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Retail Traders Respond to Selloff By Buying Oil, Options and Meme Stocks

By Claire Ballentine

Market volatility is giving retail traders whiplash, and there’s little consensus among the meme-stock set on how to react.

After two years of stimulus-fueled gains, stocks are are getting hammered, with surging inflation, rising interesting rates and a tumultuous earnings season conspiring to keep markets weak.

Pedestrians pass in front of an AMC movie theater in the Times Square neighborhood of New York.

Both the S&P 500 and the Nasdaq 100 have fallen for four consecutive weeks, and the S&P’s 8.8% drop last month marked its worst April performance since 1970.  The tech-heavy Nasdaq slumped 13% for its worst month since the financial crisis in 2008. 

New investors, flush with cash and bored at home, piled into stocks during the pandemic. They’ve have faced tests before, such as the selloff earlier this year prompted by Russia’s invasion of Ukraine, but none of them have encountered this unique combination of 1980s-level inflation, rate hikes and a dismal outlook for risk assets. 

In fact, about 60% of respondents in a recent survey from Allianz Life are worried that a recession is around the corner, and 56% fear another big market crash.

Although some are fleeing stocks, with equity funds suffering their longest streak of withdrawals since August 2020, retail investors have yet to post a large-scale exodus. Instead, everyone is looking to different strategies to curtail the pain. 

Here are some of the ways they’re reacting:

Buying the Dip 

Mohammed Zaidan in New York City isn’t fazed by the latest tech rout. Instead, the 33-year-old who works in HR is doubling down by buying shares of the MicroSectors FANG+ Index 3x Leveraged ETN, or FNGU. That exchange-traded note tracks the NYSE FANG+ Index, which contains some of the largest tech stocks, and delivers three times the gains — or losses. 

“The market can’t stay down for forever,” he said. “It will go back up.”

Two weeks ago, he bought about $2,000 worth of FNGU, which now makes up about half of his total portfolio. 

Back in January, Zaidan felt less optimistic about the tech sector and bought MicroSectors FANG+ Index -3x Inverse Leveraged ETN, which delivers three times the inverse of the index. That holding would theoretically do well as tech names fall. But he sold after only three weeks because he believed the sector would rebound. 

“It’s better for me to buy on the red than to buy on the green,” he said. “In 2023, I think things will go back to normal.”

Oil’s Big Moment

Amazon.com Inc.’s 14% drop on Friday was bad news for Isaac Robert. The 29-year-old compliance and security consultant in Dallas had bought about $25,000 worth of the ecommerce company’s shares before the earnings announcement, expecting that the stock was oversold and would rebound. Instead, he lost about $6,000 as Amazon posted its biggest one-day drop since July 2006.

Now, Robert is focusing on the oil and gas sector, which has outperformed this year thanks to bans on Russian oil imports and a post-lockdown resurgence in demand for fuel. 

“My biggest holding right now is Exxon, and that’s been the best investment of the year for me,” he said. “They missed a little in earnings but their miss was smaller and they were heavily profitable.”

He’s currently holding about $30,000 worth of nine oil and gas companies. Since he first bought Exxon in January, he’s made about $10,000 through buying dips and taking profits. Exxon has risen nearly 40% so far in 2022.

“I’m almost completely out of tech right now,” Robert said. “It’s so hard to predict tech valuations. Until it stabilizes, I’m not trying to go to a casino.”

Sticking with AMC 

A tried-and-true meme stock is the safest bet for Raminder Chadha. He’s mostly just invested in AMC Entertainment Holdings Inc., which an infamous army of retail traders pumped up last year. 

“I’ve just realized that the stock market is supposed to go up, so you just have to give it time and be patient,” said Chadha, who works as a realtor in Chicago.

He declined to say how much AMC stock he owns, but noted that he has the most faith in that company out of any others and has been buying the dip. AMC has dropped nearly 50% so far this year. 

“I don’t trust any other stock,” Chadha said. “I trust this one because the research has been done that hedge funds are shorting this beyond belief.”

Options Game

Sarah Mostafa, a physical therapist in New York City, is using options to navigate a market that’s “absolutely crazy.”

“I’m just trying to be super cautious jumping into some long calls and puts lately,” she said. “I’m taking profits when I can because things will dump so fast if you don’t keep an eye.”

She’s recently been buying puts on the SPDR S&P 500 ETF Trust (SPY) and tech stocks, as well as long calls for SPY. She’s also boosted her positions in shares of Apple Inc., Amazon and Twitter Inc. Even with the recent volatility, she’s not giving up. 

“I won’t shy away from the stock market or trading ever,” she said. “Trading has saved my life and helped me get out of my depression.”

More stories like this are available on bloomberg.com.

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