The promise and hidden promise of Wall Street's hottest short-term speculative product is to get wealthy or go broke by the end of the day. It has mostly enriched the fortunes of three huge American trading businesses. It is popular among those seeking thrills and fast money.
 |
| The Wall Street, New York City, New Work, USA. |
The shortest route to Las Vegas is through Wall Street. Real stock market lottery tickets, one of its most popular new financial products, have nothing on slot machines and blackjack tables. Speculators are enthralled by very short-term options, known as 0DTE (Zero Days to Expiration) options, which have a lifespan of less than 24 hours. They enable users to wager on the movement of a stock, index, or ETF (listed index fund) during the day. Buyers of these options anticipate an exceptional move, whilst sellers anticipate a period of quiet and minimal volatility.
The use of these options typically increases soon before the release of market-anticipated information such as inflation numbers and corporate performance. In the case of a major movement on Wall Street, a trader can make up to 1,000 times his stake with a tiny investment. According to JP Morgan, the daily value of these overnight options has surpassed $1 trillion per day. These extremely short-term instruments account for roughly half of the options traded on the major US stock market index (S&P 500), up from 5% in 2016.
Individuals handle around 6% of total volumes on 0TDEs. Three-quarters of the time, they bet on the main US equity index using these very short-term contracts. They purchase options whose values are extremely sensitive to market fluctuations but whose value diminishes swiftly because to their extremely short duration. Amateur traders purchase worthless options, such as buying put options on the day Wall Street rises or falls. At the end of the day, the outcome of a 1-day option bet is always binary: a profit or a total loss of his money.
Stock traders have lost $70 million, or up to $360,000 a day, betting on these risky items on the US stock market index in two years (February 2021-February 2023). Trading companies have made $50 million in margin (spread) by selling these items. Individuals should have wider access to these highly speculative goods, according to the Securities Industry and Financial Markets Association (Sifma), which represents the interests of American finance and Wall Street.
0DTE alternatives, which first appeared about 2013, began to take off around 2020 among people during the Covid issue. The 0% commission policy on options introduced by Robinhood in 2017 was copied by the other big American online brokers two years later. These devices provide the impression that you can make a lot of money rapidly. When equities become too volatile for investors' preferences, the more daring shift to even more risky assets, such as derivatives or cryptocurrency.
The major Wall Street trading firms continue to be the principal beneficiaries from the "democratization" of dangerous financial products. They profit from the increase in volume on options, where their earnings are significantly bigger than on shares, with a margin of roughly 12% (the difference between the price at which the trader sells an option to a person and the price at which he buys it from her).
They pay internet brokers to collect their clients' flows. The top ten traders spent $2 billion on options in 2022, compared to $800 million on equities. Citadel Securities, Wolverine, and Susquehanna Securities manage the vast majority of retail options flows and get the most of the profits.
Source: LesEchos