Retail investors are reportedly treating them like lottery tickets. Large funds are using them to tactically shield their portfolios from potential hazards. Sophisticated traders are using them to siphon profits from daily market swings.
Their growing popularity has already inspired the first in what’s expected to be a trio of 0DTE-focused ETFs, which started trading on Thursday. European exchanges have also tried to get in on the action by introducing daily expirations for options tied to the Euro Stoxx 50 FSTX00, +1.67%, one of the most popular European equity benchmarks.
While their utility for gambling on short-term market swings has captured the attention of the financial press, Cboe and its main rival, CME Group, maintain that the products are mostly being used for more mundane purposes like hedging larger stock portfolios. “We’re still trying to get to the bottom of who is doing this stuff. We’re getting conflicting messages from the exchanges,” said Larry Tabb, head of market structure research at Bloomberg Intelligence, in a phone interview.
What inspired the 0DTE boom? Traders have been using strategies revolving around 0DTEs for years. But they started to see wider appeal in 2022 after Cboe and its main competitor, CME Group, introduced weekly S&P 500 options expiring on Tuesdays and Thursdays, enabling traders to trade 0DTE every day of the week.
Are 0DTEs a threat to stock-market stability? Some options-market experts and academics have blamed 0DTEs for making the U.S. stock market more volatile, a notion that Cboe and CME have vigorously disputed. Others contend that they could trigger a blowup akin to the “Volmageddon” incident from February 2018.