The following is a review/behind the curtains look with us, and, is well…. advanced stuff… if you only recall that we spoke of it, we consider it a success, just know we are watching and by no means do you have to teach it…. you have been exposed to something important, but technical that you will likely only see once something has occurred down the road and it may not occur… so no headaches, just a quick read to know what is happening…
As the calendar turned, the goal of a monthly special post was once again desired. Longer time followers, may recall we did a “Back to Basics” multi part series that was met with HUGE applause…. at the beginning of last year 2022.
We even set a special web page (here) and plan on doing a series of 1-2 Minute videos for each subject AND may make a special electronic and paper pamphlet to give pro-bono for those that may find it helpful.
2023 Monthly Series – Advanced Analysis
Rattling around in our head this time, the exact opposite of “Back to Basics” – “Advanced Analysis” – What we are looking at and why!
The thing about this analysis unlike our “Back to Basics” … Our definition of “Advanced Analysis” is fast moving, immediately relevant but behind the scenes of popularity ….and likely not seen in ANY mainstream media or other outlets… Because of this fact, we have no idea of the occurrences … monthly is a goal, but not a promise for obvious reasons…
Coded Advanced Analysis – Part 1 of this series, was about the importance of money supply, the massive shrinking of it (even more now, we are still watching) and what effects could come!
ODTE – Zero dated to Expire Options
Options are time dated instruments used to express a desired result upon a directional movement of an asset/investment with a specific time to expiration.
Easy examples include hedging of a security, whereby if it drops in value, your option goes up in a similar value to minimize the net loss of the asset…. there are many more, but this is one of the easiest to understand and very popular.
Historically, options have had maturities of months, quarters and even years. Investors know and understand that as the option gets closer to expiration, the “time value” and value of it goes away.
Meet the new FAD – ODTE – Zero dated to Expire Opions
Just as the title implies, these are hours of options, given they do not even last one day… and they have become extremely popular as of late…. and for all practical matters, are more like gambling than hedging or investing….
Almost all of these are same day or ODTE options….
Why do we care?
For every options contract that is traded, any contract that cannot be matched to another investor, the dealer must offset/hedge that risk,…. given the massive increase in volumes, dealers are left with no matching investor more and more frequently….
With the sudden popularity of these ODTE’s, some have found they can somewhat control the price of the indexes or whatever they are trading for the day.
Currently players are pushing indexes and others UP, possibly overstating values…. What happens if/when they switch sides, which is easy as pushing a different side of the options?
Very short term, yep, and only a day, yep, but stack multiple days on one another and you can get a large variance of price from reality…. FOR A WHILE!
So now you know, these new popular ODTE’s can cause prices to vary from where they should be….
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
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ODTE Zero Dated To Expire – Advanced Analysis – Zero Date to Expire Options …
The following is a review/behind the curtains look with us, and, is well…. advanced stuff… if you only recall that we spoke of it, we consider it a success, just know we are watching and by no means do you have to teach it…. you have been exposed to something important, but technical that you will likely only see once something has occurred down the road and it may not occur… so no headaches, just a quick read to know what is happening…
As the calendar turned, the goal of a monthly special post was once again desired. Longer time followers, may recall we did a “Back to Basics” multi part series that was met with HUGE applause…. at the beginning of last year 2022.
We even set a special web page (here) and plan on doing a series of 1-2 Minute videos for each subject AND may make a special electronic and paper pamphlet to give pro-bono for those that may find it helpful.
2023 Monthly Series – Advanced Analysis
Rattling around in our head this time, the exact opposite of “Back to Basics” – “Advanced Analysis” – What we are looking at and why!
The thing about this analysis unlike our “Back to Basics” … Our definition of “Advanced Analysis” is fast moving, immediately relevant but behind the scenes of popularity ….and likely not seen in ANY mainstream media or other outlets… Because of this fact, we have no idea of the occurrences … monthly is a goal, but not a promise for obvious reasons…
So here we go-
Our First Part –
M2- What it is and why is it important!
Coded Advanced Analysis – Part 1 of this series, was about the importance of money supply, the massive shrinking of it (even more now, we are still watching) and what effects could come!
ODTE – Zero dated to Expire Options
Options are time dated instruments used to express a desired result upon a directional movement of an asset/investment with a specific time to expiration.
Easy examples include hedging of a security, whereby if it drops in value, your option goes up in a similar value to minimize the net loss of the asset…. there are many more, but this is one of the easiest to understand and very popular.
Historically, options have had maturities of months, quarters and even years. Investors know and understand that as the option gets closer to expiration, the “time value” and value of it goes away.
Meet the new FAD – ODTE – Zero dated to Expire Opions
Just as the title implies, these are hours of options, given they do not even last one day… and they have become extremely popular as of late…. and for all practical matters, are more like gambling than hedging or investing….
Here are the first 10 or so most active options from OIC (Options Industry Council) on Friday February 3, 2023:
Almost all of these are same day or ODTE options….
Why do we care?
For every options contract that is traded, any contract that cannot be matched to another investor, the dealer must offset/hedge that risk,…. given the massive increase in volumes, dealers are left with no matching investor more and more frequently….
With the sudden popularity of these ODTE’s, some have found they can somewhat control the price of the indexes or whatever they are trading for the day.
Currently players are pushing indexes and others UP, possibly overstating values…. What happens if/when they switch sides, which is easy as pushing a different side of the options?
Very short term, yep, and only a day, yep, but stack multiple days on one another and you can get a large variance of price from reality…. FOR A WHILE!
So now you know, these new popular ODTE’s can cause prices to vary from where they should be….
Have a Great ODTE Analysis Day!
John A. Kvale CFA, CFP
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