(Bloomberg) — Two years after Wall Street became obsessed with fast-talking stock options, Bloomberg’s latest Markets Live Pulse survey finds that even though nearly half of respondents fear an eventual explosion. This suggests that there is still room for this unprecedented boom to continue.
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The notional value of zero-day contracts to maturity related to the S&P 500 reached approximately $862 billion in April, with nearly 90% of 300 MLIV Pulse respondents saying they expect growth to continue. did. The twist? Opinions are almost evenly divided on whether it will grow smoothly or end in disaster.
Equity derivatives with expirations of less than 24 hours, known as 0DTE, have become one of the most popular trades on Wall Street as investors large and small try to navigate uncertainty surrounding the economy and central bank policy. ing. 0DTE trades accounted for 45% of total S&P 500 options trading last year, nearly double the level before the product became widely available in the second quarter of 2022.
“Exchanges benefit by allowing daily options. As you can see, trading volumes have increased because more people have access,” said Phil Pesock, chief investment officer at Anacapa Advisors. said. “They’re only going to become more prevalent.”
The scale of the boom is controversial. While there are concerns that ultra-short-term option trading may be influencing stock price volatility, research suggests that retail investors using ultra-short-term options are almost always losing money. There is.
The majority of survey participants were aware of the latter risk, with 56% expressing the view that it is easy to lose money when using the tool. However, concerns do not extend to restricting personal access to 0DTE, with 76% of respondents (nearly two-thirds of whom are professional investors) saying it makes sense for 0DTE to be easily accessible. I answered.
Zero-day options were initially utilized by high-frequency traders to hedge bets and positions, but they have gained traction among sophisticated quantitative professionals and small-scale investors alike. They are also moving into the field of exchange-traded funds.
Both academic and Wall Street researchers have warned of potential dangers from this wave of trading, including the possibility of increased market volatility on an intraday basis. Marko Kolanovic, a strategist at JPMorgan Chase & Co., warned that their popularity risks repeating past disasters like 2018’s Bormageddon. This is the famous explosion that shattered the long calm of US stocks. In theory, when a stock price moves significantly, option dealers have to go to the other side of the trade and buy or sell the stock to maintain a market-neutral position, causing them to unload a large amount of their position and accelerate the selling. It is said that there is a possibility.
Cboe Global Markets, the exchange at the center of the boom, said 0DTE’s wide range of use cases means trading does not create crowded, one-sided bets that make markets vulnerable to shocks. claimed to have done so. About two years ago, Cboe expanded the expiration date for S&P 500 options to every business day, and later also allowed zero-day options on the Russell 2000 index.
In its latest expansion, Nasdaq said it plans to add more short-term options in commodities and U.S. Treasuries.
The MLIV survey found that opinions about the impact of 0DTE on the underlying market were almost evenly divided. Only about a quarter of respondents said they were very worried, 34% were not worried and 41% were only a little worried.
When asked how MLIV Pulse contributors (mostly living in the US or Europe) would describe 0DTE, their responses were often scathing. The most common phrase was “gambling.” Negative descriptions included “Las Vegas slot machines,” “atomic bombs,” and “tools that effect the transfer of wealth from retailers and unsophisticated institutions to exchanges and market makers.”
Positive contributors primarily focused on its usefulness as a hedging tool. One participant said: “It’s a fairly inexpensive way for investors to take positions on the directional movement of a stock without owning the underlying stock.”
Read the full result: Lose money easily with 0DTE options
So far, 0DTE is only available in major indexes and exchange-traded funds. Their popularity has fueled speculation that the scope of zero-day contracts could be expanded to include individual stocks. When asked about its potential expansion, survey respondents were completely divided.
The MLIV Pulse survey is conducted for Bloomberg readers on their devices and online by Bloomberg’s Market Live team, which also runs the MLIV blog. This week’s survey asks whether Bitcoin and large-cap U.S. tech stocks are a safe haven. Please share your opinion here.
(Updated with callout, link to full results)
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