Zero margin is the real risk in zero-day options

Risk management practices built for slower markets are dangerously outdated, argue hedge fund executives

In S&P index options, contracts with less than a day to expiry now account for almost half of all trading, with more $500 billion in face value changing hands every 24 hours. The explosive growth in activity has given rise to an increasingly polarised debate about the risks this may pose for financial markets. 

That discussion, though, may be distracting attention from an arguably bigger concern – the fragility of an outdated margining system that was designed for a much slower pace of trading.

C