October 2, 2024 • 23 mins
To spotlight topics covered in the October OIC webinar series, Wide World of Options host Mark Benzaquen welcomes Dan Passarelli of Market Taker Mentoring to discuss 0DTE and volume in ETFs and indices.
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(00:00):
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(00:22):
and Google Play stores.
Most programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(00:52):
at theoptionsinsider.com.
This is the Options Industry Council's Wide World of Options.
Before we start today's show, listeners should know that options involve risk and are not
(01:12):
suitable for all investors.
Individuals should not enter into an options transaction until they have read and understood
the disclosure document, characteristics and risks of standardized options, available by
visiting theocc.com or by contacting your broker, any exchange on which options are traded,
or the Options Clearing Corporation at 125 South Franklin Street, No. 1200, Chicago,
(01:34):
Illinois 60606.
The Options Industry Council is an industry resource provided by the Options Clearing
Corporation, collectively OCC.
Any strategies discussed are strictly for illustrative and educational purposes only,
and are not to be construed as an endorsement or solicitation to buy or sell securities.
Commissions, fees, margins, interest and taxes have not been included in any of the examples
(01:58):
used in this show.
These costs impact the outcome of all stock and options transactions.
Consult your tax advisor about any potential consequences.
OIC was created in 1992 to educate investors and their financial advisors about the benefits
and risks of exchange traded equity options, and the Wide World of Options radio show is
(02:19):
one of several resources investors can utilize to learn more about options.
Other resources OIC offers include webinars, articles and self-guided options related coursework.
For more information, check out www.optionseducation.org.
Now here's your host, Mark Benzoquin.
(02:43):
Hello everyone and welcome to OIC's Wide World of Options.
I'm your host, Mark Benzoquin.
For October, OIC has a pair of webinars lined up to shed some light on two topics that have
entered into the investing zeitgeist as of late, those being zero DTE and the rise of
volume for ETFs and indices.
(03:04):
And to help shed that light, I'm very excited to welcome Mr. Dan Pasarelli of Market Taker
Mentoring.
Dan, welcome and thanks for joining us today.
Hey, thanks Mark.
Great to be here.
Dan, do me a favor.
Let's go ahead and get started.
Why don't you take a moment and tell us a little bit about yourself, about Market Taker
Mentoring and your involvement and experience in options.
(03:26):
Sure.
So I'm Dan Pasarelli.
I started down on the trading floor, well, kind of a long time ago, as a runner and which
is basically the most entry level position you can get and work my way up to becoming
a trader.
I became one of the biggest traders in my pit at the height of my trading career on the
(03:49):
Chicago Board Options Exchange.
And then since leaving the trading floor, I've sort of dedicated my life to kind of giving
back to the community and helping other traders reach their goals.
So I started Market Taker Mentoring in 2008 and we've trained traders in over 50 countries,
(04:10):
trained tens of thousands of traders.
I don't know, I kind of lost count.
Excellent.
And education is so important, especially for today's class of trader that is certainly
a different class than when you and I were in the business, when you and I were getting
started in the business, I should say.
(04:30):
So when it comes to that education, as I had mentioned in the introduction, one of the buzz
topics is, you know, you're very familiar with, is zero days to expiration, commonly
known as zero DTE.
So let's go ahead and get started with the giant elephant in the room, right?
Namely, how zero DTE is technically a misnomer.
(04:52):
So let's get started.
Tell us why you think that is.
Yeah. So what zero DTE is, is there's zero days till expiration.
The option expires today.
Well, I mean, if you think about it, that's always been the case.
It's just that it used to be once a month, you know, when expiration day came along,
(05:15):
there's zero DT for that name.
But then of course we went to weeklies and, you know, sub-weeklies and all that.
And now it's a little bit, you know, more ubiquitous.
Right, right.
So the zero DTE technically has been in existence as long as options have been
existence.
It really is just trading options on the day they expire.
