This is a sophisticated trading strategy that is becoming more and more accessible to retail investors.
The Strategy: Zero-Day Options Until Expiry – which is essentially a one-day bet on the direction of the markets.
And CBOE Global Markets CEO Ed Tilly is in the thick of it. His company offers them the five days of the week.
“It’s really become attractive and there’s been a lot of interest in being able to express that opinion (in the market) in the short term,” Tilley told CNBC “ETF Edge“earlier this week.
Zero-day expiration options are contracts that expire the same day they are traded. Tilly believes these options are attractive to investors by allowing them to invest for the shortest term left in a contract.
“At the end of the trading day, the next outcome of this trade is settled in cash – not physically delivered like a stock or ETF,” he said.
The most effective as a tool for the pros?
Simplify Asset Management also offers these zero-day expiration options. Michael Green, the company’s chief strategist and portfolio manager, also notes that they have become particularly attractive to individuals.
“About a third of (our) trade comes from retail and about two-thirds comes from institutional,” he said.
Despite growing interest from retailers, Green points out that zero-day expiration options may be the most effective tool for professionals.
“We use the phrase sophisticated retail investors, and I think there’s actually a very important distinction there,” Green said. “In general, those who buy options on a regular basis are more speculative than they are actually sophisticated in terms of the return profile. This tends to be a losing bet.”
