Zero-day options now account for 50% of S&P options volumes

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Given their trajectory it was almost bound to happen but, according to JPMorgan, zero-day options trading volumes keep hitting record levels and have recently accounted for half of all S&P 500 index option trading.

Here you can see that in chart form:

JPMorgan’s report notes that the boom in zero-day-to-expiry options (often just called 0DTE) seems to be its own thing, with an idiosyncratic user base of mostly high-frequency traders and retail investors.

It therefore hasn’t really affected trading volumes in other option segments (except maybe short-term options on the SPY ETF).

While 0DTE options have taken a disproportionate share of S&P 500 option trading, they appear to have developed their own, largely separate, user base, rather than cannibalizing flows from longer-dated S&P 500 options.

You can see it in this chart of the various tenors as a percentage of overall US stock market option volumes — ie S&P 500 index options, ETF options, and single-stock options. The dashed vertical line below shows when 0DTE options were launched (before that you could buy longer-dated options the day they expire).

However, when you see charts like these it’s natural to be a bit . . . wary.

And it should be noted that JPMorgan isn’t as sanguine about the financial risks as Bank of America is, having previously warned that the 0DTE boom could cause a stock market storm similar to the “Volmageddon” tempest triggered by Vix-linked ETPs back in 2018.

Today’s report noted that the recent launch of the first 0DTE-based ETFs could ramp up those risks further. Alphaville’s emphasis below.

Jumping on the bandwagon of 0DTE options’ popularity, the first 0DTE options-based ETFs launched over the past couple of weeks. Defiance launched two actively managed funds that write puts on daily S&P 500 and Nasdaq 100 options, as a yield generation strategy. These funds are also banking on the recent popularity of options-based ETF income strategies, a trend that is perhaps best underscored by the popular call overwriting fund JEPI that has collected nearly $30Bn in assets since its launch ~3 years ago. Indeed, Defiance’s choice of the ticker JEPY for its S&P 500 0DTE fund attempts to build a not-so-subtle association to JEPI. Assets in these new ETFs total just ~$15Mn, so their impact at this point is insignificant; however, if these funds (and others like them to-come) collect material AUM, it could exacerbate the tail risks 0DTE options pose.

Here’s an annoyingly good WSJ piece on the 0DTE boom. But on a related note, here is also some classic WallStreetBets 0DTE loss porn.