(05:38):
And as you had mentioned before, when we just had monthly contracts or
quarterlies or end of the month, you know, when there were just a few expiration
cycles, that day of expiration was known as zero DTE.
Now with the proliferation of weeklies and in some cases daily expirations, the
(05:58):
concept of trading on that day of expiration has definitely grown in terms of
popularity.
I've got some statistics that were curated by Henry Schwartz of the CBOE.
So for example, with stocks, and this may not be actually zero DTE, but these are
more short term options versus long.
(06:19):
So with stocks, for example, contracts expiring less than a week to go, average
daily volume of about 27 and a half, I'm sorry, 24 and a half million contracts
per day versus contracts expiring more than a week out is about 21 and a half
million.
So the shorter term, less than a week, at least 10% greater average daily volume
(06:45):
than the longer term.
With ETFs, it's even more of a disparity.
ETFs, less than a week to go, about 12 million average daily volume versus 6
million more than a week.
And then indices, 2 and a half million less than a week, 1.6 million more.
So it's showing that more people are trading these shorter term expirations,
(07:08):
whether they be shorter term weeklies or specifically zero DTEs.
Also by Henry Schwartz, in 2016, zero DTEs accounted for about 5% of the total
volume versus in 2024, it's over 20%.
Less than a week to trade, about 46% of the total volume versus more than 30
(07:32):
days, it's about 74% of the total volume.
And I know that these numbers are confusing, but what they mean is more people
not only are getting attracted to the options product, as we know by the
increases in volume, but more people are getting attracted to the shorter term
expiries.
Now my question to you, Deann, is how does that affect, for example, a retail
(07:57):
trader?
Right now, when we've got a contract that maybe we enter into today that is
expiring today, at the end of the day, it's either going to be worth something
or it's going to be worth nothing.
So what, in your opinion, what do you think traders need to look out for?
Let's look at theta, for example, time decay.
(08:20):
It's certainly going to affect a zero DTE contract much differently than, let's
say, a 30 day.
So as a retail trader, what do you think they might want to look out for?
What should they keep in their mind when trading these?
Yeah.
I mean, as far as what to look out for, some of the dangers, if we're going
(08:41):
long options, just buying calls or buying puts, which is one of the most
common things that zero DTE traders trade, the theta is 100%.
And in a lot of ways, I actually feel that's kind of liberating.
I mean, I'm the guy who loves to talk about the Greeks.
(09:04):
My first book was on the Greeks.
They're such important instruments.
But when it comes to zero DTE trading, the Greeks become very different.
And just looking at theta, per se, when we think about options, I always think,
okay, we look at the Greeks or we look at a P&L chart.
(09:24):
The P&L chart just becomes so much more important.
If I buy this call, is it going to move enough to cover theta by the end of the day?
I don't know.
In some ways, I think that some of the things that you have to look out for
are they make trading a little easier when it comes to zero DTEs.
A little easier.
(09:45):
Okay.
That's interesting.
That's an interesting take.
So we're looking at it from the buyer's perspective and a great point that you
made.
If you're buying an option for X, you've got to make sure that that option gains
enough in value to where it's profitable at the end of the day because theta is
going to decay, as you had mentioned, 100%.
(10:06):
If that option is out of the money and its premium is entirely represented by
time value, come 3 o'clock or 3.15 central time for us Chicagoans, that option
is going to be worth zero unless that stock moves enough, unless that index
moves enough to account for that erosion of theta.
(10:30):
From the seller standpoint, that's got to be the good thing though, right?
So do you think zero DTE is more attractive to sellers as to buyers?
Well, you know, Mark, there's always the tricky thing with options, isn't it?
Whenever you get a benefit, you also get the opposite side of that.
So yeah, I mean, when selling options, definitely.
(10:53):
It's great to have that theta because all the time premium gets sucked out by the
end of the day, it becomes zero.
But the other side of theta is gamma, which is almost kind of a weird thing to
talk about with zero DTE options.
