Zero-day options (0DTE) Start 2025 Off with a Bang
Zero-day to expiration (0DTE) options are having their moment. According to Yahoo Finance, in the fourth quarter of 2024, 0DTE options on the S&P 500 Index became the most traded, surpassing all other expiration dates combined. In fact, these contracts averaged over 1.5 million trades daily, constituting 51% of total S&P 500 options volume—a significant increase from 2021, when they accounted for less than half that share. This momentum shows no signs of slowing, with 0DTE options expected to continue their upward trend as we move further into 2025.
Factors Driving the Surge in Popularity
The surge in 0DTE options trading is attributed to their appeal among both institutional and retail investors seeking to capitalize on short-term market movements. These options offer cost-effective opportunities to hedge positions or speculate on intraday volatility. However, their growing dominance has raised concerns about potential impacts on market stability. Critics argue that the prevalence of these short-term contracts could intensify market swings, as rapid position changes might amplify price movements. Proponents, however, contend that 0DTE options enhance market liquidity and provide efficient tools for risk management.
Despite these concerns, the trend towards using 0DTE options shows no signs of slowing. Market participants continue to favor 0DTE options for their flexibility and potential for quick profits. As their popularity grows, ongoing debates about their influence on market dynamics and volatility are likely to intensify, prompting discussions among regulators and investors about the need for potential oversight or adjustments in trading practices.
View our resources below to hear from Numerix experts about how real same-day option pricing and precise risk analysis, including detailed Greek monitoring, enables you to make the most up-to-date trading decisions possible.
0DTE Options Resources
Zero-Day Options: Unique Market Dynamics and Risk Considerations
As more traders explore the benefits of trading 0DTE options, specific considerations around valuation and risk come to the forefront. The use cases for zero-day options in institutional trading have unique implications for risk management and market dynamics, which introduce many challenges and opportunities associated with analytics and modelling. This popular Risk.net whitepaper explores the growth and usage of 0DTE options, challenges in modelling their prices and risks, practical risk management issues and whether they pose systemic risks to the market.
Zero-day options: ticking time bombs or high alpha trades?
Having fallen into favor in recent years, 0DTE options have created significant debate among capital markets institutions. On one hand, 0DTE options represent a relatively low-cost and efficient way to speculate on or hedge large intraday moves in the S&P 500, with their usage exploding on days with key economic news, such as US Consumer Price Index announcements. On the other hand, critics contend that sellers of these options are taking enormous risks that may increase market volatility and even pose systemic risks. So how should institutional professionals be utilizing these options, if at all? A panel of technical experts, including Russell Goyder, PhD, of Numerix, weigh in during this Risk.net on-demand webinar.
Real-Time Pricing & Risk of 0DTE Options
Late in 2023, Nasdaq introduced a series of weekly options contracts tracking exchange-traded funds (ETFs) investing in gold, silver, natural gas, oil and long-term Treasuries, which traders could then utilize for trading 0DTE options. This change brought about additional requirements for investors looking to leverage the new options contracts. Our solution webinar looks closely at this topic, exploring the unique risk characteristics of same-day options against the backdrop of uncertain markets and fluctuating rates. Technical expert, Peter O’Connor of Numerix, provides market context and demonstrates how to use FINCAD Analytics Suite for Excel to assess same-day option pricing and obtain precise risk analysis.
FINCAD Analytics Suite for 0DTE Options
Zero-day options trading hinges on a strategy of taking very short-term views on an underlying’s direction and volatility, essentially betting on the option's in-the-money or out-of-the-money status within a trading day. FINCAD Analytics Suite for Excel aids in this assessment with same-day option pricing and precise risk analysis, including detailed Greek monitoring.
With FINCAD Analytics Suite, 0DTE options can be valued in real-time to a specified millisecond, ideal for making the most up-to-date trading decisions possible.
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Want to see firsthand how FINCAD Analytics Suite for Excel can help you manage pricing and risk for zero-day options? Get a 14-day FREE trial here: FAS Free Trial
