(Bloomberg) — This year’s hottest derivatives trade, and perhaps also its most divisive, stole the limelight one final time for 2023 as market watchers cast zero-day options as the villains behind Wednesday’s rally-ending slump in US equities.
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With the S&P 500 Index in overbought territory and turnover curtailed by looming holidays, observers suggested hefty volumes in put options that expire within 24 hours, known as 0DTE options, were sufficient to drag the market to its biggest loss in almost three months. Such trades would oblige market makers on the other side of the transactions to hedge their exposure, pushing the market lower, the argument goes.
“We have been wary of 0DTE options for quite some time,” Matthew Tym, the head of equity derivatives trading at Cantor Fitzgerald LP, wrote in a note with colleague Paolo Zanello. “Today we saw a late…
