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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


The Momentum Reversal: A Cautionary Tale

Historically, High momentum stocks have done quite well, with the top quintile outperforming the bottom in many years. In 2020, the High momentum group did significantly well in the early part of the year, while that trend reversed in the second half and into 2021. YTD, we’ve seen the largest reversal in the momentum factor since 2016, with High momentum companies underperforming Low firms by over 15%. […more]

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