Clueless Wall Street Is Racing to Size Up Zero-Day Options Boom

It’s a time-honored tale. A new force enters the market — quantitative easing, leveraged ETFs, high-frequency trading — and a cottage industry on Wall Street is born devoted to exposing the risks it supposedly poses for investors.

Now it’s happening again with a new breed of high-octane stock options known as zero-day-to-expiration, or 0DTE, which allows investors to buy and sell with contracts that have a shelf life of less than 24 hours. Everyone from amateur sleuths on Reddit to highly paid Wall Street technicians have joined the fray, dispensing daily theories about how big a threat these quick-trigger instruments pose.

Marko Kolanovic, a strategist at JPMorgan Chase & Co., warns “Volmageddon 2.0” may be in store should the contracts boil over. Off Wall Street there’s a Twitter account that does nothing but post daily predictions of where the broader equity market will go each day thanks to the rising clout of the options. One fund manager says he got worried when teenage kids started asking about them.

Getting a handle on what the craze may mean is complicated by the enormous volume of the options marketplace, the short lifespans of these trades and uncertainty about just who is using them. While some see the derivatives as reducing market volatility, others see them as a source of extreme turbulence that has contributed to “an untradable mess” in stocks.

“When you get big disruptions like that, you always get people that say, ‘you know, you got to watch out because you’re going to create a big problem,’” said Malcolm Polley, president and chief investment officer at Stewart Capital Advisors LLC. “I don’t think they really fully understand because we’ve never really seen this phenomenon before.”