Susquehanna's Chris Murphy on Meme Stock Frenzy: Short-Term Trades Dominate Amid Volatility Shifts

Susquehanna's Chris Murphy on trading meme stocks: Remain very short term to avoid volatility (YouTube link)

On May 14, 2024, CNBC's The Exchange featured Chris Murphy from Susquehanna International Group, who discussed the "meme stock" spike and other stocks experiencing increased volatility at the time.

Here is a summary of the interview with Chris Murphy, Co-Head of Derivative Strategy at Susquehanna.

Key Points Include:

• Options Trading Activity:
• There’s significant buying of call options on certain stocks, with trade sizes indicating a mix of retail and institutional (hedge fund) participation. Small trades (1-5 options) suggest retail, while large blocks (2,500-5,000) point to institutional involvement.
• Comparison to Past Episodes:
• Unlike the 2021 meme stock frenzy, current activity is less intense. Short sellers are more cautious, having learned from 2021, and are not as aggressively short, reducing the likelihood of a massive short squeeze.
• Short Squeeze vs. Fundamentals:
• The trading is primarily driven by short-term momentum and short squeezes, not long-term fundamentals. Stocks like GME (24% short interest) and AMC (21%) are targeted due to high short interest, with traders chasing the next heavily shorted name. While strong fundamentals can support trades, the focus is on intraday momentum, not long-term investments.
• Identifying Next Candidates:
• Potential targets for this momentum-driven trading include stocks with spikes in call option volume and volatility, such as SPCE and ROKU (noted for decent short interest). Declining volatility in current names signals the momentum trade moving to new stocks.
• Broader Market Outlook:
• The market is at all-time highs, with investors awaiting CPI data to confirm if recent inflation upticks are temporary. S&P 500 options are currently inexpensive, suggesting a low-volatility environment. Murphy is cautiously optimistic, predicting the market may rise over the next six months, with options offering a way to gain exposure while hedging against downside risks.

Key Takeaway: 

The options trading surge is a mix of retail and institutional activity, driven by short-term momentum and short squeezes rather than fundamentals. Traders are targeting high short-interest stocks, with potential next candidates like SPCE and ROKU. In the broader market, low-cost S&P 500 options provide opportunities for bullish bets with downside protection, pending CPI clarity.

See Also:

1. Understanding Options Contracts