Option Roulette – The Rise in Short-Term Options 🎲

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Option Roulette – The Rise in Short-Term Options

Retail investors simply can’t let go of options trading no matter what. After all, it has been the mechanism to fuel insane rallies in the past few years, allowing them to gain major influence in the market. As we all know, options are extremely risky, making most investors who trade them in a short-term fashion end up in the red, but recently investors have been pushing to a new level of risk.

According to SpotGamma, options expiring in five days or less accounted for half of options market activity in the month of August, a whopping number considering the risk attached to those investments. One of the major trends on the rise is #0DTE, meaning zero days until expiration, with many retail trading forums mentioning these options at a large rate in 2023. 0DTE options are essentially lottery tickets, paying a small amount that can be lost completely with the slightest possibility of making a large profit. This large amount of risk has analysts concerned about the possible fallout, but Cboe, the largest options exchange, believes that options trading in things like the S&P 500 is not influencing the market.

However, brokerages are capitalizing on the high option activity by taking advantage of the wide bid-ask spreads in options, buying, and selling them to investors while keeping the difference. According to Bloomberg Intelligence, brokerages made $2 billion from selling options orders last year, an absurd number compared to stock orders. High option volume seems to be a new normal in the markets, but this risk will not always be taken lightly when things go south.

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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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