Traders spurn zero-day options in this week’s market tumble

Investors avoided trendy short-dated equity options and looked to longer-tenor contracts for protection during a meltdown in U.S. stock earlier this week, exposing the limitations of so-called 0DTE options in guarding against sustained market gyrations, data showed.

Traders have flocked to S&P 500 contracts with zero days to expiry – known as 0DTE contracts – since their 2022 launch, with the category sometimes accounting for more than half of daily S&P 500 options volume.

While the contracts are often thought of as vehicles for traders to speculate on short-term market moves, they are also used by institutions and retail investors to protect against market volatility.

Investors, however, spurned the contracts on Monday, when the S&P 500 sank 3% and the Cboe Volatility Index, opens new tab logged its largest intraday jump before closing at a four-year high. 0DTE options’ share of total S&P 500 options volume fell to 26%, down from its average share of 48% this year, according to data from OptionMetrics.

 

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