Benn Eifert Explains How Retail Trading Is Rocking Markets like Never Before

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:17)

Joe, remember when you said GameStop was a value investment?

Joe Weisenthal (0:21)

Tracy, you're skewing my words.

Tracy Alloway (0:25)

Eh, not really.

Joe Weisenthal (0:26)

I said, and this was in the wake of our recent interview with Rod, it started off as a value investment, which is true.

I would not in any sense characterize the recent trading from probably like 15 to 480 and now back to 177 after hours last time I checked as a value investing. I will admit that's not value investing.

Tracy Alloway (0:53)

I think we're both agreed on that point. But you mentioned the episode we did with Rod.

We talked a lot about the business case for GameStop. He was looking at a lot of fundamentals in the business that made him bullish on it as a company. That was one part of the whole GameStop saga. The other, of course, was what was going on in technicals with both the short squeeze and the gamma squeeze. I think we need to devote an entire episode to just talking about those.

Joe Weisenthal (1:24)

Yes, exactly. Because the story really has, I've been thinking of it as it has three parts. The first part is guys like Rod and the roaring kitty and some of these others, Michael Burry, like make the value case.

Then it gets into this short squeeze Reddit frenzy, gamma squeeze, call buying and everything with that. I think that's what we're going to talk about today, I know it is. Then there is the third part, which is everything that this taught us about market structure and Robinhood and stuff like that. Maybe we'll get into a little bit of that today because I think our guest knows that stuff well, but what we're going to do today is go from part one to part two, which is like when it entered the Reddit retail flywheel, what the hell happened? What does that say about the market overall?

Tracy Alloway (2:13)

Right. The squeezes are how we got to an increase of 2,000% in the space of less than, I think it was less than two weeks, something crazy like that.

Benn Eifert (2:21)

All right.

Tracy Alloway (2:22)

So I'm really happy to say that we have the perfect person to talk about this. He's a four time AllBots guest, which might be a record or might match another record.

It's Benn Eifert from QVR Advisors and he is all about options and the big gamma squeeze. So, Benn, welcome on again.

Benn Eifert (2:43)

I'm so happy to be back. It's always a lot of fun.

Tracy Alloway (2:46)

I'm trying to think where to start, but maybe just to begin, you know, in options land, how crazy has the past week been for you?

Benn Eifert (2:58)

It's certainly been wild. I mean, as you guys no doubt have seen, there's been enormous amounts of option volume going through in some of these popular retail names, you know, GME being an obvious one, you know, on some days nearing the types of typical volumes you'd see like in S&P options or in Tesla options, which is pretty spectacular for a company that, I mean, what was the market cap of GME six months ago? You know, it's been quite wild. But I think this, again, this was particularly crazy weak. But I think as, you know, we've been emphasizing, this is really the culmination, you know, or the current state of a trend that's really been building for quite some time, right? Really start late, starting in late 2019 with surging volumes across a bunch of different brokerages platforms after the, you know, Robinhood initiated and a bunch of other brokers started matching, you know, zero commission options trade.

Joe Weisenthal (3:56)

So I remember, I think the last time we talked to you sometime late last summer, maybe it was like October or something like that. And it was kind of like taking stock of this sort of retail options booms. And there's a number of charts that you have showing the rise of one week call options and the rise of call options in general and the rise of small orders that indicate that so much of this option activity really is taking place at the retail level.

Just flash forward to today. How much crazier overall is the market? You know, we're recording this February 1st, February 1st versus, say, last September or October, whenever the last time we talked.

Benn Eifert (4:40)

Yeah, absolutely. So, you know, if you think of what those charts looked like of growth of option contract notional traded by small traders, growth of option premium traded, you know, they looked totally parabolic at the time. And now it's just like you zoom out, and that parabolas just kept going at the same kind of, you know, exponential growth rate. So it's been really impressive. I mean, I think there was lots of noise over the last few weeks.