0DTE allows users to take very short-term positions and hedges on the market. The outcome of the trade is known the same day, and less capital is needed than equivalent strikes with further dated expiries. 0TE options tend to be highly liquid with higher trading volumes and very tight bid-ask spreads. With potential lower premiums, they can be less expensive to trade short-term volatility. But short-term options, particularly 0DTE options, can come with risks due to potential intraday volatility and limited time to expiration. -Cboe
Category
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NewsTranscript
00:00What is going on Benzinga Nation and welcome to today's virtual event where we navigate
00:06short dated options and zero DTE with SIBO.
00:11There's so many things that we've talked about in our trading shows and any other shows that
00:15you might've joined us for, where we talk about trading zero DTEs in a responsible manner.
00:20How do you kind of best utilize this instrument to benefit our portfolio in the longterm?
00:25And that's exactly what we're going to talk about.
00:27There are so many different advantages that you can have when you trade short dated options,
00:31SPX.
00:32We often talk about the VIX as well and how for some folks might be buying that to go
00:36to protect and hedge a little bit.
00:38So we'll have those conversations with Vince here in just a moment.
00:41But I'm curious before we go ahead and get started, what's going on, Elon, do me, give
00:45me a favor, go ahead and type in one in the chat.
00:48If you do go ahead and use short dated options and zero DTE, I want to see how many of our
00:54viewers utilize this.
00:56And if you have any questions, you can go ahead and let us know right now, throughout
01:00the presentation, throughout the conversation, I'll do my best to go ahead and bring them
01:04up with Vince as well.
01:06There's a lot of good stuff packed.
01:07We'll have a couple of visuals to go over as well, but I think the most important part
01:11that a lot of people may not even know, I didn't even know about it until maybe about
01:13two years ago, is the tax advantage that you have when you're trading SPX versus just say
01:20the SPY, right?
01:22So that's, that's something that's really beneficial.
01:24Looks like Ben uses us short dated.
01:27You've also got heats, Christopher.
01:29I know a few other folks when they watch us in live trading, they go ahead and use it
01:33as well.
01:34Now with the short dated options and the zero DTEs, the volatility can be insane because
01:40you're, you're trying to be correct in less than one day when it comes to trading, right?
01:45You want to make sure that the move that you're anticipating happens quickly, or else you're
01:50just going to get killed when it comes to data.
01:52And that's something that we'll go ahead and talk about here in just a minute with Vince
01:56as well.
01:57Vince, you can go ahead and give me a thumbs up whenever you're ready to rock and we'll
01:59go ahead and bring you on camera.
02:01But those are the types of conversations that we'll be having with Vince here in just a
02:05moment.
02:06But yeah, again, if you have any questions, let us know in the chat, we'll make sure that
02:11we kind of bring them up as the presentation is going along.
02:14But Vince, I'm about to bring you up here.
02:17How's it going?
02:18Good morning.
02:20Great to talk to you.
02:21We've had so many different prep calls getting ready for this webinar, so I'm glad we finally
02:25get the folks to watch it.
02:27There's so much to talk about when it comes to navigating short dated options, zero DTE.
02:32Give us just a quick insight on what is it that you do so folks understand your perspective
02:35and where you're coming from and we'll get things rolling.
02:37Yeah, sure.
02:38So thanks, Denae, and a big thank you to everyone who's joined the call today.
02:44So I began my career actually trading options as a market maker and specialist on the Amex
02:50exchange floor in New York City.
02:53Actually traded primarily in single stock rather than index.
02:57So it's sort of been an interesting evolution of my career where I obviously focus a little
03:02bit more on the index side now.
03:04So once I got my MBA, I left trading for a small analytical platform provider startup
03:10called LiveVol, which some of you may have heard of.
03:14We got acquired by SIBO in 2015, been here ever since.
03:20So right now my focus is on covering the retail derivatives ecosystem so that includes everything
03:27for brokers and their platforms to third party technology providers, educators, social networks,
03:36things like that.
