For those unfamiliar, the word "leverage" means slightly different things in sports betting vs. daily fantasy sports (DFS) vs. investing.
In sports betting, it simply means borrowing money to place bets — which I've done in the past on certain occasions where an outcome or total is grossly miscalculated.
In DFS, however, "getting leverage" on the field means putting a certain player in a greater percentage of your lineups than the rest of your competitors.
In the case of the post-COVID-19 market melt up, that latter definition is what's driving the bus, so to speak. Stimulus funds that hit retail investors' bank accounts earlier this year caused a ton of strange action, from mass purchases of beleaguered cruise stocks to bankrupt "zombie" companies posting huge daily gains.
But once that trend died down, these investors started piling into options at a huge clip in June, pushing the S&P 500 up almost 20% in the process. And if you were to look at total open interest in options across the entire market, you'd see that it is back at an all-time high.
The thing that most people don't know, however, is that the market reacts to this the same way a sports book would when it receives too many bets on one side of a line. In order to incentivize wager flow in the other direction, they'll just move the betting line. |
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