Another ‘Volmageddon’? JPMorgan becomes the latest to warn about an increasingly popular short-term options strategy.

Kolanovic and his team found “very large volumes” in zero days to options expiration (0DTEs) — puts and calls on stocks and indices that expire within 24 hours. Refresher: A call option gives an investor the ability to buy an asset at a specific price by a specific date, while a put option allows an investor to sell that asset at a specific price by a specific date.

Kolanovic’s chart shows what he sees as fairly high daily notional volume — around $1 trillion.

Its main concern is a repeat of what was seen in February 2018 when a surge in volatility destroyed short volatility strategies dubbed “Volmaggedon”. According to some estimates, it wiped out $2 billion in investor wealth.

“While history doesn’t repeat itself, it often rhymes, and recent selling of 0DTE (Zero Day to Expiration), daily and weekly options is having a similar impact on markets,” Kolanovic said.

“If there is big movement when these options come in the money and sellers cannot support these positions, forced coverage would result in very large directional flows. These flows could have a particular impact on markets given the current low-liquidity environment,” he added.

As he explained, they are typically “low delta options that rarely come in the money and their action comes primarily from the suppression of volatility and an intraday buy-the-dip pattern that results from hedging ‘ says Kolanovic. Delta is a metric that measures how much a derivative’s price would change if the underlying security changes by $1.

MarketWatch’s Joe Adinolfi noted last October that 0DTE strategies were becoming more common, particularly among institutional traders who wanted to profit by anticipating the hedging activities of large options traders.

Others have warned about 0DTEs and the risk they pose to markets. Seabreeze Partners Management’s Doug Kass recently warned that investors became more confident after the market rebounded in January, but failed to recognize how changing market structures had affected market direction, namely those options that were about to expire.

All of this option talk comes as Bloomberg reports on the potential return of the “50-cent” VIX trader, which turned a loss into a profit of nearly $400 million on tiny bets on a volatility spike during that February 2018 chaos .

Transactions late Tuesday showed an investor paying 50 cents each for 100,000 call contracts valued at $5 million. The bet is that the cboe volatility index

IX

,
which is currently 18 will rise to 50 by May. A similar buy on Wednesday bought 50,000 such contracts at 51 cents each – for a total of $2.6 million.

The markets

stock futures

ES00

YM00

NQ00

are steady, bond yields

TMUBMUSD10Y

TMUBMUSD02Y

and the dollar

DXY

are lower. oil

CL.1

BRN00

is down and natural gas

NG00

is up. The FTSE100

UKX

hit a new record above 8,000, partly due to a weak pound

GBPUSD

.

Bitcoin is hovering at 6-month highs.

For more market updates and actionable trading ideas for stocks, options and crypto, subscribe to Investor’s Business Daily’s MarketDiem.

The Buzz

Cisco stock

CSCO

is rising on earnings and sales gains and upbeat outlook after seemingly making it through a pandemic pothole.

Shopify stock

BUSINESS

is down 9% after the e-commerce company’s disappointing forecast. roku

ROKU

is up 10% after the streaming device maker’s sizeable revenue surged. And Zillow stocks

Z

rise after the real estate services group also surpassed revenue. We work

WE

The stock is higher after mixed results from the shared office provider.

Chip equipment manufacturer Applied Materials

AMAT

will report after the end.

Producer prices, weekly jobless claims, building permits and housing starts and a Philly Fed manufacturing survey are all due at 8:30 am

China imposed trade and investment sanctions on Lockheed Martin

LMT

and Raytheon

RTX

Thursday for arms shipments to Taiwan.

The creator of the famous Reddit community WallStreetBets is suing the social news aggregator for ousting him as moderator.

The best of the web

The Hangover: The energy crisis has left Britain’s pubs hammered.

TikTok has become the largest and fastest growing danger zone for child exploitation to date.

Seymour Hersh, in an interview with a German newspaper, claims that the US government was willing to see Germany freeze rather than stop supporting Ukraine. (German language)

The tickers

These were the most searched tickers on MarketWatch as of 6am:

ticker	security name
TSLA	Tesla
BBBY	bed bath beyond
GME	GameStop
AMC	AMC Entertainment Holdings
APE	Preferred Stock of AMC Entertainment Holdings
AAPL	Apple
NEVER	No
AMZN	Amazon.com
MULN	Mullen Automotive
BUSINESS	Shopify

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Haunting 80 minute video of the first Titanic footage since sinking in 1912.

Russian and Ukrainian soccer players ended up in the same Turkish hotel. It didn’t end well.

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