This Is How Derivatives Trading Swallowed the Entire Market

Tracy Alloway (0:00)

Hey there, Odd Lots listeners, it's Tracy Alloway.

Joe Weisenthal (0:02)

And Joe Weisenthal.

Tracy Alloway (0:04)

We are very excited to announce that Odd Lots is going to Washington.

Joe Weisenthal (0:08)

That's right, for the first time, we are going to do a live public Odd Lots recording in our nation's capital. That's gonna be March 12th in Washington, DC at the Miracle Theater. And guests will be announced in the coming days, but in the meantime, you can find a ticket link at bloomberg.com/oddlots.

SPEAKER_3 (0:31)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:46)

Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:51)

And I'm Joe Weisenthal.

Tracy Alloway (0:53)

Joe, as part of my preparation for this episode, I have spent the morning on TikTok and Twitter slash X, Instagram, watching videos.

Joe Weisenthal (1:04)

Did you find any good techniques that you are going to employ for generating $200,000 a year on $250,000 in capital by selling short-term options?

Tracy Alloway (1:16)

You know what? First of all, there are so many accounts that are basically pitching, trading with derivatives, options, some variation of those nowadays. I did, to your point, find a guy, a video of a guy saying that $1,000 is only nine doubles away from becoming a million. And a million is only 10 doubles away from a billion.

Joe Weisenthal (1:39)

That's true too, I think. That sounds roughly right. Yeah. So what's the catch? You know, someone's got to do it.

Tracy Alloway (1:45)

No catch, Joe. It's all good. We can all be billionaires. No, I think the thing about derivatives trading nowadays is when it started, it was very much a retail phenomenon. It was, you know, the guys on Wall Street bets, yoloing into some crazy derivatives trade, basically buying a lottery ticket on the market.

But what's happened since then is derivatives have really gone mainstream in various ways. So for instance, if you look at options like across the S&P 500 right now, something like 60% of the volume is shorter dated options. So zero DTE or one DTE, which is kind of crazy.

Joe Weisenthal (2:28)

It's totally crazy. You know, I remember first, do you remember Tracy early on when we started at Bloomberg, you brought in, there was someone, I forget who it was, but there was someone from some sort of like actual, like institutional options trading research firm that came in and did this little like mini seminar for some of the reporters on like how to analyze options data. Do you remember doing that? You brought in, anyway, but one of his points was, is that the purpose of options are like, they're largely hedging instruments, they're sort of tactically used by institutions for very specific purposes, insurance essentially, that option sort of played this role as insurance for specific things. And then since then, I get the impression that the world has just like totally changed. And I think the other thing that surprised me, I would have guessed that if we're sitting here in 2025, that that craziness of 2021 would have been some sort of peak, right? There was a Robin Hood era, Memestock era, et cetera. I would not have guessed the durability of it, especially with the Fed having hiked and everything that we've seen transpire since.

Tracy Alloway (3:37)

No, that's my point, right? Instead of like the YOLO crowd basically reducing their options trading, instead we had Wall Street YOLOing into options trading, right? It's reversed. Okay, so options, derivatives, they're everywhere right now and you have different groups of people, so institutional and retail using them. You have a bunch of different strategies, you have a bunch of different products that deploy them, that give, again, new types of traders access. So we should talk about it.

Joe Weisenthal (4:09)

Let's do it.

Tracy Alloway (4:10)

Who do we call to talk about derivatives?

Joe Weisenthal (4:13)

The perfect guest.

Tracy Alloway (4:14)

One man, the perfect guest. We have Benn Eifert, Managing Partner at QVR back with us. Benn, thanks for coming back on.

Benn Eifert (4:21)

Tracy, Joe, it's so good to see you guys. I'm really excited about this. It's always so much fun talking to you.

Tracy Alloway (4:26)

It's been a while, I have to say. Maybe just to start out with videos. Do you have a favorite?

Benn Eifert (4:34)

The one actually from a few days ago that I just absolutely loved. I'm going to forget her name off the top of my head, but she's called the She-Wolf of Indian Options Trading. And she has a whole show.

She was recently banned by the Indian government from doing what she's doing because she's so controversial. But she's very intimidating. I like to take on these option influencers and say, look, come on, guys, this isn't right. I don't know, man. She's pounding the table about making 100% in 10 minutes, guaranteed profits, inter-date options trading. Over and over again, while a band plays in the background and fireworks go off, it's truly incredible stuff.