03:39But yeah, thanks for having me.
03:40Absolutely.
03:41So we've got a couple of folks that we talked about how popular it is to trade those short
03:45dated options in zero DTE.
03:47You've got a few folks in the chat.
03:48We told them to type one if they do use it.
03:50Matter of fact, Christopher went ahead and traded one earlier as well.
03:53So this is going to be something that's quite relevant to our viewers.
03:56But I believe you wanted to share your own charts.
03:58I think I can go ahead and pull them up here for you.
04:02Sure.
04:03All right.
04:04Yeah.
04:05So just thanks, Denae.
04:07So I'll just kick things off by noting the tremendous growth in the options market over
04:12the past several years.
04:13A lot of that is retail driven, not all by any stretch.
04:18So volumes have increased about three times in the last seven years from 4 billion contracts
04:24I think in 2017 to about 11 last year and we should reach another high this year.
04:31There's tons of factors behind that.
04:34More expirations, more products, better technology, better bid-ask spreads.
04:41Obviously there's been some interesting confluence events on the retail side specifically, rise
04:46of no fee brokers, ticket charges being eliminated.
04:51And then the topic of the conversation today, which has really supercharged the growth in
04:54the last few years is zero DTE.
04:56So more recently, we've seen an increase in short duration trading, which again, we'll
05:02cover in the next few slides.
05:05Speaking of which, I think we want to clear a few misconceptions.
05:10You mind hitting full screen on yours, on your presentation?
05:13Oh yeah, my bad.
05:14No, you're good.
05:15You're good.
05:16But yeah, you've got folks already talking about the XSP, which by the way, look, I'm
05:19happy to admit, I've been trading options for quite some time, but when I was looking
05:22at the slide, which again, we'll go over, I want to jump around, but that was something
05:25that I didn't even know that was offered was the XSP versus the SPY.
05:30So that was interesting for me because the tax advantage of it is cool.
05:33But anyway, if you can hit full screen, I think you might, it can, maybe you can go
05:35to like present or slideshow.
05:39You should be able to do so on the bottom, right?
05:41It'll also have it.
05:42If not, I can share my screen.
05:45Okay.
05:46Yeah.
05:47There you go.
05:48Yeah.
05:49So, so you mentioned, I'm sorry.
05:50It was, I was pummeling with the technology here, but you mentioned XSP specifically.
05:54Yeah.
05:55We'll cover that.
05:56We did somebody, is that what Christopher traded or was there a specific question to
05:59start?
06:00No, no.
06:01I was just mentioning how relative it is to our viewers to trade and when it comes to
06:04short options, but the rapid growth, you mentioned, you know, retail, cause it was introduced,
06:09you know, not too long ago when it was weeklies.
06:11Then we went to, you know, having it, I think it was Monday, Wednesdays and Fridays.
06:15You can correct me if I'm wrong.
06:16And then we kind of had, Hey, you had daily options aspect of it as well.
06:19So it really ramped up retail being introduced to that instrument.
06:24Yeah, for sure.
06:25So it, you know, I will if, if you want to actually take over the screen, you got it.
06:32I can go to the slide to the one above that.
06:36So just to cover it, and this is what you had mentioned Zunade, you know, the let's
06:43just describe zero DT off the top real quickly.
06:46Most of the people probably have an understanding of what it is, but in case you don't it really
06:51just simply describes market participants trading options on the day of expiration.
06:56Yeah.
06:57To clear up misconceptions, it's always existed.
06:59Zero DTE, they're not new products.
07:03There's actually no options or zero DTE options which are launched with the same day expiration,
07:09right?
07:10So series are listed off in weeks or even longer in advance.
07:14Now obviously there has been a big increase in volumes and we'll explain that in a second.
07:19But in theory, zero DTE trading can occur in any symbol with listed options provided
07:23they have an expiration that day.
07:25So why have things changed?
