Marko Kolanovic of JPMorgan warns of the risk of 'Volmageddon 2.0' if the activity in zero-day-to-expiration options continues to accelerate.
Zero-day-to-expiration options are not for the faint of heart, but they still exploded in popularity as of late, spurring concerns of exaggerated volatility in the market. Daily notional volumes in these 0DTE options that track the S & P 500 index exploded to reach a record $1 trillion, according to JPMorgan data. Marko Kolanovic, the top strategist at JPMorgan, warns of the risk of "Volmageddon 2.0" if the activity continues to accelerate.
For example, an investor buys 0DTE call options on a stock, hoping an earnings report comes out stronger than expected. It turns out that the company crushes expectations and the stock explodes. The share price rises, and so does the price of the option contract. The investor could hold the contract until the expiration date and take delivery of the 100 shares of stock.
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