It's relevant, but gamma kind of becomes infinite.
(11:14):
Let me explain that.
Yeah, expound, please.
Explain what I'm thinking here.
So like if you think about it, what does gamma measure?
When it comes down to it, delta and gamma just measure the kind of the likelihood of
(11:35):
the option expiring in the money.
I mean, that's not necessarily mathematically correct, but it's kind of
conceptually correct.
And gamma just sort of changes the delta.
But here's the deal.
When it comes to zero DTE options, at the end of the day, the delta is zero or 100.
(11:55):
So the gamma is ultimately infinite or non-existent.
You can kind of look at it whichever way you want.
But gamma kind of doesn't matter.
And delta is the actual, to me, the actual mathematical value of delta becomes so much
less important on expiration day because at the end of the day, it's zero or 100.
(12:20):
It doesn't matter if it says 43 on the screen right now.
We know it's going to be one of those two things.
Right.
Right.
So gamma, you think is, depending on how the investor looks at it, may or may not be something
to concern themselves with because as you had mentioned at the end of the day, that
(12:41):
option's either worth something, it's got 100 deltas, or it's not worth anything, and
it's got zero.
But I've got to imagine that due to the sensitivity of the option to the stock price or the underlying
index price, any changes in implied volatility has got to really make the investor's head
(13:05):
spin.
Right.
If the market goes up a tick or two, now the option's in the money and it's worth something.
If it goes down a tick or two, it's out of the money and it's worthless.
Any changes in implied volatility have got to be significant, no?
I would say yes and no.
Yes and no.
(13:25):
Okay.
Because when it comes down to it, on expiration day, zero DTE day, traders are trading, they're
buying or selling these options if it's directional just to make some directional profit, if it's
credit spread to bring in some theta, a lot of theta.
(13:49):
But the buying and selling pressure is what causes implied volatility to change from a
classic sense.
But at the end of the day, because there's no time premium left, implied volatility only
affects the time premium.
And so if a trader is willing to pay a nickel more on said options and the unit of vega
(14:15):
is like 0.001, well, okay, sure, the screen says implied volatility just rose 20 points,
but did it?
Yeah, I get that.
Okay.
All right.
Interesting.
Let's say I put on a position six months ago and now it's expiring today.
(14:36):
I'm trading out of that position by rolling it another month down the road.
So today there's that options volume that I did, right?
I did a zero DTE trade, but I'm not getting in and out of the position today.
What I'm simply doing is managing my position today and moving it further down the road.
(14:59):
Do you have any insight on that in terms of position management and how that accounts
for volume in zero DTE or the interest in zero DTE?
Yeah.
We do a lot of work with zero DTE side.
I'm always nerding out about the statistics and that kind of stuff.
(15:19):
But if you look at like debit spreads, the statistics show that most of the debit spreads
that trade are people closing credit spreads.
You know, they're ultimate closing positions.
There are more debit spreads that are closing positions and opening, but when it comes to
(15:45):
credit spreads, the other side of that, what we tend to see is people putting on credit
spreads at the beginning of the day and just letting them go through expiration.
So you have no overnight risk, but I do want to clarify something that I like to bring
up time and time again is that when it comes to spread trading, whether it's a debit or
(16:07):
credit spread, just because the position expires out of the money doesn't mean that your risk
is gone.
So you may not have that overnight risk, but you do have that aftermarket risk specifically
if we're talking about, you know, single stocks, for example.
So just something to consider.
Now I want to shift gears.
(16:27):
Let's talk a little bit more about ETFs and indices.
For those people that are new to options, how would you describe or what would you say
is the primary differences between single stock options and ETFs or indices?
Yeah, I was kind of thinking about this earlier.
(16:50):
I mean, well, the obvious difference stems from the fact that in ETFs or in index is
a basket of securities.
