This Is How Derivatives Trading Swallowed the Entire Market
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How did derivatives trading evolve from a niche hedge tool to a retail‑driven market?
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Hey there, Oddlots listeners. It's Tracy Alloway.
And Joe Wisenthal.
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Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe Weisenthal.
Joe, as part of my preparation for this episode, I have spent the morning on TikTok and Twitter slash X, Instagram, watching videos.
Did you find any good techniques that you are going to employ for generating ten two hundred thousand dollars a year on two hundred and fifty thousand dollars in capital by selling short term options?
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 a thousand dollars is only nine doubles away from becoming a million. And a million a million is only ten doubles away from a billion. So That's true too.
I think that sounds roughly right. Yeah. So what's the catch? It you know, s it someone's gotta do it.
No catch, Joe. It's it's all good. We can all be billionaires. No, I think 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 yo loing 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 five hundred right now, something like sixty percent of the volume is shorter dated options. So zero DTE or one DTE, which is kind of crazy.
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 hed hedging instruments. They're sort of tactically used by institutions for very specific purposes. You know, insurance, essentially, that options 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, meme stock 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
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Chapters
4 chapters
1
How did derivatives trading evolve from a niche hedge tool to a retail‑driven market?
0:00–9:44
2
Why did short‑dated (zero‑DTE) options explode in volume after the pandemic?
9:44–20:44
3
What are the main risks behind the “guaranteed returns” promises of options influencers?
20:44–39:23
4
How do buffer ETFs use options to provide downside protection while limiting upside?
39:23–53:10
Speakers
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