You even have the likes of @JPMorganAM strategist Marko Kolanovic calling for Volmageddon 2.0 caused by #0DTE options.
But to repeat the 2018 VIX ETN blowup requires more complacency in markets☟
So, it’s no secret that short-dated options volumes have exploded in the last few months.
To the point where around 50% of all options volumes are 0DTE.
Amounting to around $1 trillion notional in #SPX, $SPY, and $QQQ.
The concern with this is that the gamma from these options can become too large to hedge without having a considerable market impact.
And prior to yesterday’s price action, the conditions for a flash crash of sorts are clearly there.
But now the VIX doubled in a day off a low base.
Lower vol is needed to increase the gamma on these 0DTE options and truly bring the flash crash scenario into play.
You also have Charlie McElligott of @Nomura pointing out the difference between realized vol measures when tracking intraday swings (Garman-Klass Vol)
Not just close-to-close moves (VIX).
Vols that capture intraday swings have been grinding higher while “normal” volatility measures have been coming down.
Long story short, knowing when and if these new flows will trigger a major volatility event is not easy.
But this would by no means be the first weaponization of gamma – a la “meme” stocks in early 2021.
And this time around, it may be doable on a market-wide scale.
However, while 0DTE is a casino, sub-15 vols bring the complacency needed to really light this match.
So, what do you think?
Will 0DTE options doom us all as we sit on another volatility-ticking time bomb?
Let me know in the replies!