And when we look at the math behind baskets of securities, what becomes interesting is
that the risk, well, I should say, let's use a better word, the volatility becomes smaller.
(17:18):
Maybe less sensitive.
Yeah, less sensitive, less sensitive.
Right.
Because, you know, one security like it has specific company news, a new specific to that
company, whereas it gets smoothed out with the basket.
So there's one thing.
And then obviously the underlying, you know, if you buy a single stock option in, you know,
(17:41):
XYZ, as you had mentioned, any news relating to XYZ is going to impact that option significantly.
If it's an ETF that has XYZ in its basket, or if it's an indices or an index that has
XYZ, as you had mentioned, it's going to be smoothed out a little bit more.
Other differences, you know, most indices are cash settled, you know, rather than physically
(18:06):
with shares.
A lot of them are European exercise.
So you can only exercise that contract on the day of expiration versus American style,
which they can be exercised at any time.
But let's kind of build on what we were talking earlier with zero DTE and some different data
points.
Averaged any volume in 2024 versus prior years.
(18:30):
And this is something that I just saw, and I thought it was really fascinating.
Indices for example, year over year growth, last year versus this year, about seven and
a half percent, nearly 18% growth over the last five years.
The last five years, almost 20% growth in indices, 13% growth over the last five years
(18:53):
for ETFs.
And then speaking of ETFs, since 2020, I see that listings of new ETFs have gone up by
over 100%, 112%.
One of the things I find interesting about ETFs, and this is something that somebody
pointed out to me recently, is that there are people that can trade ETFs.
(19:17):
Let's say you don't have your approval to trade options.
For those listening, if you do want to trade options, you need to be approved for an options
trading account.
Now that's going to be different from a normal stock trading account.
So if you don't have options approval, there are certain ETFs that almost behave, and Dan,
(19:39):
I want your opinion on this, that almost behave similar to an option.
There's leveraged ETFs now, inverse ETFs.
So what's your insight on that?
Well I always found inverse ETFs to be just kind of ridiculous.
(20:01):
Like learn about puts.
Right.
I love it.
What do you need to do?
What do you need that for?
You know, I mean, or you can even just share it the darn thing.
But you know, puts protect you.
They give you limited risk instead of unlimited risk.
So yeah.
Okay.
(20:21):
I like that.
Just yeah, definitely more people are getting involved with those.
And we will be talking more about ETFs in indices, as well as zero DTE in our upcoming
OIC webinars.
So listeners, I invite you to tune in for that.
(20:42):
In the meantime, Dan, I really appreciate you taking the time to sit with us.
Thank you so much.
Yeah.
Thanks for having me, Mark.
I appreciate it.
Great to be here.
Yeah.
It's always great to see you.
Thank you.
And ladies and gentlemen, that's going to do it for today's episode of Wide World of
Options.
Again, special thanks to our friend, Dan Pasarelli, market taker mentoring.
(21:05):
And Dan, thanks for taking the time to sit with us, providing your insight into zero
DTE and ETFs in indices.
Ladies and gentlemen, we'll be back next time with a whole new show featuring more industry
names, market concepts, and of course, trusted options education.
In the meantime, be sure to visit the events section of our optionseducation.org website.
(21:28):
Register for our upcoming webinar events.
As I had mentioned, October is going to be zero DTE and ETF.
So make sure you register for those two episodes starring Matt Cashman, one of our favorite
educators here at OIC.
Thanks again to all of our listeners and supporters out there.
(21:49):
And as always, please feel free to send us your questions via email at options@theocc.com
or live chat with us on our website.
Take care everyone, and we'll be talking with you again very soon.
You've been listening to the Options Industry Council's Wide World of Options.
If you have questions about anything you've heard on today's show, email options@theocc.com
(22:15):
or visit www.optionseducation.org and chat with OIC's investor education team.
Interested in connecting with OIC on social media?
Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
options.edu and follow their page on LinkedIn.
Thanks for listening and be sure to tune in to the next episode of Wide World of Options.
