Zero-day options: ticking time bombs or high alpha trades?

Zero-day-to-expiration (0DTE) options have surged in popularity over the past several years, with 0DTE options now exceeding 40% of daily trading volumes in S&P 500-linked options by recent estimates. However, these options, which expire on the same day as they are bought or sold (and are also known as same-day options), have created significant debate among capital markets institutions.

On the 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, critics contend that sellers of these options are taking enormous risks and that large 0DTE options volumes could not only increase market volatility, but even pose systemic risks to the markets.

So how should institutional professionals be utilising these options, if at all? Are they ticking time bombs, an incredibly profitable way to trade on the S&P 500 or both?

A panel of market experts provide their perspectives on 0TDE options. Key topics discussed:

• Why trading volumes have increased so dramatically over the past two years
• Different ways institutional players are using 0DTE options
• The pros and cons of using classical option models to price the options
• Difficulties in hedging and managing 0DTE risks
• Could 0DTE options create systemic risks, such as another potential 'Volmageddon', or not?
   

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