JPMorgan Chase & Co.'s top-ranking strategist, Marko Kolanovic, recently warned that the explosive trading in 0DTE options is creating an event risk on the scale of the stock market’s early-2018 volatility implosion. Daily notional volume in such short-term options is estimated to be around $1 trillion. This has caused the VIX, often referred to as Wall Street’s “fear gauge”, to rise to its highest level since January.
The VIX is calculated based on trading volume in a subset of options contracts tied to the S&P 500 and reflects how volatile traders expect the market to be over the following 30 days. Danny Kirsch, head of the options desk at Piper Sandler & Co., noted that the rise in the VVIX is a sign of increasing uncertainty ahead of next week’s U.S. January consumer-price index reading.
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all headed for their worst week since mid-December, early January, and late January respectively. This reflects investors’ expectation of a bumpy ride ahead for stocks.
0. “JPMorgan Strategist Kolanovic Warns of ‘Volmageddon 2.0' Risk in Options Market” Bloomberg, 15 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-15/jpmorgan-strategist-kolanovic-warns-of-volmageddon-2-0-risk-in-options-market
1. “Zero-Day Options Are Like Betting on ‘Horse Race,’ Tchir Says” Yahoo Finance, 16 Feb. 2023, https://finance.yahoo.com/news/zero-day-options-betting-horse-154911404.html
2. “Traders brace for a blowup as cost of protection for U.S. stocks hits highest level since October” MarketWatch, 10 Feb. 2023, https://www.marketwatch.com/story/traders-brace-for-a-blowup-as-cost-of-protection-for-u-s-stocks-hits-highest-level-since-october-84dadfa0
3. “Traders brace for a blowup as cost of protection for U.S. stocks hits highest level since October” msnNOW, 11 Feb. 2023, https://www.msn.com/en-us/money/markets/traders-brace-for-a-blowup-as-cost-of-protection-for-u-s-stocks-hits-highest-level-since-october/ar-AA17leKI