Zero-Day Options Trading Skyrockets as Retail and Institutions Flock to High-Risk, High-Reward Bets

Retail investors are treating 0DTE options like lottery tickets, while large funds use them to hedge portfolios and sophisticated traders profit off daily swings.
Activity in 0DTEs has hit record highs recently, now accounting for over 40% of average daily volume on Cboe.
Exchanges say 0DTEs allow tactical hedging, but some warn they could exacerbate volatility during extreme events.
Growth is likely driven by both retail and institutional investors, though the exact breakdown is unclear.
While some blame 0DTEs for intraday volatility, exchanges dispute this and say data doesn't support the claim.

marketwatch.com

Relevant topic timeline:

8/22/2023

Wall Street blamed zero-day option traders for a sudden stock-market selloff. But a BofA team says they got it wrong.

A team of equity-derivative strategists at Bank of America argues that the influence of rising zero-day option volumes has been exaggerated and that other factors, such as rising Treasury yields and trading by systematic quant funds, were likely the drivers of a sharp move lower in the S&P 500.

8/24/2023

Bitcoin options data points to an interesting outcome after this week’s $1.9B expiry

The upcoming $1.9 billion Bitcoin options expiry on August 25 will determine if the $26,000 support level holds, while regulatory challenges and a potential loss of $380 million add to the bearish sentiment in the cryptocurrency market.

9/8/2023

Bitcoin and Ethereum Prices Hold Steady Ahead of Major Options Expiry

Bitcoin and Ethereum options are set to expire today, with a smaller number of contracts compared to previous weeks, potentially impacting the lackluster prices of both cryptocurrencies, as Bitcoin remains range-bound around the $26,000 level.

9/15/2023

Record $3.4 Trillion in Stock Options Expiring Friday Could Mean Volatility for Stocks and Bitcoin

Stock options worth $3.4 trillion are set to expire on Friday, potentially leading to increased volatility and price declines in both the S&P 500 and Bitcoin, with September historically being a negative month for these assets. There is also a possibility of a surprise interest rate hike by the Federal Reserve, which could impact risk assets.

9/18/2023

Stocks Face Volatility After Fed Decision; September Usually Weak for Market

Conditions are ripe for difficult trading this week, with the week following September option expiration typically being the worst week of the year for the S&P 500 and the upcoming Fed interest rate decision and Jerome Powell's press conference adding to the uncertainty.

9/27/2023

Bitcoin Price Faces Uphill Battle With Falling Volumes and Unease Among Institutions

The $3 billion Bitcoin options expiration on September 29 may determine the fate of the $26,000 support level, as trading volumes remain low, traditional financial institutions are cautious, and the Dollar Strength Index reaches a 10-month high, all potentially leading to increased market volatility and a potential breach of the support level.

9/30/2023

Zero-Day Options Fuel Speculation and Risks While Comprising Half of S&P 500 Options

The rise of zero-day options contracts in the stock market poses a potential risk as they gain scale, with the potential for increased volatility and market swings, according to JPMorgan.

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Posted 9/14/2023, 5:12:00 PM