(Bloomberg) — Zero-day options on the S&P 500 exceeded all other expirations combined in the fourth quarter for the first time ever, the latest milestone to mark the growing dominance of short-dated contracts.
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Same-day options trading averaged more than 1.5 million contracts a day in the last three months of 2024, accounting for 51% of total S&P 500 options volume, according to Cboe Global Markets Inc. collected by the Asym 500, triple the amount from the same period in 2021. Then the so-called 0DTE volume was less than half of the later dated. options.
“It’s a combination of higher intraday volatility, more macro catalysts like the U.S. election, as well as continued adoption of index options trading by retail investors to manage and trade risk,” said Mandy Xu, Cboe’s head of market intelligence. derivatives.
This change underscores the meteoric growth of day-expiring S&P 500 options trading, which Cboe 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 hedge against — or bet on — sudden moves in the U.S. benchmark around everything from economic events to Federal Reserve interest rate decisions to big corporate earnings.
“Daily option expirations have become more accepted, especially since they started to have enough history to backtest systematic strategies,” said Rocky Fishman, founder of the Asym 500. “The sudden spikes in volatility on August 5 and December 18 could only have helped matters. “
The contracts have been as controversial as they have been popular, raising concerns among some market participants that the high volumes could exacerbate sudden market moves as traders buy and sell the underlying instruments to balance their positions. That has been rejected by Cboe and others, who point out that investor trading is balanced between long and short positions, making any big move as a result of so-called gamma hedging less likely.
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