By the Numbers: Millennials, Meme Stocks, and Stimulus 3.0

Stimmy Stats

Most Americans received their CARES Act stimulus check in April 2020, about a month into the global pandemic/homeschool hell.


After subsequent months of partisan politics and a stalemate in Washington, D.C., the second round of stimulus (albeit smaller) went out in early January 2021.


You can see the correlating spikes in disposable personal income for Americans in those months, per data from BEA.gov:


Monthly % change in disposable personal income in the U.S., per BEA.gov


Following the first stimulus package, the S&P 500 came off its March 2020 lows, pivoting into a months-long rally with help from a surge in new, bored, quarantined day traders like Dave Portnoy.


So against this backdrop, it’s no surprise that in December 2020, a healthy chunk of Americans had bonafide FOMO (Fear of Missing Out), with 2% of adults planning to invest their Stimulus 2.0 money into red-hot stocks, per a YouGov.com poll.


Planned uses for December 2020 stimulus among U.S. adults, per YouGov.com


While that may not seem like a lot, if that data is a microcosm of the U.S. adult population — which stands at roughly 255 million people — 2% equates to more than 5 million Americans.


That’s a decent chunk of change.


The gamble likely paid off for those who played their cards right, as the SPX took out the 3,900 level not long after the last round of stimulus …


S&P 500 since January 2020 with stimulus checks (arrows)


And much of the 2021 momentum has come courtesy of those meme stocks — christened that because Reddit users like to make memes about the stocks they trade.


Reddit, Set, Go!


Of course, meme-making is a characteristically millennial thing to do, so it’s no surprise that this generation has the highest opinion of the social media platform (55% positive), compared to Gen Xers (43%) and baby boomers (24%). 


55% of millennials have a positive opinion of Reddit, per YouGov.com


But aside from LinkedIn, Reddit is the social platform boasting the most number of users actively trading stocks, at 52% (as of January). That’s higher than the 39% of the overall U.S. adult population that cops to stock ownership or mutual fund participation.


With that in mind, we can safely assume that there was plenty of millennial money behind the surge in Redditors’ stock interest of late. 


In fact, in January alone, the term “stock” was mentioned on Reddit a record-breaking 635,000 times, according to ListenFirst Media, with a steep spike in the final week of the month, amid the now infamous Gamestop (GME) saga.


“Stock” mentions on Reddit in January, per ListenFirst Media


However, many of the retail traders who rode GME to epic heights wound up bitter, depressed, and possibly showering in the fetal position, as trading platforms like Robinhood seemingly caved to Fat Cat pressure from shorts taking it on the chin, temporarily restricting buying of the shares.


Robinhood said in a statement:


We did this because the required amount we had to deposit with the clearinghouse was so large — with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements — that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements.


But did the Redditors believe it?


Well, according to a recent poll from Investopedia, probably not. A whopping 42% said they now have LESS trust in the stock market compared to six months ago. Oof.


U.S. investors who have more/less trust in the stock market, per Investopedia


While we can’t say whether or not that millennial mistrust will translate into fewer rookies coming to the table with Stimulus 3.0 money …


We can say that the options crowd, at least, remains bullishly biased toward several meme stocks, including GME.


Uncle Mark’s Manic Meme Stock Rundown

GME topped out at $347.51 on Jan. 27, but Gamestop call open interest didn’t top out until Feb. 26, peaking at more than half a million contracts.


Even though the shares ultimately retraced a good portion of their Reddit rally, GME call open interest still sits in the 99th percentile of its annual range. 


On the surface, that suggests many traders think the GME rally isn’t over, and that theory is supported when I see crazy-high call open interest at the deep out-of-the-money (OTM) 800-strike call among options expiring this Friday, March 19, and next Friday, March 26.


Data courtesy of Trade-Alert


BlackBerry (BB) was another red-hot Reddit stock this year.


In fact, you can see the correlation between “Blackberry (BB)” Reddit mentions and the stock price in the latter half of January.


 

Blackberry Reddit mentions and BB stock price, per ListenFirst Media


All the noise — and the stock’s new high above $25 on Jan. 27 — certainly drew some unusual BB option activity, and call and put open interest peaked on Jan. 28 and 29, respectively.


Total open interest is still much higher than usual, above 89% of all other readings from the past year, though calls are the options of choice, with about 691,000 open, vs. about 253,000 puts.


Among BB options expiring on Friday, the deep OTM 15- and 20-strike calls carry significant weight. “Vanilla” buyers of these calls may be holding out hope for another short-term rocket higher for the shares.


Data courtesy of Trade-Alert


And that brings me Tesla (TSLA).


TSLA is what’s known as a “cult stock,” and not just because Elon Musk sometimes gives off Tom Cruise-on-mescaline vibes.


Because of that, I wouldn’t be surprised if Stimulus 3.0 brings out some of the TSLA crazies, and we see deep OTM call volume spike soon…


Already, in fact, a heavily populated TSLA call strike is the deep OTM April 16 850-strike call. The 800-strike call is also popular among near-term traders.


This could suggest some option traders are holding out hope for another run toward January’s highs deep in the $800s — and soon.


Data courtesy of Trade-Alert

What’s Next?

No one has a crystal ball, but if I had to guess…


I’d say that despite recent mistrust in stock markets among retail traders, Stimulus 3.0 checks will once again lure fresh millennial blood to Wall Street.


Though this round has a lower income ceiling than previous stimulus relief, which could limit the anticipated impact of discretionary spending the market has been pricing in, the recent run on meme stocks likely has more than a few would-be traders in serious FOMO mode.


They’re looking to get in on the Robinhood craze they’ve been watching from the sidelines, and they’re about to have some cash to burn, baby.


If retail interest aligns with that IMPACT MONEY, it could be a lethally bullish combination for some stocks.


I have a feeling we’ll see the SPX above 4,000 VERY soon, and maybe even a sub-20 VIX.


Your Only Option,

Mark Sebastian


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