Zero-day options: ticking time bombs or high alpha trades?
A panel of market experts discuss different ways institutional players are using 0DTE options, the pros and cons of using classical optional models to price the options, difficulties in hedging and managing 0DTE risks, and more.
Zero-day-to-expiration (0DTE) options have surged in popularity over the past several years, with 0DTE options now exceeding 40% of daily trading volumes in S&P 500-linked options by recent estimates. However, these options, which expire on the same day as they are bought or sold (and are also known as same-day options), have created significant debate among capital markets institutions.
On the 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, critics contend that sellers of these options are taking enormous risks and that large 0DTE options volumes could not only increase market volatility, but even pose systemic risks to the markets.
So how should institutional professionals be utilizing these options, if at all? Are they ticking time bombs, an incredibly profitable way to trade on the S&P 500 or both?
On June 29th 2023, a panel of market experts provided their perspectives on 0TDE options. Key topics discussed:
- Why trading volumes have increased so dramatically over the past two years
- Different ways institutional players are using 0DTE options
- The pros and cons of using classical option models to price the options
- Difficulties in hedging and managing 0DTE risks
- Could 0DTE options create systemic risks, such as another potential ‘Volmageddon’, or not?
Featured Speakers
- Russell Goyder, Senior Vice-President, Fixed Income Product Development, Numerix
- Peng Cheng, Managing Director, JP Morgan
- Amit Deshpande, Head of Quantitative Investments and Research, T. Rowe Price
- Chris Murphy, Co-Head of Derivatives Strategy, Susquehanna International Group
- Moderator: Roni Israelov, Chief Investment Officer and President, NDVR
Featured Speakers
Russell is responsible for Analytics Engineering at Numerix, comprising libraries, SDKs and APIs within the Numerix stack. He is focused on providing a robust and efficient foundation for Numerix products through modern development and delivery of analytics libraries, SDKs and desktop products, and cloud technology for running analytics at scale.
Prior to joining Numerix, Russell was Head of Product at FINCAD, where he co-created F3, a patented and award-winning analytics framework, and ran Quantitative Research and Development until 2020. He has spent his 20-year career pursuing a passion for mathematical modeling and numerical computing within quantitative finance, an interest awakened during his first job at The MathWorks, helping customers in various industries get the most out of MATLAB.
Russell holds a Ph.D. in Physics from the University of Cambridge and has published research on rotating black holes, geometric algebra and sundials.
