Researchers warn about growing risk should 0DTE broaden out..

[Tb2018]

Bloomberg

Bloomberg - Are you a robot?

We are fine ,don't worry.......(from bloomberg art.)

"While they did fairly well writing options, decisions to buy them suffered badly. "




STUDY Conclusions :

"Conclusion Retail traders exhibit a strong preference for high-risk, lottery-like assets (Bali et al., 2011; Bali, Brown, Murray, and Tang, 2017) and have found the perfect investment vehicle in 0DTE options, i.e., options that expire within the same day. Reddit and other websites 26 Electronic copy available at: https://ssrn.com/abstract=4404704 promote 0DTE options as a guaranteed method for generating quick profits. This paper provides evidence that 0DTE options are not a lucrative investment vehicle for retail traders. Since the introduction of daily expirations, retail investors incurred significant losses, amounting to $358,000 per day, on their investments in 0DTE S&P 500 options. While their profits are already negative gross of transaction fees, we show that retail investors on average have learned to make informed buying and selling decisions that align with the overall level of expensiveness in the 0DTE market. Yet, they neglect to consider the substantial spreads, which further depress their profits. Our findings indicate that more than 60% of the $358,000 lost each day comes in the form of transaction costs. The recent surge in retail options trading has been facilitated by exchange-related developments advocated by the Cboe and affiliated special interest groups. Although we find that the Cboe’s proposals have led to lower effective spreads, the associated benefits for retail investors do not sufficiently offset the increased risk inherent in the positions favored by such investors and the general fee structure of the options market. Our study is a cautionary tale against allowing unrestricted access for retail investors to 0DTE options. Their hunger for lottery-like assets leads to large aggregate losses. Should daily expirations be rolled out for single equity options, the potential losses retail investors face are amplified
manifold."

BUT THIS IS IMPORTANT POINT TO REMEMBER TOO:
" All in all, we find that retail investors’ selling decisions are profitable. In contrast, their buying decisions are particularly troublesome and carry most of their aggregate losses. "

 

[Marcas]

Quick reaction. This is troublesome paper. For me it's horrible.
I read only conclusion if there is smth worthy in the body let me know.

First paper suggests (but, I admit, doesn't say explicitly) that 0dte is a retail thing. It is not. 0 dte volume surge in past 2 years is form institutional traders. If one pays attention he can see times when SPX is manipulated up or down by 0 dte bets (there was an article in ZH showing in details how it is done with examples). Retailers are not able to do that, not even close, especially not on regular basis.But what is troublesome (horrified to me) is a measure authors propose to take:
Our study is a cautionary tale against allowing unrestricted access for retail investors to 0DTE options.
Although this is inline with presently popular trends, it's something I can not agree with. People are free (should be) to do whatever they want to do with they money while trading. Are they loosing with 0 dte? Maybe so, but they are loosing on average anyway, regardless of dte or whatever they do.
Creating administrative restrictions is a horrible idea. We may be banned from those trades or be forced to use 'licensed advisors' or anything - it all be yet another set of restrictions to our freedom. I'm not against advisors, even licensed ones, as long as I'm free to use or not to use them.

All in all it looks to me like priming public for another market crash. It will happen, (Imo, of course, I expected crash to happen a while ago and was wrong. Lately stepped on a statement - don't remember where - that preparing for crash cost traders and investors more money than crash itself. Impactful statement for me.) So, when crash happen all will be blamed on 0 dte traders, they will became public scapegoats everybody hates, while real reasons will stay mainly unnoticed.

Now, I do not know if 0 dte are real danger to market stability or not (beside the fact that if market is stable an healthy there is no trigger that can change it. On the other hand if markets are unstable anything can became a trigger). I read both ways. Spot Gamma shows that 0 dte are rather calming force - which may explain latest lack of volatility (which hurts my trading). There is an article in ZH about VIX being dead. Maybe so, but in my mind this is an opportunity and I be looking into it more.

Anyway... I'm after night of codding, so sorry for rambling. Don't take me too seriously and think whatever you want.

 

[status1]

"While they did fairly well writing options, decisions to buy them suffered badly. "

I am not surprised by that Why would you want to buy options on the last trading day with all the time decay happening in a few hours unless you are expecting a massive move and you are positioned in the same direction Obviously selling options is better but still not guaranteed

On the other hand trading intraday is more like a 50/50 shot get in and get out quick in a couple of minutes can be done if you are good at price action and gain $50-100 bucks in that time there is also a stop loss going along with that when the trade does not work out

If you are following Reddit for "guaranteed' profits that is more of a problem than trading 0 dte

Our findings indicate that more than 60% of the $358,000 lost each day comes in the form of transaction costs

Also not surprising You have to get out at some point on the last day by either closing the trade box it off or roll it out and the more you trade the more transaction costs you have
You cannot have less transaction costs without trading less The bottom line is how much money did you make including transaction costs
Is the winning amount worth the transaction cost ? If you made $100 in one day including transaction costs does it matter if you made it in one trade or 4 separate trades ?

Although we find that the Cboe’s proposals have led to lower effective spreads, the associated benefits for retail investors do not sufficiently offset the increased risk inherent in the positions favored by such investors and the general fee structure of the options market

Not sure what that means Are they trying to say that somehow spreads are cheaper and that is why investors are trading 0 dte ? not sure

Our study is a cautionary tale against allowing unrestricted access for retail investors to 0DTE options

I agree with Marcas about that traders should not be restricted from trading just because you can loose money that was part of the option disclose agreement that all traders must sign when opening an account It's not any more risky that trading any other day it's just that it happens much faster

That's like buying $1000 worth of lottery tickets and loosing on all of them at once or buying 1 every day for 1000 days There is no guarantee you will win either way but you should be restricted from buying $1000 lottery tickets