The Nasdaq has introduced five exchange-traded funds (ETFs) based on zero-day options, allowing investors to trade commodities and Treasury bonds using a popular short-term options strategy. The ETFs cover the United States Oil Fund (USO), United States Natural Gas Fund (UNG), SPDR Gold Shares (GLD), iShares Silver Trust (SLV), and iShares 20+ year Treasury Bond ETF (TLT).
Zero-day options, or "0DTE," refer to trades expiring in less than a day and have gained popularity in the options market. Nasdaq's move to launch ETFs based on this strategy aims to tap into the growing interest in short-term options trading. The volume of S&P 500 zero-day contracts has increased by at least 40%, compared to a 5% rise in 2016, according to data from the CBOE.
While the introduction of these ETFs provides new opportunities for investors, some express caution due to the complexity of the trade. Dave Nadig, VettaFi's financial futurist, raised concerns about the potential risks for undereducated retail investors unfamiliar with options trading. He highlighted the problematic nature of these products for inexperienced traders.
The surge in zero-day options activity has led to worries about its impact on the market. Nadig acknowledged that while the tools themselves might not inherently break the market, concerns arise as market structure dynamics evolve. He emphasized that the majority of contracts likely originate from hedge funds rather than retail investors.
Nadig noted that institutions, hedge funds, and day traders are primarily using these ETFs as short-term leverage speculative vehicles with the added benefit of avoiding settlements. The inherent leverage in these instruments makes them naturally speculative, and Nadig suggested that most individual investors may not be suitable for this type of trading.
The introduction of zero-day options ETFs reflects the ongoing evolution of financial markets and investors' appetite for innovative trading strategies. As these products gain traction, ongoing scrutiny and careful consideration of the associated risks will be crucial, especially concerning potential impacts on less-experienced retail participants.
