Broken markets 2.0
The options elephant in the room
This market is becoming more and more broken by the day. A month ago we referred to Goldman's latest observation on just how extreme short term options trading had become. We wrote: "Close to 50% of options volumes are in contracts with a maturity of less than 24 hours. The greeks that arise from such short term options are very hard to hedge given the current liquidity in the underlying market. Erratic markets at its best..." This is a massive problem for any market, but especially for a market where underlying liquidity is evaporating (chart 2). The options monster has become huge and you can't tame it....