07:27And this is precisely what you were saying a minute ago, Zunade, SPX introduced Monday
07:34and Wednesday options in 2016.
07:37We actually didn't have full round the week options, round the calendar options until
07:43second quarter of 2022.
07:45So and that corresponds obviously with a little bit more of the articles you read in the press
07:54and Tuesdays and Thursdays got listed in 2022 for both SPX and SPY and XSP, which you had
08:02mentioned before.
08:03A couple of new symbols in the last year, IWM and Qs as well offer expirations every
08:10day of the week.
08:12So if we kick over to the next slide, you know, to illustrate the growth that has come
08:19from zero DTE trading and we said short duration and we actually see a lot of one days as well.
08:27It's a lower number, but you actually get one DTE, which is, you know, sort of just
08:32a little bit of an offshoot of this where decay is a little bit less and maybe the moves
08:37are a little less pronounced.
08:39But obviously, there's still a quick return on the on the investment.
08:44SPX zero DTE volume has grown about 60 percent annually from 2016 till now, we're on pace
08:52for another record.
08:53It's not it's not 60 percent growth anymore.
08:55Obviously, it's starting to plateau a bit, but at the same time, it's nearly 50 percent
09:00of the overall SPX volume.
09:02So SPY is going to have a somewhat similar, similar picture, you know, in the 40 percent
09:09ranges for total SPY volume being being zero days.
09:14To give you an idea of just how much this is sort of taking the world by storm, 20 percent
09:21of total U.S. listed option volume is now zero day.
09:24And when you consider that the vast majority of products do not offer an expiration every
09:31day of the week, that just serves to illustrate just how how large that volume is.
09:36Right.
09:37So.
09:38So while it can occur in essentially any product that has an expiration that day, obviously,
09:42it's most associated with the ones that do have expirations every day.
09:45So that would be the, you know, the big liquid ETFs and the big invest indices.
09:49Yeah.
09:50I can't imagine the participation from retail if there ever is zero DTE for non ETF related
09:58instruments.
10:00You know, I'm talking about like your stocks themselves and then the derivatives from it.
10:04That would be insane.
10:05Who knows?
10:06Yeah, you know, and I think we'll we'll cover that a little bit later.
10:11There's some there's certainly, you know, there's there's undeniably interest in short
10:16duration and there are certainly things you can do with hedging strategies.
10:21There are some risks specific to ETF and single stock, which will sort of cover a bit.
10:27So why are they popular?
10:29And we're just going to go right to left here.
10:32You can really express you can trade tactically.
10:35Right.
10:36So if you want to if you want to put on a short term move, you know, either a hedge
10:42or or a speculative position, what you can do is you think, you know, let's say you're
10:49long a portfolio of stocks, which most retail typically would be long, you know, generally
10:55long the market.
10:57Not many people, not as many people shorting stocks.
10:59Right.
11:00So maybe you don't want to incur a taxable event by selling out a stock, but you're worried
11:05about an economic number or an earnings event, specifically probably an economic number.
11:12You can trade tactically by hedging with the related index or ETF option in terms of you
11:21maybe put a bearish position on there means you don't have to take your stock positions
11:25off.
11:26You know, and obviously you have a little bit of protection from from that downside
11:30hedge.
11:32Secondly, reason liquidity, lower premiums.
11:36So you think about just how much volume is happening in the week.
11:41It's not uncommon to see over one hundred thousand contracts in a single day or close
11:45to one hundred thousand single on a single strike within SPX.
11:51It's, you know, and even higher than that, obviously, an SPY being that is a smaller
11:56notional product.
11:57You might see three hundred thousand contracts trade on a specific series.
12:00Right.
12:01There are a lot of option symbols that do not trade that many contracts in a single
12:05day.
12:06Right.
12:07So just, you know, for the entire option, for the entire underlying.
12:10So so clearly there's a lot of volume which has led to very tight spreads.
12:19So, you know, but that said, you know, and then you're going to have less time value,
12:23obviously, because there's only six and a half hours max in the product.
