Zero day to expiry (0DTE) options enable traders to bet on stock market movements within the same day, which can result in big wins and potentially big losses. In recent years, greater interest in these ultra-short-dated options from retail traders, alongside institutional, proprietary and algorithmic traders, has significantly impacted the market's volatility surface and structure.
Are you up-to-date on all the latest news and insights surrounding 0DTE options? The carefully curated resources in today’s blog post will give you a deep dive into the key fundamentals of these popular, yet risky investment types.
Zero-day options: ticking time bombs or high alpha trades?
Having fallen into favor in recent years, 0DTE options now exceed 40% of daily trading volumes in S&P 500-linked options by recent estimates. However, these options have created significant debate among capital markets institutions. On one hand, 0DTE options represent a relatively low-cost and efficient way to speculate on or hedge large intraday moves in the S&P 500, with their usage exploding on days with key economic news, such as US Consumer Price Index announcements. On the other hand, critics contend that sellers of these options are taking enormous risks that may increase market volatility and even pose systemic risks. So how should institutional professionals be utilizing these options, if at all? A panel of technical experts, including Russell Goyder, PhD, of Numerix, weigh in during this Risk.net on-demand webinar.
FINCAD Analytics Suite: Real-Time Pricing & Risk of 0DTE Options
Late last year, Nasdaq introduced a series of weekly options contracts tracking exchange-traded funds (ETFs) investing in gold, silver, natural gas, oil and long-term Treasuries, which traders could then utilize for trading 0DTE options. This change brought about additional requirements for investors looking to leverage the new options contracts. Our solution webinar looks closely at this topic, exploring the unique risk characteristics of same-day options against the backdrop of uncertain markets and fluctuating rates. Technical expert, Peter O’Connor of Numerix, provides market context and demonstrates how to use FINCAD Analytics Suite for Excel to assess same-day option pricing and obtain precise risk analysis.
Zero-Day Options: Unique Market Dynamics and Risk Considerations
As more traders explore the benefits of trading 0DTE options, specific considerations around valuation and risk come to the forefront. The use cases for zero-day options in institutional trading have unique implications for risk management and market dynamics, which introduce many challenges and opportunities associated with analytics and modelling. This popular Risk.net whitepaper explores the growth and usage of 0DTE options, challenges in modelling their prices and risks, practical risk management issues and whether they pose systemic risks to the market.
Addressing 0DTE Options Challenges
Because 0DTE options trading hinges on a strategy of taking very short-term views on an underlying’s direction and volatility, it is imperative that traders have the means to obtain same-day option pricing and precise risk analysis. FINCAD Analytics Suite from Numerix can help on this front, giving users the ability to value 0DTE options in real-time to a specified millisecond, which is ideal for making the most up-to-date trading decisions possible.
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