Market gains this year have come from 0DTE call options 🫧, as people bet on a stock price 📈 forcing shares to be delivered end of day. However, no one actually wants to hold the shares long term. When the market 📉, there's no actual buyer, leading to a bidless market.
— Golden Coast (Cassandra) (@GregCrennan) July 19, 2024
After @CNBC read our work on the call option 0DTE 🫧 they are now warning about the leverage in the system along with 3x ETFs that the current market cap valued in the trillions.
“They have more instruments to use like 3x leverage ETFs & 0 day options that can trade on margin” t.co/sMnIVTCnBW pic.twitter.com/vHuC9fZ4hp
— The Coastal Journal (@1CoastalJournal) July 19, 2024
In the fast-paced world of financial markets, the allure of quick gains often overshadows the lurking dangers. One such phenomenon, the rise of zero-days-to-expiration (0DTE) call options, has captivated traders with its promise of rapid profits. However, beneath this glittering surface lies a potential catastrophe that could send shockwaves through the market.
0DTE call options, contracts that expire within a single trading day, have become the darling of speculative traders. Their appeal is undeniable: the chance to capitalize on intraday price movements with minimal capital investment. But this very allure is what makes them a double-edged sword. As traders flock to these high-risk, high-reward instruments, they inadvertently inject volatility into the market, creating an unstable foundation.
The frenzy surrounding 0DTE call options has led to a troubling trend: the disappearance of long-term buyers. Traditional investors, who provide stability and depth to the market, are being overshadowed by short-term speculators. This shift has profound implications. Without the steady hand of long-term buyers, the market becomes a house of cards, vulnerable to even the slightest tremor.
Imagine a scenario where the market suddenly turns, and there are no buyers to catch the falling prices. This is the terrifying reality of a bidless market, a situation exacerbated by the dominance of 0DTE call options. When the tide turns, and it inevitably will, the absence of long-term buyers could lead to a rapid and uncontrollable descent, leaving traders and investors alike in a state of panic.
The current market gains, driven by the speculative frenzy of 0DTE call options, are akin to a bubble waiting to pop. The risks are massive, and the consequences could be devastating. As the market teeters on this precarious edge, it’s crucial to recognize the warning signs and take proactive measures to mitigate the impending disaster.
Sources:
finance.yahoo.com/news/explainer-rise-0dte-stock-options-195624658.html
finance.yahoo.com/news/rise-0dte-options-cboes-strategic-132500436.html
tfoco.com/en/insights/articles/0dte-options
www.nasdaq.com/articles/demystifying-0dte-options:-the-top-10-faqs-from-traders