(22:41):
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(23:05):
and Google Play stores.
Select programs are also available via livestream at mixler.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider or via questions
(23:35):
at theoptionsinsider.com.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(00:22):
and Google Play stores.
Most programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(00:52):
at theoptionsinsider.com.
This is the Options Industry Council's Wide World of Options.
Before we start today's show, listeners should know that options involve risk and are not
(01:12):
suitable for all investors.
Individuals should not enter into an options transaction until they have read and understood
the disclosure document, characteristics and risks of standardized options, available by
visiting theocc.com or by contacting your broker, any exchange on which options are traded,
or the Options Clearing Corporation at 125 South Franklin Street, No. 1200, Chicago,
(01:34):
Illinois 60606.
The Options Industry Council is an industry resource provided by the Options Clearing
Corporation, collectively OCC.
Any strategies discussed are strictly for illustrative and educational purposes only,
and are not to be construed as an endorsement or solicitation to buy or sell securities.
Commissions, fees, margins, interest and taxes have not been included in any of the examples
(01:58):
used in this show.
These costs impact the outcome of all stock and options transactions.
Consult your tax advisor about any potential consequences.
OIC was created in 1992 to educate investors and their financial advisors about the benefits
and risks of exchange traded equity options, and the Wide World of Options radio show is
(02:19):
one of several resources investors can utilize to learn more about options.
Other resources OIC offers include webinars, articles and self-guided options related coursework.
For more information, check out www.optionseducation.org.
Now here's your host, Mark Benzoquin.
(02:43):
Hello everyone and welcome to OIC's Wide World of Options.
I'm your host, Mark Benzoquin.
For October, OIC has a pair of webinars lined up to shed some light on two topics that have
entered into the investing zeitgeist as of late, those being zero DTE and the rise of
volume for ETFs and indices.
(03:04):
And to help shed that light, I'm very excited to welcome Mr. Dan Pasarelli of Market Taker
Mentoring.
Dan, welcome and thanks for joining us today.
Hey, thanks Mark.
Great to be here.
Dan, do me a favor.
Let's go ahead and get started.
Why don't you take a moment and tell us a little bit about yourself, about Market Taker
Mentoring and your involvement and experience in options.
(03:26):
Sure.
So I'm Dan Pasarelli.
I started down on the trading floor, well, kind of a long time ago, as a runner and which
is basically the most entry level position you can get and work my way up to becoming
a trader.
I became one of the biggest traders in my pit at the height of my trading career on the
(03:49):
Chicago Board Options Exchange.
And then since leaving the trading floor, I've sort of dedicated my life to kind of giving
back to the community and helping other traders reach their goals.
So I started Market Taker Mentoring in 2008 and we've trained traders in over 50 countries,
(04:10):
trained tens of thousands of traders.
I don't know, I kind of lost count.
Excellent.
And education is so important, especially for today's class of trader that is certainly
a different class than when you and I were in the business, when you and I were getting
started in the business, I should say.
(04:30):
So when it comes to that education, as I had mentioned in the introduction, one of the buzz
topics is, you know, you're very familiar with, is zero days to expiration, commonly
known as zero DTE.
So let's go ahead and get started with the giant elephant in the room, right?
Namely, how zero DTE is technically a misnomer.
(04:52):
So let's get started.
Tell us why you think that is.
Yeah. So what zero DTE is, is there's zero days till expiration.
The option expires today.
Well, I mean, if you think about it, that's always been the case.
It's just that it used to be once a month, you know, when expiration day came along,
(05:15):
there's zero DT for that name.
But then of course we went to weeklies and, you know, sub-weeklies and all that.
And now it's a little bit, you know, more ubiquitous.
Right, right.
So the zero DTE technically has been in existence as long as options have been
existence.
It really is just trading options on the day they expire.
