Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact

In the kaleidoscopic world of stock and options trading, there are few phenomena that have garnered as much attention as the Zero Days to Expiry options, or 0DTEs. With their explosive growth in popularity – rocketing from 5% of SPX® options volume in 2016 to a staggering 50% this August, they’ve ignited imaginations and sparked widespread debate. The question on everyone’s lips: Is the dramatic surge in 0DTEs warping the very fabric of the markets? Let’s delve deep and separate the chaff from the grain.

Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact

Understanding Gamma Hedging:

Before we address the lion in the room, it’s crucial to grasp the concept of gamma hedging. Gamma mirrors the shift in the option delta with every flicker in the underlying asset price. It’s the yardstick that shows how much market makers will need to rejig their delta hedge. Essentially, it reveals how much they’d have to shuffle in S&P futures for a 1% jig in the SPX index.

Two core facets stand out:

  1. Magnitude: A towering number hints at the potential gargantuan impact of option hedging.
  2. Sign: Being long gamma is akin to dancing against the wind. If the SPX index sways up, market makers have to sell futures; if it tumbles down, they’re buying. This could potentially cushion market oscillations. However, being short gamma is like flowing with the tide – and this could amplify market swings.

High Volume ≠ High Risk:

Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact

When you see numbers like 1.23m contracts, equivalent to a whopping $500bn notional, traded daily in 2023, it’s easy to assume that risk is directly proportional to volume. But this notion is a mirage. The crux isn’t the total volume but the equilibrium between buys and sells. And, as the enigmatic data from Cboe® demonstrates, the flow is astoundingly balanced. For instance, on Aug 15th, a buzzing 100k contracts on the 4440-strike put changed hands, but market makers were only left marginally short by the day’s end.

Diving Deep into Market Maker Gamma Analysis:

Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact

On probing market maker’s net positioning, a startling picture emerges. The median net gamma at the cusp of the market close (3:30 pm) is a mere +$173mm. Even at its wildest, it only oscillates between -$5bn to +$7.7bn, which, when juxtaposed with the daily S&P futures volume, seems almost insignificant. It’s pivotal to realize that these figures are only a snapshot of SPX 0DTE options. Market makers could have other aces up their sleeves, with offsetting positions in myriad other products or expiries.

Does 0DTEs Rock the S&P Intraday Volatility Boat?

Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact

An intriguing lens to examine the ripple effects of 0DTE options is the SPX index’s intraday conduct. And, as the charts reveal, it’s as calm as a serene pond. The fluctuation between S&P close-to-close and intraday realized volatility dovetails perfectly with historical precedents. Moreover, there’s no surge in abrupt gap moves, suggesting that 0DTEs haven’t unleashed chaos on the market.

Unraveling the SPX 0DTE Enigma: Beyond Volume to True Market Impact


Piercing through the haze, it becomes evident that the hullabaloo around SPX 0DTEs is largely unfounded. Despite the impressive notional volume coursing through daily, the net exposure remains minuscule, fluttering between 0.04% to 0.17% of the daily S&P futures liquidity. The SPX index remains unflappable, with its intraday rhythms pulsing in harmony with historical norms. At its heart, the balanced trading nature of 0DTEs, with a rich tapestry of both institutional and retail investors, ensures the market remains robust, resilient, and resistant to undue influences.

Author:Com21.com,This article is an original creation by Com21.com. If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:https://www.com21.com/unraveling-the-spx-0dte-enigma-beyond-volume-to-true-market-impact.html

Like (2)
Previous September 8, 2023 10:46 pm
Next September 12, 2023 6:46 pm

Related Posts

  • A Beginner’s Guide to Options Trading: Exploring moomoo, Webull, and Robinhood Platforms

    Options trading is an exciting and potentially profitable way to get involved in the stock market. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specific date. There are two types of options: call options, which give the holder the right to buy the asset, and put options, which give the holder the right to sell the asset. Today, we will discuss how to get started with options trading…

    March 31, 2023
  • Introduction to Options Trading: 10 Key Strategies for Managing Risk and Generating Returns

    Options trading is a type of financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price (strike price) within a specified time period (expiration date). Options are typically used to hedge risk, generate income, or speculate on market movements. Here are 10 useful option strategies: Buying call options: This strategy involves purchasing call options to benefit from a potential increase in the price of the underlying asset. Selling call options: This strategy involves selling call options to…

