Retail and Institutional Trends in SPX® 0DTE Options
Executive Summary:
- SPX zero day to expiry (0DTE) options trading have grown more than five-fold over the past 3 years, now averaging almost 2M contracts a day. What is driving that growth? Increased utility and wider adoption are two big drivers, with retail powering much of the increase. We estimate that retail now makes up around 50-60% of SPX 0DTE trading.
- In this report, we take a deep dive into retail and institutional trading characteristics – what they’re trading, how they’re trading, and the risk profiles of each group. One notable takeaway is just how sophisticated and disciplined retail investors have become in 0DTE trading and the multiple ways they have in managing their risk.
- We also take a look at how investors have been navigating the recent market volatility, with SPX intraday volatility surging to 2008 GFC highs. Not surprisingly, retail has pulled back as a percent of overall volume – similar to what we saw in past episodes of sudden volatility spikes – with the retail share of 0DTE trading dropping from 57% to 47% in early April. However, just like in previous episodes, retail investors have returned once volatility has abated, with the retail share jumping back up to 60% in recent weeks. We attribute much of the resilience in 0DTE trading to the fact that over 95% of all 0DTE trades are done in a limited risk format (either long options outright or short via spreads) where the max loss is known at the point of entry. Only 4% of SPX 0DTE trading is in naked short options.
- Lastly, we take a look at 0DTE market maker hedging flows and whether they could be contributing to the recent volatility. Instead, we find that customer activity continues to be extremely balanced in 0DTE options, and as a result, net market maker gamma hedging remains de minimis, representing at best, just 0.2% of the SPX daily liquidity. For more, see full report here.
