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Timed Egg's avatar

"The "smart money" is now exploiting a new regulatory loophole in the options market to make a quick (lucrative) buck. They are selling large amounts of deep out-of-the-money 0DTE options, without having to post margin to clearinghouses, who don't count intraday expiries.." My question: if margins aren't needed to be posted, doesn't this allow extra 'money' (liquidity) to flow into the system, just like derivatives increased money supply in the economy in the Great Financial Crisis?

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Deus Ex Machina's avatar

"For starters, the Fed can provide financial behemoths with billions, if not trillions, of liquidity via its securities lending program, regardless of changes in its balance sheet’s size. Banks can borrow the Fed’s assets to fuel more credit creation, hence more “liquidity”."

Isn't this liquidity draining? The non-banking sector gives the banks cash in exchange for Treasury or whatever they pledge as collateral.

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