CBOE: Evaluating the Market Impact of SPX 0DTE Options

The past few years have seen an explosion of investor interest in trading options. That includes trading daily options, known as 0 days-to-expiration (0DTE).

They now make up about half of all options market trading. That’s up from about 5 percent of all trading in 2016. 2022 saw the introduction of Tuesday/Thursday expirations, which helped volume rise to 40 percent. This could lead to potential market dangers.

The big concern among traders is market makers hedging these daily options trades. Their moves could lead to unexpected swings in the S&P 500 market itself.

So far, market observers have blamed the rise of 0dte trading for creating both more volatility and less in the past year.

However, what’s overlooked is that high volume may not reflect high risk. There’s no time to adjust an option trade expiring the same day. So, traders tend to use sufficient collateral to cover losses.

And, there’s a balance between buyers and sellers, which means that the trades themselves are hedged overall.

So far, realized volatility in the market versus intraday volatility remains close. That’s a sign that the rise of 0-day option trading offers little overall market risk.

And that’s a sign that traders might want to add this tool to their portfolio to earn extra returns while waiting for longer-term trades to play out.

To read the full analysis, click here.