Daily trading volume of zero-day-to-expiration (0DTE) options tied to the S&P 500 have shot through the roof. In just April alone, it hit 8.5 million contracts, representing a 23% increase since the New Year’s start. This increase comes during a time of heightened market volatility. Investors are grappling with crippling uncertainty stemming from recent tariff announcements and abrupt policy changes by the Trump administration. According to JPMorgan, 0DTE options now account for roughly 7% of all U.S. options market volume. This hefty surge underscores their rising acclaim among investors and traders.
One-day-to-expiration (1DTE or 0DTE) options are peculiar financial instruments that expire on the same day they are traded. Their popularity, as one way for investors to hedge against rising risk, is increasing. They want to use the dynamic nature of the markets to their advantage. The recent spike in trading volume is indication enough that an unprecedented level of uncertainty exists along Wall Street. After a period of wild intraday stock gyrations that left even seasoned investors nervous.
Even as the S&P 500 has rocketed higher amid dramatic intraday volatility. Last week, it almost doubled to 44%, hitting a level we have not seen since the 2008 financial crisis. Newer volatility, however, is rooted in the high tariffs that former President Trump slapped on important US trading partners. His habit of constantly backtracking and changing policy just makes these market swings worse.
Jeff Kilburg, CEO and CIO of KKM Financial, noted the significant impact that the 0DTE options market has on daily trading dynamics.
“You’re seeing the zero data options market amplify and exaggerate almost up or down. If you go back 10, 20 years, you didn’t have these catalysts.” – Jeff Kilburg, KKM Financial CEO and CIO.
Kilburg added that the overall market conditions are “gasoline on a fire.” He noted that very underlying options activity was exacerbating price blanks further.
“It’s almost like gasoline on a fire when you see a move being exaggerated by the underlying options move.” – Jeff Kilburg, KKM Financial CEO and CIO.
He pointed to how the role of options has shifted in the market. Among retail investors, their use has exploded in a dangerous way.
“Options have been an institutional tool for decades now, and the sophistication of retail investors is allowing more and more people to utilize options to hedge or to simply speculate.” – Jeff Kilburg, KKM Financial CEO and CIO.
As investors continue to find their way through these stormy waters, zero-day-to-expiration options’ impact can’t be overlooked. They can majorly pump up market movements. This change in trading behavior represents another indication of the increased sophistication of financial market players.