Betting on the market’s intraday moves is nothing new, but it has taken off with options expiring by the trading day’s end. Known as “zero days to expiration,” or 0DTE, these options account for nearly half of the daily volume of S&P 500 index options, up from 17% in 2020, according to Cboe Global Markets, the exchange where they’re traded. Zero-dated options pegged to the Nasdaq 100 that trade on the Cboe, Nasdaq, and smaller exchanges have also surged, along with exchange-traded funds tied to the indexes.
The appeal is rare, lottery-like payoffs. A highly volatile day with an intraday move of 2% in the S&P 500 or Nasdaq 100 might generate at least a 20% gain. The flipside is that traders who aren’t quick to lock in gains can lose their entire position before the day’s end. And hedging erodes your potential gains, adds more costs, and is tough to pull off efficiently.
“You can go completely broke, but there are occasional Lotto-sized payouts,” says Garrett DeSimone, head of quantitative research at OptionMetrics.
For now, the options are limited to major indexes and related ETFs. But individual stocks could be next. Brokerages and exchanges are in discussions about expanding 0DTE to individual stocks, which would most likely be megacaps such as Apple and Nvidia . “There are continuing industry meetings, with all sectors represented, to find a solution to these issues,” said JJ Kinahan, CEO of IG North America, which owns the brokerage tastytrade, in an email to Barron’s.
An interesting article.