(05:38):
And as you had mentioned before, when we just had monthly contracts or
quarterlies or end of the month, you know, when there were just a few expiration
cycles, that day of expiration was known as zero DTE.
Now with the proliferation of weeklies and in some cases daily expirations, the
(05:58):
concept of trading on that day of expiration has definitely grown in terms of
popularity.
I've got some statistics that were curated by Henry Schwartz of the CBOE.
So for example, with stocks, and this may not be actually zero DTE, but these are
more short term options versus long.
(06:19):
So with stocks, for example, contracts expiring less than a week to go, average
daily volume of about 27 and a half, I'm sorry, 24 and a half million contracts
per day versus contracts expiring more than a week out is about 21 and a half
million.
So the shorter term, less than a week, at least 10% greater average daily volume
(06:45):
than the longer term.
With ETFs, it's even more of a disparity.
ETFs, less than a week to go, about 12 million average daily volume versus 6
million more than a week.
And then indices, 2 and a half million less than a week, 1.6 million more.
So it's showing that more people are trading these shorter term expirations,
(07:08):
whether they be shorter term weeklies or specifically zero DTEs.
Also by Henry Schwartz, in 2016, zero DTEs accounted for about 5% of the total
volume versus in 2024, it's over 20%.
Less than a week to trade, about 46% of the total volume versus more than 30
(07:32):
days, it's about 74% of the total volume.
And I know that these numbers are confusing, but what they mean is more people
not only are getting attracted to the options product, as we know by the
increases in volume, but more people are getting attracted to the shorter term
expiries.
Now my question to you, Deann, is how does that affect, for example, a retail
(07:57):
trader?
Right now, when we've got a contract that maybe we enter into today that is
expiring today, at the end of the day, it's either going to be worth something
or it's going to be worth nothing.
So what, in your opinion, what do you think traders need to look out for?
Let's look at theta, for example, time decay.
(08:20):
It's certainly going to affect a zero DTE contract much differently than, let's
say, a 30 day.
So as a retail trader, what do you think they might want to look out for?
What should they keep in their mind when trading these?
Yeah.
I mean, as far as what to look out for, some of the dangers, if we're going
(08:41):
long options, just buying calls or buying puts, which is one of the most
common things that zero DTE traders trade, the theta is 100%.
And in a lot of ways, I actually feel that's kind of liberating.
I mean, I'm the guy who loves to talk about the Greeks.
(09:04):
My first book was on the Greeks.
They're such important instruments.
But when it comes to zero DTE trading, the Greeks become very different.
And just looking at theta, per se, when we think about options, I always think,
okay, we look at the Greeks or we look at a P&L chart.
(09:24):
The P&L chart just becomes so much more important.
If I buy this call, is it going to move enough to cover theta by the end of the day?
I don't know.
In some ways, I think that some of the things that you have to look out for
are they make trading a little easier when it comes to zero DTEs.
A little easier.
(09:45):
Okay.
That's interesting.
That's an interesting take.
So we're looking at it from the buyer's perspective and a great point that you
made.
If you're buying an option for X, you've got to make sure that that option gains
enough in value to where it's profitable at the end of the day because theta is
going to decay, as you had mentioned, 100%.
(10:06):
If that option is out of the money and its premium is entirely represented by
time value, come 3 o'clock or 3.15 central time for us Chicagoans, that option
is going to be worth zero unless that stock moves enough, unless that index
moves enough to account for that erosion of theta.
(10:30):
From the seller standpoint, that's got to be the good thing though, right?
So do you think zero DTE is more attractive to sellers as to buyers?
Well, you know, Mark, there's always the tricky thing with options, isn't it?
Whenever you get a benefit, you also get the opposite side of that.
So yeah, I mean, when selling options, definitely.
(10:53):
It's great to have that theta because all the time premium gets sucked out by the
end of the day, it becomes zero.
But the other side of theta is gamma, which is almost kind of a weird thing to
talk about with zero DTE options.
It's relevant, but gamma kind of becomes infinite.
