(Bloomberg) — No-day options on the S&P 500 Index exceeded all other expirations combined in the fourth quarter for the first time ever, the latest milestone to mark the growing dominance of short-term contracts.
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Trading in options expiring on the same day averaged more than 1.5 million contracts per day in the final three months of 2024, accounting for 51% of overall S&P 500 Index options volume, according to Cboe Global Markets Inc data collected 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 like the US election, as well as the continued adoption of index options trading by retail investors to manage and trade risk,” said Mandy Xu, head of derivatives hidden- Cboe market information.
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 huge volumes signal 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 Federal Reserve interest rate decisions to large corporate. earnings.
“Daily option expirations have been gradually gaining acceptance, especially as they begin to have enough history to back systematic strategies,” said Rocky Fishman, founder of the Asym 500. “A sudden increase in volatility could 5-Aug. and 18-December only. helped things along.”
The contracts have been as controversial as they are popular, raising concern among some market participants that the large numbers could exacerbate sudden market moves as dealers buy and sell underlying instruments to balance their positions. That has been refuted by Cboe and others, who note that investor trading is balanced between long and short positions, making it less likely any big move as a result of so-called gamma hedges.
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