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Tuesday, February 27, 2024

What are zero-day options? Here’s how they’re taking over a key corner of the stock market and why they could pose a big risk

Imagine a scenario where a significant number of traders buy substantial quantities of zero-days-to-expiration (0DTE) call options, such as S&P 500 calls, in anticipation of a rising market. This buying spree exerts upward pressure on the index. However, market dynamics are intricate, and risk emerges if the market unexpectedly shifts in the opposite direction. In such cases, the initial surge in call options can give way to swift selling as traders try to limit losses. These pronounced shifts, from buying to selling, can introduce heightened volatility into the market.

What are zero-day options? Here’s how they’re taking over a key corner of the stock market and why they could pose a big risk

By Matthew Fox 

There’s a new options trading product that is taking over Wall Street, and it could ultimately pose a big risk for the stock market as it gains in scale.

Zero-day options have quickly become a major force in the market, even as some observers have dismissed them as “just gambling” or the “fantasy football of option trading.”

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