But proponents of 0DTE options believe they are helping more sophisticated participants to hedge their longer-term trades against specific events – such as a key jobs number or a central bank speech.
In fact, the major brokers are in disagreement as to how much of the activity has been fuelled by thrill-seeking retail traders compared to sophisticated institutions.
Tail wagging the dog
JPMorgan analysts said retail investors accounted for less than 5 per cent of trading volume but CBOE derivatives analysts say it’s at least one third.
The other raging debate is whether the surge in single-day options volumes has become the tail wagging the market dog. Goldmans pinned August 15’s violent late session sell-off in the S&P 500 on options market makers scrambling to hedge their positions by shorting the market.
But Bank of America analysts said there was as much buying as selling during that session.
As divisive as they are, 0TDEs appear to have established themselves as a permanent feature of the US equity market.
Could we ever see these curious instruments here? Don’t bet on it. While Australia is at the forefront of developing new techniques to speculate and gamble, the fruits of our innovations are limited to the gaming rooms of pubs and clubs, and on punting apps that live on our mobile phones.
The innovations in financial markets trading have tended to run in reverse in Australia and market participants have lamented that options trading activity – considered a healthy part of a deep capital market – has actually fallen in Australia. So, as scary and senseless as zero-day options may sound we should keep an open mind about the merits of new trading tools.