12:26Right.
12:27So now I there's none of this is to say there's no risk and we'll cover the risk in a second.
12:32But just to indicate some of the reasons why they are popular, I mean, of course, outcomes
12:37are known quickly.
12:38Right.
12:39So you can take short term hedges, short term positions.
12:42Outcome of the trade is known the same day and less capital is needed than it would be
12:46with with equivalent strikes further out.
12:48OK, so we live in a we live in a now we live like in a very instant gratification world.
12:54That's another reason that you mentioned, right.
12:56Your outcomes, you know, quickly, you don't need to wait overnight.
12:59You don't need to wait a week till earnings after the fact or whatever.
13:02You just are looking for a move and you kind of know same day if you're right or wrong.
13:06Yeah.
13:07And you think about it.
13:08I mean, it can be very tactical, too.
13:09I mean, if you're trading for a specific move, you don't have to buy it two weeks in advance.
13:14You could buy it.
13:15Exactly.
13:16That day or day before.
13:17Hello.
13:18Hello.
13:19Hello.
13:20MC.
13:21Right.
13:22A lot of a lot of people like to use that.
13:23There's a lot of volume that happens on those days.
13:24And it's different.
13:25You know, what's interesting is how the strategy, you know, how the strategies kind of play
13:27out on those days.
13:28And we'll cover a little bit on the different strategy mixes and a few slides here.
13:32But now there are obviously risks.
13:34There is increased leverage clearly with something that's got six, you know, only a few hours
13:39left to expiration.
13:41You know, if you're long an option and it's not moving, it decays really fast at the end
13:47of the day.
13:49Same foot side.
13:50If you're short an option and then stock moves against you, there's little time to adjust.
13:54Right.
13:55The two risks that are specific to ETF and single stock.
14:00So if you think about the distinct, you know, how you distinguish index versus ETF, exercise
14:06assignments is a big difference.
14:09Right.
14:10So if you think about if you own a call in a single stock or an ETF, and this is one
14:16of the, you know, one of the one particular reason why single stocks, it's not as easy
14:21to just launch zero options is they settled stock.
14:25Right.
14:26An index settles to a value, which settles to cash.
14:30Whereas with an ETF or a single stock, you basically have to take possession of the stock
14:35at the end of the day.
14:37Or if you're short the option, you can get signed into a short position or a long position.
14:43And basically, if you don't have money in your account to take that position, the broker
14:47is going to close you out as they should.
14:50Right.
14:51So there's a core, you know, something correlated with that contra exercise risks after the
14:56market close.
14:57If you think about it, you know, maybe I'll just cover the next slide here.
15:02I'll just cover that real quickly if you want.
15:04So just to give you an example, this is a cash versus physical settlement that I was
15:07talking about, how you distinguish ETF versus index.
15:14So, you know, for those not familiar with XSP, it's the one tenth version of SPX.
15:20Reason we use this in the slide is it's notionally comparable to SPY.
15:24It's basically one for one.
15:26They don't trade at exactly the same price because of, you know, indexes don't pay dividends
15:30and there's some differences in the price.
15:33But generally speaking, for example purposes, they do trade pretty much one for one.
15:39If you're long an option in the ETF, so if you think about, you know, any single stock
15:44as well, if you're long an option and it finishes in the money, you have to take possession
15:50of that.
15:51You basically exercise that call option.
15:54And the example we use here is from January four seventy five call.
15:59You're basically having to put out a seventy forty seven thousand dollar outlay to take
16:03possession of that stock at the end of the day.
16:06Right.
16:07So you have a long residual position after you take possession of the stock.
16:11So there's potential market gap risk afterwards if you can't close that, if you can't trade
16:15after the market on the index side, it settles to cash.
16:19So basically, you know, for the example here where the, you know, the index and the ETF
16:26both closed a dollar sixty eight in the money with the index or XSP in this case, you just
16:32get a credit to your account, right, of the dollar sixty eight times one hundred, which
16:36is, you know, the same multipliers you use on on any other option.
