Alright folks, let’s talk about the VIX. No, not some fancy new car. We’re talking about the Cboe Volatility Index, also known as the “fear gauge.” And let’s face it, there’s been a lot to be fearful about in the banking world lately.

For the past two years, the VIX has been as stubborn as a mule, staying under 40 when it once reached a record high of 82.69 back in March 2020. So, what is the VIX and how does it work? Well, it’s derived from option prices on short-term S & P 500 bets. And when that value rises, it means investors are on edge, while a falling value indicates they’re growing more confident, like a dog that’s finally caught its tail.

But apparently, the VIX might be as obsolete as those old Blockbuster video stores. That’s because investors are turning to zero-day-to-expiration (ODTE) options instead of the ones tracked by the VIX to bet on short-term volatility and hedge risk. These bad boys expire on the same day they’re traded, so they’re as short-lived as a mayfly.

Doug Ramsey, Leuthold Group’s chief investment officer, said it best: “They are highly speculative trading pursuits and are not captured by the VIX.” It’s like the difference between a blockbuster movie and a short Instagram video. One has staying power, while the other is gone in a flash.

These 0DTE contracts accounted for over 40% of the S & P 500′s total options volume, almost double from just six months earlier, according to Goldman data. That’s like someone switching from watching TV on their old black and white set to a brand new 4K smart TV. You just can’t beat the technology.

But hold on, there’s more! Daily notional volumes in these 0DTE options skyrocketed to $1 trillion, according to JPMorgan. That’s more than the GDP of some small countries! It’s like the stock market is on steroids, growing faster than Hulk Hogan in his prime.

Now here’s the thing, these options provide an alternative to the VIX for hedging known event risk. For example, if you’re worried about the Federal Reserve’s rate decision on May 3, you could buy a 0DTE S & P 500 put contract instead of those boring old VIX options. It’s like choosing a rollercoaster over a merry-go-round. More exciting, right?

But wait, there’s even more. The VIX’s subdued response to the market sell-off is even more noticeable when compared to previous years. According to LPL Financial, the fear gauge was more reactive to sell-offs from 1990 to 2021 than it was in 2022. Marko Kolanovic, the top strategist at JPMorgan, has even warned of the risk of “Volmageddon 2.0” if this activity continues to pick up speed.

So, in conclusion, the VIX might be the stale bread of the options world, while 0DTE contracts are the fresh-out-of-the-oven croissants. Who doesn’t love a freshly baked croissant, right? Anyway, we’ll just have to wait and see if the fear gauge can make a comeback or if it’s time to put it out to pasture.

Serious News: cnbc