MW Retail traders just can't quit risky zero-day options as trading volume booms

By Joseph Adinolfi

Activity in 0DTEs is on track for another record in the third quarter

Options trading volumes are booming again in 2025, as the industry heads toward what would be a sixth straight year of record activity.

One subset of the market has been particularly active of late: so-called "zero days until expiration" contracts.

See: 2024 was another record-breaking year for options trading. What's on tap for the industry in 2025.

Trading volume in extremely short-dated contracts tied to the S&P 500 SPX has surged this summer, with more than 2.1 million of them changing hands, on average, every day, according to the latest data from Cboe Global Markets Inc. $(CBOE)$. That accounts for more than 61% of total daily activity for S&P 500 options, which includes contracts of various maturities.

Cboe has the exclusive right to list S&P 500 options on its exchange.

What's a '0DTE'?

Technically, every option contract becomes a "0DTE" at the end of its life.

But the current boom in 0DTE trading really took off in 2022, as Cboe expanded its offering of weekly S&P 500 contracts to feature expirations every day of the trading week. 0DTE options expiring every day can be found on several indexes and index-tracking ETFs, including the Invesco QQQ Trust Series I QQQ and the SPDR S&P 500 ETF Trust SPY.

So far, these products have been restricted to a handful of indexes, although Nasdaq Inc. (NDAQ) has recently taken steps to try to expand the number of weekly expirations available for certain ETFs and individual stocks. In late 2023, Nasdaq added additional weekly expiries for a handful of ETFs, including the SPDR Gold Shares GLD.

The exchange has also petitioned the Securities and Exchange Commission for permission to expand the number of weekly contracts tied to shares of popular stocks like Nvidia Corp. (NVDA). The SEC has until early 2026 to make a decision, but it is possible traders will soon be able to trade 0DTE contracts tied to Nvidia and Tesla Inc. $(TSLA)$ up to three days a week.

While institutions certainly trade 0DTE, individual are responsible for a growing share of overall volume, according to Mandy Xu, head of derivatives market intelligence at Cboe. Xu said in a report published back in May that retail accounted for between 50% and 60% of trading.

Several different strategies have caught on with the retail investing set. But selling zero-day contracts has proven particularly popular, said Henry Schwartz, vice president of derivatives market intelligence at Cboe.

"They're selling options in a capped-risk way to generate some income," he told MarketWatch during an interview last week. The share of activity in 0DTE consisting of unhedged, or "naked," shorts was around 4% of the total, Xu said.

Investors have seemingly become more interested in placing risky bets on all manner of financial products, from penny stocks to bitcoin-treasury companies and beyond. Some of this might be bleeding over into 0DTE and the broader options space, helping to drive at least some of the latest jump in activity, said Garrett DeSimone, head quant at OptionMetrics.

Options volumes exploded during the meme-stock craze in 2021. That episode helped introduce individual investors to options trading, according to DeSimone. Since then, it has become a more normalized way to gamble on financial markets.

"Gambling online is easier to access, it's become more normalized and that bleeds into financial markets as well," DeSimone said.

That said, there are plenty of small-time investors who take a more disciplined approach to trading 0DTE. Erik Smolinski, an individual investor and founder of Outlier Trading, has traded 0DTE regularly since 2022. He uses the contracts as part of a disciplined strategy that involves harvesting option premium by selling contracts, while carefully managing his risk. Smolinski hosts a podcast and runs a YouTube channel under the "Outlier Trading" name.

That sets him apart from your average redditor bragging about a winning option trade on WallStreetBets.

"Sometimes it gives retail a bad rap, it makes it look like people are going to the casino daily, and there is definitely a group of people doing that," he told MarketWatch. "But the reality is 0DTEs offer a solid use case for pretty much all participants."

Institutional players use 0DTE to fine-tune their exposure to the market, which makes them particularly useful ahead of events like the release of monthly Labor Department jobs data, or a Federal Reserve press conference.

Retail traders, on the other hand, are either harvesting premium by selling these options, or using them to place directional bets on short-term market moves.

One perhaps underappreciated factor driving 0DTE volumes is the fact that implied volatility in the U.S. equity market has been relatively subdued lately. Since spiking above 50 in April, the Cboe Volatility Index VIX has eased. It stood at 16.57 on Tuesday afternoon. The higher the VIX, the higher the premium investors pay to buy an option contract, DeSimone pointed out.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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July 22, 2025 14:52 ET (18:52 GMT)

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