If the GameStop phenomenon of a couple of years ago did not convince us that options trading are the new opioid for the financial masses, what we are going to discuss today should. And it can influence your financial health! Having traded options across all assets for the last thirty years, my sixth sense is tuned to the subtle changes below the surface in the options trading ecosystem, and a new development in the options markets is worth paying close attention to. For this reason, “same day expiry (0DTE)” options have quickly become the topic of discussion amongst options cognoscenti and even the news media has picked up on this frenzy.
Wall Street and the trading exchanges cater to their consumers. Today’s main consumers of financial products are retail traders, many of whom learnt basic option math watching YouTube videos and on Reddit, maybe in college. These same consumers also honed their amateur skills in day-trading during the COVID era. And finally, these traders know how to use network effects, i.e. social media, to influence the power of the masses, which, as we know can impact markets in unpredictable way, just as locust swarms do to fields (see here).
The full note on this important topic can be downloaded at this link: LTA Thinking – Gamma Mama! Could 0DTE Options Be The Cause Of The Next Market Meltdown