activity from Japanese institutional giant SoftBank and unsophisticated American traders using the new commission free platform, Robinhood. Without divining on whether these explanations are clever, or not, we do note that the recent moves in the market appear to be part of the same trends began months ago. First, a look at the explosion in option activity.

A closer look shows much of this activity is from the same stock names driving the indices higher.

What we do know is there are plenty of stocks whose prices are unchanged or lower on the year, have business models that will survive these times of pandemic, and whose intelligent ownership does not require trying to understand 2nd, 3rd and 4th order effects relating to how options are priced and hedged. We suggest investors, as the impending start of football reminds us, focus on blocking and tackling, the building blocks for success.


  • Applied Finance, a thought leader in valuation and portfolio construction, is a true “value” investment management company.  Unlike the majority of firms today that focus on low multiples to define “value”, we define value as identifying companies trading below their intrinsic value.  Our Valuation Driven™ approach forms the foundation of our investment decisions...more


Valuations in the Energy & Utility Sectors

Looking at the most recent aggregate Valuation data, both the Russell 1000 and Russell 2000 look expensive relative to their long-term levels. On a sector basis, large and small cap Energy stocks, and large cap Utility stocks all seem attractive, while small cap Utilities appear expensive. […more]