Bond Market 0DTE Options Have Arrived

Should we be worried?

Over the course of the past few years, retail interest in trading options has exploded. In particular, there has been a sharp pick-up in the popularity of trading options with zero days to expiry (0DTE). In other words, options that expire in just a few hours or even minutes.

Of course, the rise in trading 0DTE’s isn’t solely down to retail traders. Institutional traders use them as well. But the skew is definitely with the retail crowd. After all, how many pension funds are buying NASDAQ OTM calls with two hours to go on a Fed meeting night?

In response to this surge, exchanges and other providers have been busy at work. More and more options are being provided to cater for buyers in these markets.

Earlier this week, the NASDAQ index added a ton more options for bond and commodity markets. These are mostly in the form of more regular expiries for particular exchanged traded funds.

For example, whereby in the past an investor might only be able to access one monthly expiry for an asset, now he could be able to choose between half a dozen within that month window. It can therefore allow ODTE trading to be captured.

For the rest of the article, we’ll run through:

• More details on the move from NASDAQ

• Whether short-dated options on ETF’s are a smart move

• Options ideas that we like at the moment

---

Bond market ETF 0DTE options

Let’s take an example of what’s going on. To begin with, let’s start with an asset, such as the 30Y US Treasury Bond.

You could simply buy the bond as a way to get exposure. But let’s say you don’t specifically want the 30Y bond, but rather want to buy long-dated US Treasury bonds in general.

You could then decide to buy the iShares 20+ Year Treasury Bond ETF. This fund comprises various different bonds with more than 20 years to run.

A quick look at the holdings confirms this:

Now let’s say you don’t want to take the risk of the price movement in the ETF, but rather want to speculate that the price will rise. You could then purchase a call option on the ETF, typically with a month or a quarter to expiry.

The call option gives you the right but not the obligation to buy the ETF at the strike price you selected at or before expiry.

***THIS IS WHERE THINGS GET INTERESTING***

Let’s say the US Fed meeting is on Wednesday, and any decisions will impact US Treasury prices. Thanks to the recent changes, you could buy a zero-day expiry option on Wednesday on the ETF just before the FOMC press conference, to speculate on the movements of the next couple of hours.

Previously, that was hard to do, but it is the possibility that has been opened up.

Is this a smart move?

To be clear, the added options aren’t just for bonds but also include precious metals and oil. Yet, for the majority, the main market that will be focused on will be bonds.