ProfitScore Update – February 2023
To the clients and friends of ProfitScore:
With the rise in popularity of 0TDE (0 days to expiration) options, investors should be wise about the impact this might have on markets. Remarkably, more than 40% of S&P-related options have a same-day expiry, or 0DTE, according to Optionmetrics. A decade ago, this figure was approximately 5-10%.
We all remember the GameStop phenomenon, where the financial masses were able to make an extraordinary market impact. Imagine that a trader with an enormous social media following was to decide and trade all simultaneously with 0TDE options; the effect could be tremendous. Especially since some of these options are affordable enough that novice traders can participate.
Another concern is the VIX calculation does not consider the 0DTE time frame. The calculation only incorporates SPX options with 23-37 DTE. It has been speculated that this 0DTE effect has been responsible for a muting effect of the VIX recently. ProfitScore uses volatility as some of the data in our system; fortunately, our volatility calculations do not include the VIX. These 0TDE options are definitely something to keep an eye on.
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