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Why McElligott Doesn’t Fear ‘Volmageddon 2.0’ — Yet
Last week, one of the most recognizable names on the sell-side weighed in on the 0DTE options frenzy, suggesting that in a worst-case scenario, the proliferation of very short-dated contracts could set the stage for a "Volmageddon" redux.
In essence, JPMorgan's Marko Kolanovic asked if directional investors were selling these options, thereby creating a conceptually similar dynamic to that witnessed in the run-up to the implosion of the VIX ETN complex on February 5, 2018.
"If there is a big m
Thanks for that. I’ve been wondering just who would sell those things. Even for experienced MMs, isn’t that just picking up pennies in afront of a steamroller? Even if retail punters are willing to pay more than the models would suggest.
west Coast stoic – would you have been a happy seller of these things?
The comforting part is that these options settle up every day and there is no carry over after settlement.
Some have posited that these options are being bought by institutional desks on a daily basis so they don’t have to hold capital against the positions but get the equity benefit. With margin rates so high, that makes some sense.
Yes, more on that here: https://heisenbergreport.com/2023/02/04/brave-new-markets/
can someone please help educate me on this? if supposedly by JP account dealers are long gamma need to remain delta neutral. doesnt this create disincentive for price to move outside of nearest large OI strikes (hence reduced volatility) on expiry date? so where is this “volamaggeddon” and expected volatility come from?