(11:14):
Let me explain that.
Yeah, expound, please.
Explain what I'm thinking here.
So like if you think about it, what does gamma measure?
When it comes down to it, delta and gamma just measure the kind of the likelihood of
(11:35):
the option expiring in the money.
I mean, that's not necessarily mathematically correct, but it's kind of
conceptually correct.
And gamma just sort of changes the delta.
But here's the deal.
When it comes to zero DTE options, at the end of the day, the delta is zero or 100.
(11:55):
So the gamma is ultimately infinite or non-existent.
You can kind of look at it whichever way you want.
But gamma kind of doesn't matter.
And delta is the actual, to me, the actual mathematical value of delta becomes so much
less important on expiration day because at the end of the day, it's zero or 100.
(12:20):
It doesn't matter if it says 43 on the screen right now.
We know it's going to be one of those two things.
Right.
Right.
So gamma, you think is, depending on how the investor looks at it, may or may not be something
to concern themselves with because as you had mentioned at the end of the day, that
(12:41):
option's either worth something, it's got 100 deltas, or it's not worth anything, and
it's got zero.
But I've got to imagine that due to the sensitivity of the option to the stock price or the underlying
index price, any changes in implied volatility has got to really make the investor's head
(13:05):
spin.
Right.
If the market goes up a tick or two, now the option's in the money and it's worth something.
If it goes down a tick or two, it's out of the money and it's worthless.
Any changes in implied volatility have got to be significant, no?
I would say yes and no.
Yes and no.
(13:25):
Okay.
Because when it comes down to it, on expiration day, zero DTE day, traders are trading, they're
buying or selling these options if it's directional just to make some directional profit, if it's
credit spread to bring in some theta, a lot of theta.
(13:49):
But the buying and selling pressure is what causes implied volatility to change from a
classic sense.
But at the end of the day, because there's no time premium left, implied volatility only
affects the time premium.
And so if a trader is willing to pay a nickel more on said options and the unit of vega
(14:15):
is like 0.001, well, okay, sure, the screen says implied volatility just rose 20 points,
but did it?
Yeah, I get that.
Okay.
All right.
Interesting.
Let's say I put on a position six months ago and now it's expiring today.
(14:36):
I'm trading out of that position by rolling it another month down the road.
So today there's that options volume that I did, right?
I did a zero DTE trade, but I'm not getting in and out of the position today.
What I'm simply doing is managing my position today and moving it further down the road.
(14:59):
Do you have any insight on that in terms of position management and how that accounts
for volume in zero DTE or the interest in zero DTE?
Yeah.
We do a lot of work with zero DTE side.
I'm always nerding out about the statistics and that kind of stuff.
(15:19):
But if you look at like debit spreads, the statistics show that most of the debit spreads
that trade are people closing credit spreads.
You know, they're ultimate closing positions.
There are more debit spreads that are closing positions and opening, but when it comes to
(15:45):
credit spreads, the other side of that, what we tend to see is people putting on credit
spreads at the beginning of the day and just letting them go through expiration.
So you have no overnight risk, but I do want to clarify something that I like to bring
up time and time again is that when it comes to spread trading, whether it's a debit or
(16:07):
credit spread, just because the position expires out of the money doesn't mean that your risk
is gone.
So you may not have that overnight risk, but you do have that aftermarket risk specifically
if we're talking about, you know, single stocks, for example.
So just something to consider.
Now I want to shift gears.
(16:27):
Let's talk a little bit more about ETFs and indices.
For those people that are new to options, how would you describe or what would you say
is the primary differences between single stock options and ETFs or indices?
Yeah, I was kind of thinking about this earlier.
(16:50):
I mean, well, the obvious difference stems from the fact that in ETFs or in index is
a basket of securities.
And when we look at the math behind baskets of securities, what becomes interesting is
that the risk, well, I should say, let's use a better word, the volatility becomes smaller.
