Retail investors turn into sellers, Citadel Securities says market volatility is rising

Investing.com - Last week, retail investors turned into net sellers of U.S. stocks and options on the Citadel Securities platform, marking a shift in their buy-heavy behavior that has persisted for years.

According to Scott Rubner, Head of Stock and Equity Derivatives Strategy at Citadel Securities, last week individual traders sold U.S. stocks and options. Since January 2020, the company has recorded only 18 similar sell-offs.

Retail investors’ net notional spending fell by about 55% in March compared with the previous month, and by about 70% versus the peak in January, even though retail investors still remained in net buying territory last month.

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Citadel Securities data shows that during the retail selling period, historically there has been a stronger short-term return in the U.S. stock market. In the two months after similar signals appeared, the S&P 500 index was up about 82% of the time, with an average gain of 4.1%.

Retail traders’ options activity is also changing. While trading volume remains relatively high, open positions have shifted toward a more defensive posture. Last week, fund flows slightly tilted toward selling, increasing demand for downside protection. According to Citadel Securities data, last week was the first week since late last November in which retail options activity turned bearish.

Institutional positioning has also become more defensive, although this adjustment began earlier. In a report to clients on Tuesday, Rubner wrote that, relative to improving conditions in realized volatility, systematic strategies remained under-allocated. As the market stabilizes, this creates potential for incremental buying flows.

This shift came after a surge in oil prices and several weeks of volatility triggered by the Iran war. As the Middle East conflict escalated and disrupted energy markets, the S&P 500 index fell by about 5% in March. Brent crude oil has risen by about 80% this year.

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