Feb 15, 2024

Navigating Real-Time Pricing and Risk of Same-Day Options

Over the past year, options trading volumes hit a record high. What’s more, nearly 50% of all S&P 500 options are now associated with zero day to expiration (0DTE) options specifically, surpassing those of all other options maturities*.

To look deeper into this topic, we recently held a solution webinar 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, provided market context and demonstrated how to use FINCAD Analytics Suite for Excel to assess same-day option pricing and obtain precise risk analysis. You can view the full on-demand webinar here: FINCAD Analytics Suite: Real-Time Pricing & Risk of 0DTE Options

0DTE Options: Meeting a Market Demand

A narrow bid-ask spread and low transaction costs make 0DTE options an appealing investment choice. Offering a strong liquidity profile and an efficient way to invest in or hedge large intraday moves in the S&P 500 and other underlyings, 0DTE options are becoming popular amongst institutional investors and really any investor with active options books.

Response to increased activity in the 0DTE options market has been seen in Nasdaq’s recent decision to introduce short-term options in new asset classes, tracking exchange-traded funds (ETFs) investing in gold, silver, natural gas, oil and long-term Treasuries. This move is expected to bring further liquidity and trading activity to the exchange platform and shows Nasdaq’s commitment to expansion in this market.  

In the webinar, Peter explained that he also sees the potential for further growth in 0DTE options tied to ETFs and crypto, and the increasing use of algo trading in the 0DTE market as well.

FINCAD Analytics Suite for 0DTE Options   

With a shortened investment lifecycle, 0DTE options have unique risk characteristics and require diligent monitoring. Same-day options trading hinges on a strategy of taking very short-term views on an underlying’s direction and volatility, essentially betting on the option’s in-the-money or out-of-the-money status within a trading day. FINCAD Analytics Suite for Excel, as well as the Software Development Kit (SDK) can be used to facilitate this assessment with same-day option pricing and precise risk analysis, including detailed Greek monitoring.  

With FINCAD Analytics Suite, 0DTE options can be valued in real-time to a specified millisecond, ideal for making the most up-to-date trading decisions possible. In the webinar, Peter gave a live demo of how pricing and risk assessment can be done using FINCAD Analytics Suite.

Demo Highlights: FINCAD Analytics Suite for Excel

Pricing analysis: In his demo, Peter showed how FINCAD can be used for accurate pricing analysis based either on a price or implied volatility, building a volatility smile, and by calibrating a Heston model. However, he noted that the Heston model may not be the best fit for zero-day options trading due to model calibration issues with extremely short-dated options.

Real-time valuation: Peter highlighted how FINCAD can be used for real-time valuation and scenario analysis, and applied to any type of option or underlying, with the potential for cloud deployment and the use of the SDK's Python interface for building robust applications outside of Excel.

Easy-to-use functions: FINCAD Analytics Suite for Excel is an extensive analytics library offering over 2,000 functions that enable users to easily create workflows by passing the outputs of one function to another, supporting current curve requirements and market models.

Defining position types: Using FINCAD, users can easily define 28 different position types and strategies, and quickly price each strategy. Peter also spoke about the use of popular options trading strategies such as Iron Butterfly and Iron Condor as they relate to the 0DTE market.

Outlook for 0DTE Options

Before concluding the webinar, Peter remarked that he foresees continued growth in the 0DTE markets and thus an increased need for a holistic set of data and pricing and risk tools. "Understanding the behavior of market data is crucial for downstream processes. With FINCAD Analytic Suite for Excel, we can create workflows, conduct horizon analysis, and even calibrate models. This powerful tool is not just for pricing analysis, but also for real-time valuation and scenario analysis, applicable to any type of option or underlying," he commented.

For detailed examples and to see the FINCAD Analytics Suite for Excel interface in action, watch our full on-demand webinar: FINCAD Analytics Suite: Real-Time Pricing & Risk of 0DTE Options


Would you like to try FINCAD Analytics Suite for yourself – free for 14 days? Simply fill out our intake form and we will be in touch shortly to set up your trial and provide you with a complimentary 0DTE options pricing worksheet.
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* Volatility Insights: Much Ado About 0DTEs - Evaluating the Market Impact of SPX 0DTE Options (cboe.com)

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