Increased retail trading is 'largely responsible' for elevated stock prices and record-high options activity, says Deutsche Bank

• Deutsche Bank says record-high call volumes are driven by retail investors.
• They found an increasing number of call options are on small companies with low profitability.
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Deutsche Bank is seeing signs that individual investors are driving recent stock rallies and options activity.

Average call volumes over the last three months have hit a new peak, exceeding the 2009 high, and the size of the contracts suggests that it's driven by retail investors, said a team of strategists led by Binky Chadha in a recent note.

"The bulk of the increase continues to be driven by very small contract sizes, reflecting retail buying. In our view, increased retail participation is largely responsible for elevated equity multiples with institutional investors across discretionary and systematic strategies chasing since March," Deutsche Bank said.

The strategists found that bullish call volumes measured in dollar terms have been focused in large growth companies, but increasingly are shifting towards stocks with lower profitability and higher volatility.

They also highlighted how stocks with the highest call volumes relative to their market capitalization have "overwhelmingly" tended to be companies that have already outperformed over the last 12 months, have very low profitability, and are smaller in size.

The findings come as a handful of stocks like GameStop, AMC Entertainment, and Bed Bath & Beyond are soaring hundreds of percentage points with little fundamental news behind the moves.

In a Deutsche Bank list of stocks with the highest call volume as a percentage of market cap, GameStop, Bed Bath and Beyond, and AMC were in the top 10.

Those stocks have rallied immensely this week as retail investors on reddit forums discuss their trading activity in the companies.