Option traders and funds employing systematic strategies are firmly in control of the U.S. stock market, mitigating the impact of so-called fundamental news such as Nvidia’s latest blockbuster earnings report, according to a Goldman strategist.
But according to Rubner, there’s a simple explanation: systematic funds and option traders are pushing the market around as liquidity has dried up during the typically slow month of August, which is also typically a weak month for U.S. equity returns, Dow Jones data show. Against this backdrop, traders of zero-day to expiration, or “0DTE,” options have exerted more of an influence on the market, with the tape often swinging around popular strike prices, like the 4,440 S&P 500 put options that were blamed for exacerbating a late-day selloff on Aug. 15.
And underscoring all of this is the fact that what Rubner calls “top of book” liquidity in S&P 500 e-mini futures ES00, +0.62% has fallen by about 56% from about $25 million to $11 million.