You've Placed One Of These

You've placed one of these. Nearly everyone has.

A cheap contract expiring Friday, or expiring that afternoon. Small enough that losing it wouldn't really hurt. It felt like the responsible way to make a big bet.

Almost half of all retail options volume now sits in contracts that expire the same day they're bought. Citadel Securities and GMI have it at a record 48%. In SPX it runs closer to 60%.

That didn't start with retail.

In 2022 the exchange added expirations until there was a fresh set of same-day contracts every session. The platforms made them a thumb-swipe away. Retail did exactly what it was invited to do.

Then Cboe published the odds on its own product.

Buy the same-day SPX straddle at 9:35am ET, hold to settlement, run it 199 times. Average result, plus $1.45. Median result, minus $3.28.

Those 2 numbers aren't telling the same story. The typical trade lost. A handful of enormous days dragged the average back above water. That's a lottery, documented in the exchange's own research, and it's where half of retail options volume now lives.

This is what I left the industry over in 2015. Nobody was breaking a rule. Everything a new trader got taught to do simply put him on the wrong side of that median, and no one was going to tell him.

A better indicator doesn't fix it. What fixes it is a structure where the clock isn't billing you every day and one good trade doesn't have to cover 20 bad ones.

Run the 5 checks once and you'll catch it on the next contract you're about to buy.

See what the 5 checks catch

To your success,
Don Kaufman