Booming Options Market: A Long-term Trend or a Flash in the Pan?
The options market is experiencing an unprecedented boom with an average of 44 million contracts changing hands every day in 2023. This figure has doubled compared to five years ago and is on track to set an annual record, according to Options Clearing Corp's data.
The surge in activity indicates that many traders are willing to take significant risks in the market for bigger payouts than traditional buy-and-hold investments.
$Tesla (TSLA.US)$ remains a popular choice among options traders, with more than half a trillion dollars spent on contracts linked to the stock this year.
The share of trading in contracts that expire in five or fewer days touched a record 59% in October and has remained elevated, according to figures from SpotGamma. Many traders are holding positions for only hours or minutes to increase their returns rapidly.
The one-day trades, known by the hashtag #0dte, have gone viral, with tens of thousands of mentions swirling online that have helped draw even more people in. JPMorgan reports that zero-day options trading volumes hit record levels this summer and have contributed to half of all $S&P 500 Index (.SPX.US)$ option trading.
0DTE options' share of SPX option volumes made new highs this summer, at ~50%
Zero-day trading in options tied to the S&P 500 index boomed in popularity during the coronavirus pandemic. Initially viewed as a temporary phenomenon driven by speculative retail traders, the surge sparked concern among some analysts and regulators that it could create systemic risk by exacerbating market moves.
However, Nasdaq's launch of short-term options contracts tracking gold, oil, and Treasury bond funds that expire on Wednesdays is an indication that exchange groups believe zero-day trading will become a longer-term trend across different assets. While options contracts historically expire on Fridays, this creates the ability for "zero-day to expiration," or "0DTE," options trading.
The popularity may be due to traders looking for ways to take a position on the outcome of events that happen on a particular day. For example, the Wednesday expiration contracts would coincide with new policy statements from Federal Reserve eight times a year.
I think this is just the beginning," said Cem Karsan, founder of Kai Volatility Advisors, who has traded options for more than two decades. "This is not a flash in the pan."
Source: WSJ, Financial Times, CNBC
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Haliluya : Don't know how to trade options.