It is a sophisticated trading strategy that is becoming increasingly accessible to retail investors.
The strategy: zero-day options – which is essentially a one-day bet on the direction of the markets.
And Ed Tilly, CEO of CBOE Global Markets, is right in the middle. His company offers them every five days of the week.
“It’s gotten really appealing and aroused a lot of interest in being able to voice that opinion.” [on the market] short term,” Tilley told CNBC’s ETF Edge earlier this week.
Zero-day options are contracts that expire the same day they are traded. Tilly believes these options are attractive to investors as they allow them to invest in the shortest remaining contract period.
“At the end of the trading day, the next result of that trade is settled in cash — not physically delivered like a stock or ETF,” he said.
Simplify Asset Management also offers these zero-day-to-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 that [our] “Trades are coming from retail and about two-thirds from institutional investors,” he said.
Despite growing retail interest, Green emphasizes that zero-day options may be the most effective tool for professionals.
“We use the term ‘savvy retail investors,’ and I think there’s actually a really important difference,” Green said. “In general, those who regularly buy options speculate more than actually refine their return profile. It is usually a losing bet.”