    February 3, 2023
  • From Quarterly to Quotidian: The Rise of Same Day Options Trading (0DTE)

    Options are lauded for their versatility, offering investors a broad spectrum of tenors to express their viewpoints. From trading options that expire years into the future, like the SPX® options expiring in 2028, to the more recent phenomenon of zero days to expiration (0DTE), the landscape of options trading has evolved dramatically over time. A Brief History Lesson In 1973, an ambitious exchange began listing call options on a mere 16 stocks. Expirations were initially set quarterly, and as demand grew, monthly expirations became the norm. This meant same-day trading…

    August 16, 2023
  • What are Zero Days to Expiration (0DTE) Options and How They Work?

    Zero Days to Expiration (0DTE, or ZDTE) Options refers to options contracts with no time value left i.e. their expiration date is the next trading day. 0DTE options are typically used by traders who want to take advantage of expected price movements in the underlying asset in the very short term. The price of an option is made up of two components: intrinsic value and time value. Intrinsic value is determined by the difference between the current price of the underlying asset and the strike price of the option. Time…

    February 3, 2023
  • Dancing on the Razor’s Edge: Investor Caution Amidst a Surging Stock Market

    Hope for the best. Prepare for the worst. This old adage seems to be the mantra for the options market as the S&P 500 index continues to pirouette precariously on the brink of record-high territory. The dance is as thrilling as it is nerve-wracking, mirroring the collective heartbeat of big investors who are keeping a wary eye on the market’s movements. Inflation, the invisible puppeteer pulling on the strings of the economy, appears to be cooling. This suggests that the Federal Reserve may take a step back from more aggressive…

    July 3, 2023
  • Navigating Uncertainty: Harnessing Market Volatility through Options Strategy

    As the adage goes, the only certainty in life is uncertainty. This has been brought to stark relief in recent events that have caught the world by surprise. To many investors, these events have highlighted the fact that we live in an increasingly unpredictable world, where seemingly unlikely scenarios can become reality, with potentially significant consequences for the global economy and financial markets. Consider the recent event where the mercenary Wagner Group seemed to be on the verge of staging a revolt against Vladimir Putin, one of the world’s most…

    July 3, 2023
  • Optimizing Yields in a Shifting Landscape: A Bond and Options Blueprint

    The investment landscape is evolving, with bonds now nearing a point where they might just outshine stocks. As we step into this new era, many investors are understandably looking for ways to boost their yield without substantially increasing their risk. If you are among this group, there’s an innovative strategy you might want to consider. Bonds: The New Attraction Many investors today are reveling in returns of 5% or even higher from their money-market funds or short-term government bonds. This is a pleasant shift, especially when you consider the 10-year…

    August 24, 2023
  • Strategic Option Rolling: Essential Techniques for Adaptive Traders

    Introduction: Options trading can be a versatile and potentially lucrative way to participate in the financial markets. One of the key strategies that experienced traders often employ is “rolling” options. This blog post will provide a comprehensive overview of rolling options, covering essential aspects that traders should know, including the meaning of rolling options, reasons for using this strategy, and specific examples of rolling different types of options. What does it mean to roll options? Rolling options is a strategy that involves closing an existing options position and simultaneously opening…

    May 7, 2023
  • Mastering the Basics: Your Free Options Strategy Guide to Kickstart Your Trading Journey

    Introduction Trading options can be an exciting and rewarding way to diversify your investment portfolio and potentially generate additional income. However, for many aspiring traders, the world of options can seem overwhelming and complicated. To help you get started, we have created this free options strategy guide that will introduce you to the basics of options trading and provide you with essential tips and strategies to kickstart your journey. Read on to learn how to navigate the world of options trading with confidence and ease. Understanding Options Options are financial…

    March 29, 2023
  • Mastering the Art of Options Trading: Your Complete Instructional Guide

    What is Options Trading? Options trading is a type of investment strategy in which an investor buys and sells contracts that give the investor the right, but not the obligation, to buy or sell an underlying asset at a specific price within a set time frame. These contracts, known as options, can be bought and sold on an options exchange. Options trading allows investors to make bets on the future direction of an underlying asset, such as a stock, index, or commodity, without actually owning the asset. This can offer…

    March 4, 2023

Leave a Reply

Your email address will not be published. Required fields are marked *