(Bloomberg) — Zero-day options on the S&P 500 Index surpassed all other expirations combined in the fourth quarter for the first time ever, the latest milestone to mark the growing dominance of the short-term contracts.
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Trading in options expiring the same day averaged more than 1.5 million contracts a day in the last three months of 2024, accounting for 51% of the overall S&P 500 Index options volume, according to Cboe Global Markets Inc. data compiled by Asym 500, triple the amount from the same period in 2021. At that time, so-called 0DTE volume was less than half of the later-dated options.
“It’s a combination of higher intraday volatility, more macro catalysts such as the US election, as well as the continued adoption of index option trading by retail investors to manage and trade risk,” said Mandy Xu, Cboe’s head of derivatives market intelligence.
The shift underscores the meteoric growth of trading in S&P 500 Index options with daily expiration, which Cboe made available in the second quarter of 2022. The instrument gained a foothold during the Covid pandemic with retail investors. Now, the massive volumes are a sign of acceptance among institutional traders as well, who use the derivatives to protect against — or bet on — sudden moves in the US benchmark around everything from economic events to the Federal Reserve’s interest-rate decisions to major corporate earnings.
“Daily option expirations have steadily been gaining acceptance, especially since they’re starting to have enough history for backtesting systematic strategies,” said Rocky Fishman, founder of Asym 500. “The sudden volatility spikes of 5-Aug and 18-Dec could only have helped things along.”
The contracts have been as controversial as they are popular, raising concern among some market participants that the large volumes may exacerbate sudden market moves as dealers buy and sell underlying instruments to balance their positions. That has been rebuffed by Cboe and others, who point out that investor trading is balanced between long and short positions, making it less likely for any big move as a result of so-called gamma hedging.
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