16:42Right.
16:43And then you get the credit to the account.
16:45So the main the difference I distinguished contra exercise and I don't have a slide for
16:51that and then show a slide for that.
16:52But basically, that's just the example of a stock or an index moving after the close.
17:00Clearly, you know, those those those risks are largest in single stock, obviously, if
17:06you have a pre announcement or something like that, a stock can really move several, several
17:10strikes through.
17:12But even at the market level, there's geopolitical events where the market can move after the
17:16close and your position could go from not exercise to in exercise.
17:22And that means that you could get assigned if you're short a position, even though it
17:26had closed, you know, technically, yeah, you know, not in the money.
17:31So that's just we had a little bit there.
17:34We had Christopher.
17:35We had he had a few questions.
17:36So I'm going to by the way, if you're asking questions in the chat, I promise I'm looking.
17:39I'll ask them as it relates to what's on the slide because we'll be talking about it in
17:43the upcoming slides.
17:44But they were talking about how if XSP settlement versus SPI affect the account.
17:50You explain that.
17:51So that that's good there.
17:52Now, the tax advantages we're going to talk about here in a couple of slides as well.
17:56But that's what I was saying.
17:57I didn't I didn't know that XSP was available.
18:00I always thought it was just SPX.
18:02I don't know.
18:03There was a smaller one.
18:04So I would either if I want to just make if I wanted to trade less than 10 contracts on
18:07the SPI, I would just trade the SPI.
18:09If I wanted to trade the 10 contract itself, I would go to SPX.
18:13But this is this is neat.
18:14It's something new I'm learning when he sent over the DAX.
18:16This is good stuff.
18:17Yeah.
18:18You know, and I think, you know, and this is obviously, you know, SPY is a great product
18:22too.
18:23Right.
18:24It's a great product for doing either ETF or index.
18:28You know, I think the history of, you know, just for context right now, XSP does about
18:3370,000 contracts a day, which, you know, in the grand scheme of things is pretty busy
18:39product relative to the large ETFs and the indices is not it's not nearly as big.
18:46Right.
18:47So.
18:48So we've you know, we've put some some incentives in to improve the bid ask spreads over the
18:52last few months.
18:53So it's definitely worth another look.
18:55Historically, bid ask spread was a real concern with XSP and that's becoming less of the case.
19:01But, you know, this one, I think this slide, I think is pretty interesting from the standpoint
19:07of clearing up some misconceptions about zero DT that you read a lot in the press.
19:12Right.
19:13So I think a lot, particularly as pertains to retail, but really in general, people think
19:18about zero DT.
19:19I think the general you know, I think there's there's there's good articles that we read
19:25and then there's some that are not as not as well sourced.
19:27Right.
19:28Sometimes you'll see where it's just everybody just assumes it's nothing but what retail
19:33buying recklessly speculative positions.
19:37Right.
19:38And that really isn't the case that we see.
19:41We actually see a very large variation in strategies.
19:46As you can see, the SPX strategies on the left in 2023, you have a really big mix.
19:55It trades.
19:56It's about 50 50 between complex trades and single leg trades.
20:02And then there's also people buying and selling.
20:05So they're really it's not just a one way flow.
20:09And there's a really interesting case study that our head of market intelligence, Mandy
20:12Zoo, put together.
20:13And I saw one of her slides that I'll I'll show at the end of the deck that really it
20:18dispels that narrative quite well.
20:20So so that's generally SPX volumes really split evenly between single leg and complex.
20:28What you end up seeing is the net market maker positioning, which, you know, is is a concern
20:34if everybody's doing the exact same thing.
20:37But it ends up being very balanced because you have two sided trading, you have people
20:41buying and selling, you have complex orders, which by their nature usually is one one
20:46for one.
20:47Right.
20:48So you're buying one contract and selling one contract or in the case of iron condors,
20:52buying two and selling to now SPY volumes tend to be a little more outright single leg.
