Trading in options contracts on the verge of expiration saw a significant surge last week, coinciding with the S&P 500's first record close in two years. According to data shared by a top U.S. equity market strategist at Citigroup, options contracts with 24 hours or less left until expiration experienced a spike in trading volume.
Throughout the past five trading sessions, an average of 1.8 million contracts fitting this description changed hands each day. These 0DTE options accounted for 49% of the total trading volume during this period, as reported by Citi.
This increase in options trading was part of a broader boost in the options-market activity, according to the Citigroup report. Although the nominal volumes are a new record, they slightly fell short of the August peak of 50.4%, as noted by Stuart Kaiser, head of U.S. equity trading strategy at Citigroup.
The surge in trading volumes can be attributed to the expiration of monthly contracts attached to major equity indexes, exchange-traded funds, and individual stocks that occurred on Friday.
The Rise of Zero-Days to Expiration Options
The popularity of zero-days to expiration (0DTE) options has skyrocketed since early 2022. This surge in popularity can be attributed to options exchange operators such as Cboe Global Markets, who have introduced more weekly options products linked to the S&P 500 index and the SPDR S&P 500 Trust SPY, an ETF that tracks the index, along with other popular index-tracking products.
Potential Stock-Market Catastrophe: Wall Street on Edge
By offering daily expirations, traders now have the opportunity to trade 0DTE options five days a week. According to data from Cboe, this strategy reached a record high in popularity last year. Notably, 45% of the total volume in S&P 500-linked options trading on Cboe's exchanges involved contracts on the verge of expiration. This is a significant increase from 36% in 2022 and 21% in 2021, as reported by Cboe.
Market Update
As of Monday, the S&P 500 (SPX) was on track to achieve a fresh record close. Having already recorded its first in two years on Friday, the index showed an upward trend, currently up 0.2% at 4,851. At the same time, the Dow (DJIA) was approaching its first close above 38,000, while the Nasdaq Composite (COMP) experienced a modest gain of 0.3% at 15,359.
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