"End-of-day options" are too popular, so the NASDAQ Composite Index is launching "ETF options tracking gold, silver, oil, and US long-term bonds"

Determined individual investors in the US stock market are driving the expansion of a controversial financial derivative into a larger market.

This week, the NASDAQ Composite Index announced the launch of a series of new "zero-day options" contracts, tracking some of the most popular exchange-traded funds (ETFs) that invest in gold, silver, natural gas, oil, and long-term government bonds.

Options contracts give investors the right to buy or sell assets at a fixed price before a specified date. Options contracts with an expiration time of less than 24 hours are called "zero-day options," which are high-risk ultra-short-term options contracts that can be used to speculate or hedge against short-term market volatility. Successful speculation on zero-day options can yield huge returns in just a few hours.

During the pandemic, zero-day options linked to the S&P 500 became very popular. Initially, the market viewed this as a temporary phenomenon driven by speculative individual investors, and many analysts and regulatory agencies were concerned that the surge in zero-day options could exacerbate market volatility and create systemic risks.

Therefore, the launch of zero-day options by the NASDAQ Composite Index is significant, indicating that major exchanges believe zero-day options will become popular long-term products. Analysts expect that since the NASDAQ Composite Index's approach has been approved by regulatory agencies, they anticipate that more US exchanges will follow suit and provide more options for ETFs that do not track specific indices.

Greg Ferrari, Managing Director of Exchange Business Development at the NASDAQ Composite Index, said that investors are looking for ways to position themselves around risk events such as Federal Reserve meetings, and he does not believe that zero-day options are just speculative tools for individual investors:

"We see this phenomenon serving all types of investors. Short-term options have many different use cases... All evidence suggests that the risks of trading are manageable due to the deep liquidity of the ecosystem."

In addition to the existing options that expire on Fridays, the newly listed options will add contracts that expire on Wednesdays, making zero-day options trading easier. Options tend to be cheaper the closer they are to the expiration date, so increasing the number of contract expiration dates can lower investors' costs.

Ferrari said that if these options are popular, the NASDAQ Composite Index hopes to add more contracts that expire on different dates within a week over time.

According to Cboe data, in August of this year, zero-day options accounted for over 50% of the total volume of S&P 500 index options, compared to only 5% in 2016.

In addition to the NASDAQ Composite Index, the European futures exchange (Eurex) also launched daily expiring options on the STOXX 50 index in August. Last week, Eurex added similar options linked to the German benchmark DAX index.