21:00But you know, you still see a fair amount of spreads trading in there as well.
21:05Now back to SPX credit spreads, verticals, iron condors tend to be the most popular for
21:13the complex trades and generally more popular than debit spreads.
21:18But we see debit spreads as well.
21:21So if you take it to the next slide, we'll cover a little bit what an iron condor is
21:28for.
21:29So I'm sure everybody knows on the call what a long call is or a long put in terms of the
21:36payoff profile.
21:37So I don't have anything there here to show those payoff outcomes.
21:41But you can imagine what those are.
21:44The iron condor on the right is where you sell a put spread and you sell a call spread.
21:52In this case, we're talking about zero DT at same day.
21:56If you think that the index is going to trade or the ETF is going to trade within the range
22:02of those inner short strikes that you trade, I mean, you can see right here, short put,
22:07short call.
22:08You're doing the two short strikes in the middle, right?
22:13If it closes in the middle, if the index or the stock or whatever you trade or the ETF
22:20trades closes in the middle of those two strikes, then you capture all the premium from that
22:25iron condor, right?
22:26So that's one of the trades that we see.
22:28The maximum loss in selling an iron condor is basically the spread width minus the premium
22:35collected at the trade entry, right?
22:38So let's say you sell a $5 wide iron condor for two bucks.
22:43Your max loss is $3 times the multiplier, so $300.
22:48Call and put spread, basically they're half an iron condor each, right?
22:54So it's basically a short call.
22:57A short call spread is where you sell the lower price call, buy the higher price call,
23:03and the trade becomes profitable if the stock or index stays at the same level or stays
23:08below that level of that short strike, okay?
23:14So if we go here, so this is a case study I wanted to mention specifically, and this
23:20one I think, sir, Mandy did a great job in sort of dispelling some of the narratives
23:26that are out there about everything being one-way flow.
23:29So on December 20th last year, the market fell pretty substantially with a move of 1.71%
23:39following lower rate cut expectations by the Fed, right?
23:42So there's obviously, the volume was crazy that day.
23:46They traded over 4 million contracts, which doesn't happen often, right?
23:51I think we've had probably close to a dozen in the history of CBOE in terms of SPX contracts.
23:59And 1.9 million of those were 0DT, right?
24:03So if you think about just that sheer size, a few years ago, we were doing 1.3 million
24:08a day in SPX period, right?
24:11So we did 1.9 million a day that day specific only in 0DT, right?
24:18So there's obviously, there's articles that go out where people think everybody is one-siding
24:26the trade and everybody's buying and taking speculative positions, and that's actually
24:30not what we saw at all in the data.
24:32Obviously being an exchange, we have access to data where we see where people are opening
24:38and closing and buying and selling.
24:40And so we do have a little better insight into what the actual dynamics are.
24:47But on that day, so you had 1.1 million SPX zero-day contracts trade of the puts.
24:55On a net basis, customer only short 17,000, so 1.6%.
25:01So what's happening?
25:02A lot of people doing spreads, maybe somebody who's doing a 5,000 4980 spread, somebody
25:10else is doing the other side, right?
25:12So these things tend to balance out and market makers as a result aren't necessarily being
25:19stuck with these massive accumulated positions that they have to hedge off.
25:24There really is two-sided flow.
25:25So the largest imbalance is actually customers being net short 10,000 of the 4,775 puts.
25:33But if you look, and it's probably hard to see on the screen, but the graphic really
25:38does it justice.
25:39And there's actually on the deck, there's I think a QR code that gives you, you can
25:46subscribe to Mandy's newsletter and she has insights like these all the time and they're
25:51great.
25:52Cool.
25:53I'll find it on my deck and I'll share it.
25:54Yeah, so the gray lines here represents the volume for that day and those strikes.
26:02So these are big.
26:03Like I said, this is an example where over 100,000 contracts trade.
26:06Do you see this tiny blue bar, the tiny blue bars here?