(17:18):
Maybe less sensitive.
Yeah, less sensitive, less sensitive.
Right.
Because, you know, one security like it has specific company news, a new specific to that
company, whereas it gets smoothed out with the basket.
So there's one thing.
And then obviously the underlying, you know, if you buy a single stock option in, you know,
(17:41):
XYZ, as you had mentioned, any news relating to XYZ is going to impact that option significantly.
If it's an ETF that has XYZ in its basket, or if it's an indices or an index that has
XYZ, as you had mentioned, it's going to be smoothed out a little bit more.
Other differences, you know, most indices are cash settled, you know, rather than physically
(18:06):
with shares.
A lot of them are European exercise.
So you can only exercise that contract on the day of expiration versus American style,
which they can be exercised at any time.
But let's kind of build on what we were talking earlier with zero DTE and some different data
points.
Averaged any volume in 2024 versus prior years.
(18:30):
And this is something that I just saw, and I thought it was really fascinating.
Indices for example, year over year growth, last year versus this year, about seven and
a half percent, nearly 18% growth over the last five years.
The last five years, almost 20% growth in indices, 13% growth over the last five years
(18:53):
for ETFs.
And then speaking of ETFs, since 2020, I see that listings of new ETFs have gone up by
over 100%, 112%.
One of the things I find interesting about ETFs, and this is something that somebody
pointed out to me recently, is that there are people that can trade ETFs.
(19:17):
Let's say you don't have your approval to trade options.
For those listening, if you do want to trade options, you need to be approved for an options
trading account.
Now that's going to be different from a normal stock trading account.
So if you don't have options approval, there are certain ETFs that almost behave, and Dan,
(19:39):
I want your opinion on this, that almost behave similar to an option.
There's leveraged ETFs now, inverse ETFs.
So what's your insight on that?
Well I always found inverse ETFs to be just kind of ridiculous.
(20:01):
Like learn about puts.
Right.
I love it.
What do you need to do?
What do you need that for?
You know, I mean, or you can even just share it the darn thing.
But you know, puts protect you.
They give you limited risk instead of unlimited risk.
So yeah.
Okay.
(20:21):
I like that.
Just yeah, definitely more people are getting involved with those.
And we will be talking more about ETFs in indices, as well as zero DTE in our upcoming
OIC webinars.
So listeners, I invite you to tune in for that.
(20:42):
In the meantime, Dan, I really appreciate you taking the time to sit with us.
Thank you so much.
Yeah.
Thanks for having me, Mark.
I appreciate it.
Great to be here.
Yeah.
It's always great to see you.
Thank you.
And ladies and gentlemen, that's going to do it for today's episode of Wide World of
Options.
Again, special thanks to our friend, Dan Pasarelli, market taker mentoring.
(21:05):
And Dan, thanks for taking the time to sit with us, providing your insight into zero
DTE and ETFs in indices.
Ladies and gentlemen, we'll be back next time with a whole new show featuring more industry
names, market concepts, and of course, trusted options education.
In the meantime, be sure to visit the events section of our optionseducation.org website.
(21:28):
Register for our upcoming webinar events.
As I had mentioned, October is going to be zero DTE and ETF.
So make sure you register for those two episodes starring Matt Cashman, one of our favorite
educators here at OIC.
Thanks again to all of our listeners and supporters out there.
(21:49):
And as always, please feel free to send us your questions via email at options@theocc.com
or live chat with us on our website.
Take care everyone, and we'll be talking with you again very soon.
You've been listening to the Options Industry Council's Wide World of Options.
If you have questions about anything you've heard on today's show, email options@theocc.com
(22:15):
or visit www.optionseducation.org and chat with OIC's investor education team.
Interested in connecting with OIC on social media?
Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
options.edu and follow their page on LinkedIn.
Thanks for listening and be sure to tune in to the next episode of Wide World of Options.
(22:41):
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(23:05):
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(23:35):
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