Bank of America Says Options-Driven 'Volmageddon 2.0' Warning Is Overblown

A week after JPMorgan Chase & Co.’s Marko Kolanovic issued a “Volmageddon 2.0” warning on the explosive rise in short-dated options, Bank of America Corp. strategists are pushing back.

Investor positioning in hot derivative-powered trades — like S&P 500 contracts that expire within 24 hours — looks less threatening to the wider marketplace compared with the mania that led up to the 2018 volatility rout, per BofA.

The sanguine conclusion takes aim at the likes of Kolanovic, who has issued what’s likely the loudest alarm on the boom in so-called zero-day-to-expiry options, or 0DTE. In the telling of the widely followed Wall Street quant, these fast-twitch options threaten to spur broader stock volatility, largely thanks to the hedging activity of dealers.

The reality is more nuanced, according to BofA strategists including Nitin Saksena. Given short-term options are used in so many different strategies, if one investing style were to falter, the shock to the broader equity market would likely be manageable.