The Nasdaq has expanded its short-term options portfolio with the introduction of five zero-day options-based exchange-traded funds. These funds are centered around key commodities and a Treasury, and they offer investors the opportunity to trade using a popular short-term options strategy. The funds listed are the United States Oil Fund (USO), United States Natural Gas Fund (UNG), SPDR Gold Shares (GLD), iShares Silver Trust (SLV), and iShares 20+ year Treasury Bond ETF (TLT).
“Zero-day to expiration” or “0DTE” refers to a trade that expires in less than a day, and this strategy has seen a significant increase in volume in the options market. According to data from the CBOE, the volume of S&P 500 zero-day contracts has risen by at least 40%, compared to 5% in 2016. However, not everyone is enthusiastic about these new ETF offerings, as the trade’s complexity poses a challenge for undereducated retail investors unfamiliar with options trading.
Dave Nadig, VettaFi’s financial futurist, expressed caution about the new products, citing concerns about their potential impact on the market. He believes that most of the contracts being traded are coming from institutions, hedge funds, and day traders who are using them as short-term leverage speculative vehicles. This surge in activity surrounding zero-day options has raised concerns among analysts about its potential negative impact on the market, but Nadig believes that the real issue lies in how these tools are being used.
“I don’t think the tools themselves are inherently breaking the market. Like most market structure issues, it’s not a problem until it is,” Nadig said. He emphasized that individual investors may not have any business in this space at all, as these investments are naturally very speculative due to the inherent leverage. Despite the growing popularity of zero-day options, concerns remain about the potential risks and impacts on the market.
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