26:12This is the net customer volume on that day, right?
26:14So basically people opening and closing on a line, buying, selling on the line, really
26:24it's a fraction of the overall volume, right?
26:26Just because of the dynamics.
26:27And we typically see that on a daily basis.
26:30It really is balanced flow.
26:33So Mandy has a few more examples online, which she walks through and puts a little more rigor
26:40behind the analysis.
26:43I thought this was one to kind of dispel a few of the narratives out there.
26:46Yeah.
26:47Because I don't think there's a point that's typically very well understood.
26:51Yeah, it can get complicated too, because someone can be like, oh my God, there's so
26:55much buying happening.
26:56But it's like, hey, is it buying?
26:57Is it hedging?
26:58Is it selling?
26:59Is it closing?
27:00Is it above the ask?
27:01Is it below the ask?
27:02What's the spot price doing, right?
27:03There's so many variables.
27:04And especially with SPX, SPY, the indexes, it's a little tough to tell because there's
27:09so much money.
27:10There's so much volume that you just showed us that flows in.
27:13Yeah.
27:14Yeah, and it's tough.
27:15I mean, I think in general, I think some of the way some of the analysis is done sometimes
27:24is people look at the trade price.
27:27Is it trading on the offer?
27:29Or is it trading on the bid?
27:31And you make a lot of assumptions off that.
27:32And sometimes those are valid.
27:33I mean, they're probably valid more often than not.
27:36But there's enough error in that kind of analysis because you don't know if something
27:41traded near the offer that was necessarily a customer buying, right?
27:47Sometimes it could be a sell, right?
27:48So because, like I said, we actually have a data set called open-close, which goes into
27:56those details in terms of like buyers versus sellers, opening versus closing, gives you
28:04a lot more information around actually what the true, you know, it used to be everybody
28:10used to look at open interest, right?
28:12Open interest doesn't really exist when you start talking about zero days.
28:15I mean, there's open interest, right?
28:17But it's not, open interest is a number that's basically disseminated nightly.
28:22It's not updating in your option chain throughout the day.
28:26The open-close data helps you sort of ascertain what the true net positioning is in the market
28:32based on, you know, because of these open and closing phenomenon we're talking about.
28:37So to cover this a little bit, so here's the SIBO index options with greater than one expiration
28:46per week.
28:47And, you know, you could reach out to us, we have the QR code in the back, and we definitely
28:53have some contact us links you could reach out if you have any questions on those.
28:59The benefits of the index options.
29:02I think we did this on a previous webinar, but just at a high level, the cash settlement,
29:07which we had discussed previously, European style, so basically no early exercise or assignment.
29:18Certainty of settlement, which gets into that contra, you know, knowing that when it closes
29:21the index, that's the close.
29:25That was the contra point we covered earlier.
29:27And then tax treatment, which, again, we're not tax advisors, we, you know, certainly
29:32you would want to speak to your tax advisor, but index options do benefit, you can benefit
29:39from 60-40 tax treatment, which is basically 60% long-term capital gains, 40% short.
29:46So those are the main benefits, and, you know, open to take any questions here.
29:53Yeah, and the QR code, by the way, it looks like it might be expired, so we'll post a
29:56link in the chat and we'll redistribute it, no worries on that end.
30:00So we had a couple of questions, and again, just like chat, you guys know whenever I talk
30:03to executives, there's certain things they can comment on, certain things they can't,
30:07so I want to, you know, preface that there.
30:08The tax advantages, Christopher asked this question early on, we talked about the XSP
30:13and the SPX, excuse me.
30:16The tax advantages between XSP and SPX is the same, correct?
30:21It's one-tenth of the quantity, but are their tax advantages the same, or am I wrong?
30:25So XSP is an index option, right?
30:27So it is eligible for that 1256, IRS 1256 treatment, so yes, you could, again, we definitely
30:36recommend speaking to your tax advisor, but that is, you know, one of the, you know, one
30:42of the characteristics of index options.
