Market Psychology And 0DTE Option Mayhem
Submitted by QTR's Fringe Finance
Sang Lucci has been my friend for more than 10 years.
He runs an online community called The Steamroom which focuses on reading tape and the options market every day with the legendary Wall St. Jesus — the man almost singlehandedly responsible for today’s obsession with tracking unusual options activity.
He joined me on my podcast this weekend to talk the resurgence of malls, why he ignores macros, the effect of 0DTE options on the market and more.
"Let's not forget the narratives and the sentiment that's being sold to us on a daily basis, and then the market does completely the opposite thing, right?” Lucci tells me when asked about macro.
“We saw that here last year with, you know, the sort of hyperinflation, markets should come down, we're in this sort of recession, and all this kind of stuff, and none of that happened. And meanwhile, the semiconductors just took us out of the depths here and continue to take us out. So, do I have any idea what's going on? Hell no."
Talking about valuations, he notes: "And you know, with all these valuations going through the roof, you know how I rationalize it, Chris? I always rationalize it as, 'This is the same human behavior, happening time and time again.' And when it comes back out, that's gonna be my world, you know what I mean?”
“And I will be able to make millions of fucking dollars again and again and again,” he continued, “because human behavior never fails, man. It never fails, these sort of boom and bust cycles. So, as ridiculous as this looks right now, Abercrombie and Fitch is going back to zero dollars at some fucking point in time."
Lucci also told me the market is simply mowing over short sellers right now.
"I mean, I've heard of, and I know explicitly of one in particular, of tech short funds that have gone completely belly up, you know, $100 million, $200 million funds going completely, completely belly up because of the same narrative here. And again, you go back to Burry here catching the big shorts, so to speak, just the cost of carrying that short here and just being able to stay alive until your time comes here. It's a costly endeavor here."
When I asked Lucci about precious metals, he reminded me that there are now ‘zero day til expiration’ (0DTE) options in these markets, which would subject them to even more manipulation than they normally undergo.
"When you're talking about precious metals and gold and silver, do you know that there's now 0DTEs? I don't know if you know that. There's now zero-day expiring options on silver ETFs, on gold ETFs, and on oil ETFs,” Lucci said.
He told me: “And what that's going to do to some of these products, especially the ETFs, is you're going to see the same kind of games and the same kind of intraday price manipulation that you see on SPY now and SPX, which means those 2% or 1% moves that you're talking about, that are so fucking absurd, they're going to ping pong back between the extremes of that 1% every single day.”
“While overall, you're going to look at a five-year trend or a year trend up or two years trend up, and it's going to look like nothing. But intraday, the amount of opportunity here, intraday, just looking at these things because there's 0DTEs, it's spawning a whole new world of trading, of volumes, of all kinds of shit that has nothing to do with the macro, that has nothing to do with any of that stuff.”
“So, I can exist on this plane, you know, to circle back to your question, I can exist on this plane without giving a shit about the world burning, without giving a shit about what makes sense, without giving a shit about any of this stuff, as long as I take that out of the equation, right? I have to mentally take that out of the equation. Because if I don't, I'm not going to be able to trade these things as I see fit — or I'm like you and I just store a bunch of gold and wait for it to go to $5,000."
Listen to my full 1 hour and 30 minute long podcast with Sang Lucci here.