(Bloomberg) — Zero-day options on the S&P 500 surpassed all other expirations combined in the fourth quarter for the first time ever, the latest milestone that signals the growing dominance of short-term contracts.
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Trading in same-day options averaged more than 1.5 million contracts per day in the last three months of 2024, representing 51% of total S&P 500 options volume, according to data from Cboe Global Markets Inc. Compiled by Asym 500, Trilogy. The amount is from the same period in 2021. At that time, so-called 0DTE volume was less than half of the most recent options.
“It’s a combination of higher intraday volatility, more macro catalysts like the US election, as well as the continued adoption of index options trading by retail investors for risk management and trading,” said Mandy Shaw, head of derivatives market intelligence at the Bank of Chicago.
The shift underscores the rapid growth of trading in S&P 500 options with daily expiration, which Cboe Bank made available in the second quarter of 2022. The instrument gained a foothold during the Covid pandemic with retail investors. Now, the huge volumes are a sign of acceptance among institutional traders as well, who use derivatives to protect against — or bet on — sudden moves in the U.S. index on everything from economic events to the Federal Reserve’s decisions on interest rates to major companies. Profits.
“Daily options expiration has steadily gained acceptance, especially as they have begun to have enough history to test systematic strategies,” said Rocky Fishman, founder of Asym 500. It helped things along.”
The contracts have been as controversial as they are popular, raising concern among some market participants that large amounts could exacerbate sudden market movements as traders buy and sell underlying instruments to balance their positions. This has been rejected by the Bank of Chicago and others, who point out that investors’ trading is balanced between long and short positions, making it unlikely that any major move will occur as a result of so-called gamma hedging.
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