30:45And I, you know, there's actually something on my screen, so I can't read, it says how
30:49does the, how does the XSP settlement versus SPY?
30:53Yeah, you addressed this, so these are just questions I was bringing it on, but you mentioned
30:57this when you were talking about, hey, SPY, you can go ahead and get that assigned to
31:02you, and whereas, you know, everything else is cash settled.
31:05Yeah, and I just want to clear up something at the end, because Christopher, thanks for
31:09asking this, and maybe it wasn't clear on the deck, but it says XSP is settled Monday,
31:14Wednesday, Friday, it's actually Monday, Tuesday, Wednesday, Thursday, Friday, it has expirations
31:18every day of the week now, so.
31:19Yeah.
31:20And that was introduced in 2022, I believe you said, which that was, there was such a
31:24big hype around that as well, right, and, you know, there's so many folk, now you have
31:29brokers that introduced 24-7 or 24-5 trading, whatever it might be, I don't really know,
31:34don't quote me, Chad, but there's like, there's always more innovative things that are happening,
31:38which you have to be educated if you're going to trade those instruments.
31:43I'm glad, you know, we're kind of doing this, we talked about the hedging and the risk aspects
31:47of it as well.
31:48We've got one question here, how does it matter if it's European or American style if it's
31:53only cash settlement then?
31:54And I believe you mentioned the European, you don't have a risk of early exercise, but
31:59if this question communicates properly to you what they're asking, any comment on that?
32:04So I think, you know, you want to distinguish between short-dated and zero DTE, right?
32:09So if you're European, I'm sorry, if you're American style option, let's say you do something
32:15with seven days left expiration, right?
32:18And you're trading something in an American style expiration, you, let's say you're long,
32:23you have the right to exercise that at any time between then and expiration, and European
32:28you cannot exercise early.
32:31So the biggest difference obviously is pre-last day, that cash settlement is really the biggest
32:40distinguishing factor on that last day.
32:45So I hope that clarifies it a bit, you know, I think just to take the flip side too, if
32:51you're short options, you know, obviously you can say, you know, with American, there's
32:57a benefit to being able to exercise early, but keep in mind the flip side is there's
33:03also, you can get assigned early too, right?
33:08So there is the certainty with European option, you can only exercise or be assigned at expiration.
33:16And Chad, we did go ahead and kind of put in there the fact sheet for SPX and also the
33:22XSP, and I'm going to go ahead and post a link for debunking option myths.
33:27We kind of covered some of them here earlier on this webinar as well.
33:30And you know, funny story for me before we go, I was trading a single stock, maybe me
33:35personally, right?
33:37Maybe 10 to 20 contracts of Robinhood.
33:40It was a spread, the higher spread expired worthless, but the spread that I owned that
33:45I bought not sold because it sold on expired, it ended up getting assigned to me.
33:49So I got a nice little text on Saturday morning saying, Hey buddy, you got new shares.
33:53And I'm like, now I have to wait to see what happens on Monday.
33:56Thankfully worked out in my favor because it broke 23 and you know, it was, it was good.
34:00We had steak that day.
34:02Another, another reason to kind of be responsible and manage when you're trading these zero
34:08DTE, of course, on the SPX side, what the products that you guys have on the SIBO end,
34:14it'll be cash settled.
34:15So you're okay.
34:16But nonetheless, you want to manage your risk and be smart about it there.
34:20Any final thoughts from you, Vince, before we go?
34:22No, I, I really appreciate everybody joining today.
34:26It's certainly been a hot topic.
34:28So certainly use the resources and feel free to reach out to us and we'll, we'll give you
34:34the help that you need.
34:35Awesome.
34:36Thank you, Vince.
34:37Appreciate it.
34:38Appreciate your time.
34:39And I'm sure we'll have more of these conversations as you know, our viewers really do love trading
34:42these.
34:43We trade them live on our live trading shows and things like that as well.
34:45So thank you again for your time.