From Quarterly to Quotidian: The Rise of Same Day Options Trading (0DTE)

Options are lauded for their versatility, offering investors a broad spectrum of tenors to express their viewpoints. From trading options that expire years into the future, like the SPX® options expiring in 2028, to the more recent phenomenon of zero days to expiration (0DTE), the landscape of options trading has evolved dramatically over time.

A Brief History Lesson

In 1973, an ambitious exchange began listing call options on a mere 16 stocks. Expirations were initially set quarterly, and as demand grew, monthly expirations became the norm. This meant same-day trading was limited to just a handful of days per year.

Fast-forwarding to 2005, the introduction of a.m.-settled SPX Weeklys options reshaped the game. This initiative allowed for more comprehensive risk management. Come 2016, the launch of Wednesday-expiring SPX Weeklys further diversified options trading, aligning with the expiration of VIX® Weeklys. By 2022, the market saw an SPX Weeklys option for every weekday, amplifying the opportunities for same-day trading. As of 2023, SPX 0DTE options trading constituted roughly 43% of average daily volume.

How Are Investors Navigating Same-Day Trading?

Recent data reflects a surge in interest for shorter-dated options trading. Investors are using them to manage exposure to key events, frequent premium sales, and implement a diverse range of risk/reward strategies.

Cboe data on SPX options provides a deeper insight:

• The put/call ratio for same-day SPX options is almost equal, with puts slightly edging out calls. This stands in contrast to the average put/call ratio for all SPX options in the past year, which was 1.37.
• Around 45-50% of volume is attributed to single-leg volume. However, this includes adjustments to open spread positions.
• Of the SPX 0DTE trading that involves spreads, approximately one-third are vertical spreads, while the rest are more intricate trade structures.

The market has seen participation from a myriad of investors, ranging from institutional traders to the average retail trader. These strategies are enticing due to their elimination of overnight risks and their defined outcomes.

Interestingly, over 20 firms have an average daily volume in the thousands for options contracts. The trend also showcases market makers increasingly opting for options over futures for delta hedging.

Is the 0DTE Trend Here to Stay?

Comparing the 0DTE trend to the meme stock frenzy or the 2018 “Volmageddon” is like comparing apples to oranges. The meme stock craze and the volatility spikes in 2018 had distinct underpinnings and were not sustainable. In contrast, 0DTE trades are transient and reset at the end of each trading day.

Options trading has seen record-breaking volumes for three consecutive years, hitting the 10 billion mark in 2022. The uncertain geopolitical climate, marked events like the war in Ukraine, the reverberations of the COVID-19 pandemic, the renewed importance of interest rates, and the impending 2024 U.S. presidential election are reshaping hedging strategies.

Conclusion

The world of trading is ever-evolving. With changing market dynamics, trading strategies must adapt and evolve. As a committed market operator, we stand poised to offer market access, education, and state-of-the-art technological infrastructure. As the trend of 0DTE options trading continues, rest assured, we will be closely monitoring its trajectory.