Where systemic risk breeds crash risk - brief 🧵

GS flagging how 43% of options being traded expire in less than 24 hours. The market is now a toy for options daytraders.
1/7

Just look at the homeruns that are possible. The buying of these 0DTE 3600 calls kicked off yesterday’s insanity. Yesterday was the largest one-day notional in SPX calls… *EVER*.
2/

We are right back in GME Jan2021 Squeezetown, but at the INDEX LEVEL - this isn’t some reddit corner, it’s the whole market.

How do you even measure vol that you buy at 9:45am that expires at 4pm?

3/

While you think about that, remember the record illiquidity / thinness at the top of the order book…it is concerning.
4/

This is exactly what is preventing the VIX from going up. Nbody buys dated puts, not even 1-2 mth vol. Nearly 50% of the flow is crap expiring <24 hours, so there is no demand for protection further out.
5/

This is consistent with my conversations with market makers… They all have balance sheet to make markets for size in longer dated puts and calls, and nobody seems to want them.
6/

When the market breaks, nobody will have 1 or 2 month protection. So it can be an epic meltdown.

This is the sort of instability that leads to a crash.

Point is there’s no floor beyond this short dated stuff. It is like a plastic dancefloor on the brink of collapsing.

FIN